Notification Procedures for States Implementing ``Alternative Mechanisms'' in the Individual Health Insurance Market

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

[BPD-882-N]

Notification Procedures for States Implementing ``Alternative

Mechanisms'' in the Individual Health Insurance Market

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Notice.

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SUMMARY: This notice generally describes the statutory provisions under

section 111 of the Health Insurance Portability and Accountability Act

of 1996 (HIPAA) that guarantee availability of individual health

insurance coverage to certain individuals with prior group coverage. It

also provides procedural guidance for States that intend to implement

an alternative mechanism under section 111 of HIPAA. Finally, this

notice describes the statutory provisions that will apply in a State

that does not implement an acceptable alternative mechanism.

This notice does not establish new policy or requirements.

FOR FURTHER INFORMATION CONTACT: Gertrude Saunders of the Insurance

Reform Implementation Task Force (IRITF), (410) 786-5888 or e-mail

([email protected]).

ADDRESSES: All correspondence regarding this notice should be submitted

to the following address: HCFA, Bureau of Policy Development, Office of

Chronic Care and Insurance Policy, Insurance Reform Implementation Task

Force, S-LL-17, Attention: Marc Thomas, 7500 Security Boulevard,

Baltimore, Maryland 21244-1850.

SUPPLEMENTARY INFORMATION:

I. Background--Summary of Recent Legislation

The Health Insurance Portability and Accountability Act of 1996

(HIPAA, Pub. L. 104-191) was enacted on August 21, 1996. HIPAA amended

the Public Health Service (PHS) Act to provide for, among other things,

improved access, portability, and renewability of health insurance in

both the group and individual health insurance markets. Group health

plans are regulated, in part, by the Federal government under the

Employee Retirement Income Security Act of 1974 (ERISA) and the

Internal Revenue Code and, to the extent they purchase insurance, in

part, by the States under State insurance law. Policies sold in the

individual health insurance market are regulated by the States. This

notice pertains to only the individual market changes made by section

111 of HIPAA.

Section 2741 of the PHS Act, as added by section 111 of HIPAA,

essentially gives a State two options to ensure that ``eligible

individuals'' have access to the individual health insurance market.

Under the first option, assuming there is appropriate authority in

State law, the State may simply enforce the Federal statutory

provisions that require all issuers who offer coverage in the

individual market to make all their individual policies available to

all eligible individuals on a guaranteed basis, without preexisting

condition exclusions. (These provisions are commonly referred to as the

``Federal default'' provisions.) If the State chooses this option,

individual issuers may elect to impose certain limitations on the

policies that they are required to offer under the Federal default

provisions. (For additional information on these limitations see

section VIII of this notice.)

Under the second option, States may choose to implement an

``alternative mechanism'' to ensure that eligible individuals have

access to the individual health insurance market or comparable

coverage. States that choose this option must submit to us a timely

notice with sufficient documentation to enable us to determine whether

it is an acceptable alternative mechanism. (This process is discussed

in more detail under section VI of this notice, which includes the

address for written submissions.)

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II. Preemption

Section 2762 of the PHS Act specifies that the Federal statutory

provisions pertaining to health insurance issuers in the individual

market generally do not preempt State regulation of individual

insurance. Nevertheless, if the State standards and requirements

prevent the application of a Federal requirement, the statute preempts

the State standards and requirements and the Federal requirements

prevail.

Accordingly, the State standards and requirements must ensure at a

minimum that every eligible individual in the State is provided access

to coverage that comports with Federal requirements. The State

standards may not depart from the Federal requirements in a way that

diminishes this minimum coverage. The State, however, is permitted to

adopt standards that expand the number of individuals who are

protected. For example, as discussed below, an eligible individual must

have an aggregate of at least 18 months of ``creditable coverage,''

with no breaks in coverage that exceed 62 days. The same concept of

creditable coverage is used in section 2701 of the PHS Act, which

limits the use of preexisting condition exclusions in the group market.

Under section 2723(b)(2)(iii) of the PHS Act, States may permit breaks

in coverage that exceed 62 days. If the State adopts this provision in

the group market, it would not be precluded from applying the same rule

in the individual market, since it would potentially extend coverage to

people whose breaks in coverage would otherwise exclude them from the

definition of an eligible individual.

Section 2762 of the PHS Act also specifies that nothing in the

individual market provisions of HIPAA shall be construed to affect or

modify the provisions of section 514 of ERISA, which preempts State

regulation of employee welfare benefit plans, including group health

plans, except through the regulation of insurance.

III. Federal Definitions

The individual market rules of HIPAA provide health insurance

protection to an ``eligible individual.'' This term is defined in

section 2741(b) of the PHS Act. It includes an individual who meets all

of the following criteria:

The individual has aggregate periods of ``creditable

coverage'' (as defined in section 2701(c) of the PHS Act) totaling 18

or more months at the time the individual seeks individual market

coverage. In general, under section 2701(c) of the PHS Act, multiple

periods of coverage are aggregated only if there has been no more than

a 62-day break between periods of creditable coverage.

The individual's most recent creditable coverage must have

been provided under a group health plan (including a governmental plan

or church plan), as defined under section 2791 of the PHS Act, or

health insurance offered in connection with that plan.

The individual is not eligible for coverage under a group

health plan, is not eligible for Medicare or Medicaid coverage, and

does not have other health insurance coverage.

The termination of the individual's most recent health

plan coverage is not related to nonpayment of premiums or fraud, as

described in sections 2712(b)(1) or (b)(2) of the PHS Act.

The individual must have elected any continuation coverage

offered by an employer plan under the Consolidated Omnibus Budget

Reconciliation Act of 1985 (COBRA, Pub. L. 99-272) or under a similar

State requirement, and must have exhausted that coverage. (Federal

COBRA provisions only apply to plans of an employer that normally

employed at least 20 employees on a typical business day in the

preceding calendar year. In some cases, there are State requirements

similar to COBRA that require continuation coverage for insurance

policies not subject to the Federal COBRA provisions.)

``Group health plan'' is defined in section 2791(a)(1) of the PHS

Act to mean an employee welfare benefit plan (as defined in section

3(1) of ERISA) to the extent that the plan provides medical care (as

defined below), including items and services paid for as medical care

to employees or their dependents (as defined under the terms of the

plan) directly or through insurance, reimbursement, or otherwise.

``Health insurance coverage'' is defined in section 2791(b)(1) of

the PHS Act to mean benefits consisting of medical care (provided

directly, through insurance or reimbursement, or otherwise and

including items and services paid for as medical care) under any

hospital or medical service policy or certificate, hospital, or medical

service plan contract, or health maintenance organization contract

offered by a health insurance issuer.

``Health insurance issuer'' is defined in section 2791(b)(2) of the

PHS Act as an insurance company, insurance service, or insurance

organization (including a health maintenance organization, as defined

in section 2791(b)(3) of the PHS Act) which is licensed to engage in

the business of insurance in the State and which is subject to State

laws that regulate insurance. The term ``health insurance issuer'' does

not include a group health plan.

``Individual health insurance coverage'' is defined in section

2791(b)(5) of the PHS Act to mean health insurance coverage offered to

individuals in the individual market, but does not include short-term

limited duration insurance.

Section 2791(a)(2) of the PHS Act defines ``medical care'' as

amounts paid for the diagnosis, cure, mitigation, treatment, or

prevention of disease, or amounts paid for the purpose of affecting any

structure or function of the body; including transportation primarily

for and essential to the medical care and insurance covering the

medical care.

IV. Alternative Mechanisms; Minimum Requirements

Although the law recognizes diversity among the States by allowing

for alternative mechanisms, there are minimum requirements for

alternative mechanisms. Under section 2744(a)(1) of the PHS Act, an

alternative mechanism must meet the following requirements:

Provide a choice of health insurance coverage to all

eligible individuals.

Not impose any preexisting condition exclusions on

eligible individuals.

Include at least one policy form of coverage that is

comparable to either one of the following:

+ Comprehensive health insurance coverage offered in the individual

market in the State.

+ A standard option of coverage available under the group or individual

health insurance laws in the State.

Implement one of the following:

+ The National Association of Insurance Commissioners (NAIC) Small

Employer and Individual Health Insurance Availability Model Act, as it

applies to individual health insurance coverage, or the Individual

Health Insurance Portability Model Act, as adopted on June 3, 1996.

+ A qualified high-risk pool that provides for the following:

--Health insurance coverage (or comparable coverage) to all eligible

individuals that does not impose any preexisting condition exclusion

with respect to this coverage for all eligible individuals.

--Premium rates and covered benefits for that coverage consistent with

standards included in the NAIC Model Health Plan for Uninsurable

[[Page 1770]]

Individuals Act in effect on August 21, 1996.

+ Another mechanism--

--That provides for risk adjustment, risk spreading, or a risk-

spreading mechanism (among issuers or policies of issuers) or otherwise

provides for some financial subsidization for eligible individuals,

including through assistance to participating issuers, or

--Under which each eligible individual is provided a choice of all

individual health insurance coverage otherwise available.

If a State adopts into law or regulation any provisions from the

NAIC Model Acts cited in section 2744 of the PHS Act, it must verify

that none of the Model Acts would prevent the application of a

requirement of the PHS Act, and therefore be preempted. Since those

Model Acts predate the enactment of HIPAA, they do not fully conform

with HIPAA requirements that apply to eligible individuals. The NAIC is

currently analyzing these Model Acts to provide guidance to States in

identifying revisions that would conform with the provisions of the PHS

Act. (See later discussion in section VI.C.3. of this notice.)

State options for ensuring that eligible individuals have access to

the individual health insurance market are illustrated in the chart

below.

BILLING CODE 4120-01-P

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[GRAPHIC] [TIFF OMITTED] TN13JA97.000

BILLING CODE 4120-01-C

[[Page 1772]]

V. Presumption of an Acceptable Alternative Mechanism

An acceptable alternative mechanism includes a private or public

individual health insurance mechanism that is designed to provide

access to health benefits for individuals in the individual market in

the State in accordance with section 2744 of the PHS Act. Examples of

an acceptable alternative mechanism may include a health insurance

coverage pool or program, a mandatory group conversion policy,

guaranteed issue of one or more plans of individual health insurance

coverage, open enrollment by one or more health insurance issuers, or a

combination of these mechanisms that meet at least the minimum

standards under section 2744.

A. State Submission by April 1, 1997

A State is presumed to be implementing an acceptable alternative

mechanism as of July 1, 1997, if, by not later than April 1, 1997, the

Chief Executive Officer (generally the Governor) of the State notifies

us that the State has enacted or intends to enact any necessary

legislation as of January 1, 1998, and provides us with the information

necessary to review the mechanism and its implementation (or proposed

implementation), and, if, within 90 days after receiving the State's

submission, we do not disapprove it as described in section VII.B. of

this notice. (If we notify the State of our need for additional

information or further discussions on its submission, we will suspend

the review period until the State provides the necessary information or

participates in the necessary discussions. If the State chooses not to

provide the necessary information or our discussions with the State

cannot be concluded satisfactorily, we may disapprove the State's

submission.) The State must provide information necessary for us to

review the mechanism's implementation every 3 years to continue to be

presumed to have an acceptable alternative mechanism.

B. State Submission After April 1, 1997

A State may presume that we have accepted its proposed alternative

mechanism if--

After April 1, 1997, the State submits notice and

sufficient documentation (see section VI of this notice) for either an

initial proposed alternative mechanism or revisions to an already

submitted proposed alternative mechanism, and

We make no determination disapproving the mechanism within

90 days (or a longer period if we suspended the 90-day review period

awaiting additional information or to conduct further discussion with

the State).

After an additional 90 days, the State may presume its alternative

mechanism to be an acceptable alternative mechanism. (For further

information on future adoptions and revisions see section VI.D.5. of

this notice.)

VI. Notification, Documentation, and Review

A. Notification

Under section 2744(b) of the PHS Act, except as described below in

section VII.B., a State is presumed to be implementing an acceptable

alternative mechanism as of July 1, 1997, if, by not later than April

1, 1997, the Chief Executive Officer (generally the Governor) of the

State takes the following two actions:

Notifies us that the State has enacted, or intends to

enact, by January 1, 1998 (or July 1, 1998 if the State legislature

cannot meet before August 21, 1997) any necessary legislation to

provide for the implementation of a mechanism reasonably designed to be

an acceptable alternative mechanism as of January 1, 1998 (or July 1,

1998 if the State legislature cannot meet before August 21, 1997).

Provides us with the information necessary for us to

review the mechanism and its implementation (or its proposed

implementation).

B. Documentation

Since the law gives States substantial flexibility in devising

alternative mechanisms, we do not intend that this notice set forth a

checklist of criteria. If a State chooses to submit a proposed

alternative mechanism, the State must determine what to submit. We

must, however, be able to determine whether the mechanism will be both

designed and enforced in a way that will ensure that eligible

individuals are given the required access to insurance coverage. Our

review will focus on results for eligible individuals. Our main concern

is that the State submission show the analysis and the reasoning behind

the design of the proposed alternative mechanism, and a reasonable

assessment of the likelihood that the mechanism will achieve the

legislative objectives.

Since time will be of the essence in reviewing a large volume of

submissions and responding to the States timely, we recommend that a

State provide summaries and full text of any critical supporting

information (such as the text (or proposed text) of legislation or

regulations) in its initial State submission. If we notify the State of

our need for additional information or further discussions on its

submission, we will suspend the review period until the State provides

the necessary information or participates in the necessary discussions.

If the State chooses not to provide the necessary information or our

discussions with the State cannot be concluded satisfactorily, we may

disapprove the State's submission. We discuss disapproval and the

consequences of disapproval in sections VII.B. and C. of this notice.

The submission must include sufficient information to provide us

with a reasonable basis for concluding that the proposed alternative

mechanism meets the requirements described in section VI.C. of this

notice. Along with a detailed description of the alternative mechanism

and how it will be implemented and function, we recommend the State

include the following information:

Contact Person--The name, position title, address, and

telephone number of the person to whom we should address all questions

and contacts concerning the proposed alternative mechanism.

State Legislative Calendar--Clear and prominent

identification of needed State legislative action and the State

legislature's sessions. We need to know of any legislative issues

affecting a State's ability to implement an alternative mechanism so

that we can determine priorities for reviewing State submissions. Also,

the State should submit a description of the authority and procedures

it follows for calling a special or emergency legislative session, if

these exist.

State Laws and Regulations--A summary and copies of the

full text of existing State laws and regulations pertaining to the

individual health insurance market. Laws and regulations that could be

critical to an adequate analysis include the following:

+ Medical underwriting and rating restrictions.

+ Restrictions on preexisting condition exclusions.

+ Guaranteed issue requirements.

+ Solvency requirements.

If a State chooses to implement an ``other mechanism'' described in

section 2744(c)(3) of the Act, we recommend that the State submit a

more detailed description of the mechanism than it would if it planned

to implement a mechanism that relies on one of the three NAIC Model

Acts referenced in section 2744 of the PHS Act. In particular, unless

the State chooses to

[[Page 1773]]

provide a choice to eligible individuals of all individual policies

sold in the State, the State should describe in detail how the risk

associated with serving all anticipated eligible individuals would be

spread under the mechanism and how the additional cost associated with

serving this new population would be subsidized.

The following examples illustrate the differences in documentation

that a State may submit, based on differences in the State's

legislation and proposed alternative mechanism.

Example 1--State A has already adopted a comprehensive

reform for its individual health insurance market. The State now

prohibits preexisting condition limitations on coverage, provides for

guaranteed issue and guaranteed renewability, and has taken active

steps to ensure the participation of insurers in the State individual

health insurance market. State A submits, in addition to its recent law

(which was adopted before August 21, 1996, the enactment date of

HIPAA), two analyses: the first identifies technical amendments to make

its recent law consistent with HIPAA; the second shows that any

eligible individual under HIPAA also would be eligible for the

individual market under the State law. The State's submission also

shows that the State's residency requirements would not prevent any

HIPAA-eligible individual from entering the individual market without

causing a break in coverage.

Example 2--State B has a State high-risk pool, but that

pool has a significant waiting list or appears to be entering a

``premium death spiral.'' State B offers an improved risk pool

legislative and funding package. Because the financial stability of the

existing risk pool is known to be in question, State B includes, in

considerable detail, analyses of the projected revenue, subsidies, and

financial condition of the pool under the proposed law. State B also

specifies how HIPAA-eligible individuals will be able to enter the risk

pool without causing a break in coverage.

A State may wish to submit other information, depending on the

extent of the changes the State is planning and its relevance to the

State's proposed alternative mechanism. Some examples follow:

Characteristics of the Existing Individual Market--

Analysis of information relating to the existing availability and sale

of individual health insurance to the current population of the State.

Examples of this information might be a description of the policy forms

currently available in the individual market in the State; numbers of

policies held under each form; current population of the State;

estimated percentage of that population currently covered under group

plans or coverage other than individual coverage; and estimated

uninsured population.

Projected Market Impact of the Alternative Mechanism--The

State's best estimate of the number of eligible individuals who will

need to be served under the proposed alternative mechanism, including a

description of the factors the State considered in determining the size

of the affected population, how the mechanism will serve the needs of

the affected population, how much the mechanism serving this population

will cost, and how those costs will be borne. In describing its

population of eligible individuals or potentially eligible individuals

in the individual health insurance market, the State may want to

consider the relative prevalence of certain groups of individuals in

the State and how the alternative mechanism will affect the likely

number of individuals eligible for coverage under the mechanism. For a

mechanism that will rely on State-supported operations such as risk

pools and other risk-spreading mechanisms, the State should show the

level and source of funding needed to provide for the needs of the

eligible or potentially-eligible individuals.

Groups whose relative size may be large enough to have substantial

impact on the number of eligible, as well as ineligible, individuals

include the following:

+ Individuals eligible for Medicaid (especially if the State has a

waiver under section 1115 of the Social Security Act that expands

eligibility for Medicaid and would thus make these people ineligible

under HIPAA for transition to the individual market).

+ Individuals eligible for Medicare.

+ Individuals who are receiving medical coverage under special programs

such as the Indian Health Service. These individuals may meet the

definition of an ``eligible individual,'' but their eligibility for

coverage under the Indian Health Service program may make it unlikely

that they would purchase private health insurance.

+ Individuals who elect and exhaust their continued group health plan

coverage under COBRA or coverage under a similar State requirement.

+ Individuals who do not have the COBRA protection (or similar

protection under a State requirement) and will be entering the

alternative mechanism directly as an eligible individual. For example,

an individual whose employer stops offering health insurance coverage

may be eligible for coverage under the alternative mechanism without

waiting for the COBRA continuation period to end.

C. Standard of Review

1. General

We will base our review on certain principles set forth in the

statute and legislative history. The statute clearly requires us to

make a substantive determination whether a mechanism is an ``acceptable

alternative mechanism'' that meets all of the requirements set forth in

the statute. However, while, as noted in section II of this notice, no

State requirement can prevent the application of a requirement of

HIPAA, the Conference Report that accompanied that legislation states

that the conferees intended the narrowest preemption. This notice

describes how we intend to apply these principles.

2. Statutory Requirements

We will review each State's submission to determine whether it

addresses each of the following requirements:

Is the mechanism reasonably designed to provide all

eligible individuals with a choice of health insurance coverage?

Does the choice offered to eligible individuals include at

least one policy form that meets the following requirements?

+ Is comparable to comprehensive health insurance coverage offered in

the individual market in the State.

+ Is comparable to a standard option of coverage available under the

group or individual health insurance laws of the State.

Does the mechanism provide access to coverage for all

eligible individuals within Federal time frames?

Does the mechanism prohibit preexisting condition

exclusions for all eligible individuals?

Is the State implementing one of the following?

+ The NAIC Small Employer and Individual Health Insurance Availability

Model Act (Availability Model), adopted on June 3, 1996.

+ The Individual Health Insurance Portability Model Act (Portability

Model), adopted on June 3, 1996.

+ A qualified high-risk pool that provides eligible individuals health

insurance or comparable coverage without a preexisting condition

[[Page 1774]]

exclusion, and with premiums and benefits consistent with the NAIC

Model Health Plan for Uninsurable Individuals Act (as in effect August

21, 1996).

+ A mechanism that provides for risk spreading or provides eligible

individuals with a choice of all available individual health insurance

coverage.

Has the State enacted all legislation necessary for

implementing the alternative mechanism?

+ If not, will the necessary legislation be enacted by January 1, 1998?

+ If not, is the State legislature meeting during the 12-month period

beginning August 21, 1996 and ending August 20, 1997?

3. Concern About Using NAIC Models

As discussed previously, while the statute recommends the use of

certain NAIC Model Acts and references them by specific adoption dates,

these Model Acts contain certain provisions that are inconsistent with

HIPAA requirements. If inconsistencies exist, a State must alter these

provisions as they apply to eligible individuals under HIPAA so that

its mechanism conforms with the Federal requirements. For example, if a

State uses the Portability Model (which permits the use of preexisting

condition exclusions and affiliation periods), it must distinguish

between Federally-eligible individuals and all others served under the

State's rules. As long as it exempts all Federally-eligible individuals

from any preexisting condition exclusions or affiliation periods, the

State may still use (with respect to non-Federally-eligible individuals

in the individual market) the preexisting condition and affiliation

rules of the Portability Model.

Although the following is not an all-inclusive list, we note the

following additional discrepancies between the NAIC Model Acts and

HIPAA requirements:

The Portability Model permits only a 31-day break in

coverage for individuals rather than the 62-day break permitted by

section 2701(c)(2) of the PHS Act. Federally-eligible individuals must

be given at least the 62-day break required under section 2701(c)(2).

The Availability Model contains a definition of

``qualifying coverage'' that excludes coverage under a group health

plan that is regulated under ERISA. Under HIPAA, however, the

definition of ``creditable coverage'' clearly includes coverage under a

``group health plan,'' which is defined to include self-insured plans

regulated under ERISA.

Certain key concepts (for example, ``eligible person,''

``preexisting condition,'' and ``qualifying coverage'') are defined in

both the Availability and Portability Models somewhat differently than

in HIPAA. To the extent that State law incorporates or plans to

incorporate portions of the Models that use those terms, the State must

ensure that use of these terms does not prevent the application of

HIPAA protections to eligible individuals. This may be done simply by

applying special provisions to those eligible individuals.

The Availability and Portability Models also contain

residency requirements that cannot be applied to HIPAA-eligible

individuals.

If a State uses the NAIC Model Health Plan for Uninsurable

Individuals Act, certain otherwise acceptable high-risk pool practices

such as ``wait-listing'' individuals or applying preexisting condition

exclusions are not permitted with respect to HIPAA-eligible

individuals.

4. Interim Response to Frequently Asked Questions

We recognize that States would like to have answers now to

questions such as whether a difference in deductibles constitutes

enough choice or how comprehensive a policy must be to be an acceptable

offering. However, this document is a procedural notice and not a

regulation. Until we issue regulations dealing with these and other

issues, States must make a good faith effort to interpret the statute

as best they can when proposing an alternative mechanism before April

1, 1997. Should any discrepancies later emerge between a State's

interpretation of the statute and our interpretation, as expressed in

the interim final rule that we expect to publish by April 1, 1997, we

plan that the Federal rules will apply prospectively and will afford a

transition period that will give a State an adequate opportunity to

amend its mechanism to conform with any new regulation requirements. We

will include rules on the transition period in the interim final rule.

D. Notification Procedure

1. Advance Notification Requested

We request that a State notify us in writing or by e-mail

([email protected]) of its intent to submit or not to submit an

alternative mechanism. If we do not hear from a State by February 14,

1997, we will contact the State to find out its intention regarding the

submission of an alternative State mechanism. The law does not create a

requirement that States notify us of their intentions, but notification

will help us plan our work to meet the statutory deadlines.

If a State does not plan to offer an alternative mechanism, we

request that the State advise us of its plans to implement the Federal

requirements.

If a State does not plan to offer either an alternative mechanism,

or to implement the Federal requirements, we request that the State

advise us as soon as possible so that we may begin action to implement

Federal enforcement of the Federal requirements in the State.

2. Contents of Notification Package

We request that a State's submission be submitted in duplicate and

be accompanied by a cover letter, signed by the Chief Executive Officer

(generally the Governor) of the State. In addition, States should

include a brief summary of their legislative calendars and note any

deadlines that are significant to this review process. We are

requesting that States submit two copies of their proposed alternative

mechanisms to assist us in timely review of their submissions. Our

regional offices may assist us in reviewing the States' submissions and

we wish to avoid any delays that may occur in reproducing these

submissions.

3. Deadline

We must receive all submissions from the States no later than April

1, 1997 in order for the State to qualify for the presumption that it

is implementing an acceptable alternative mechanism as of July 1, 1997.

For official confirmation of our receipt date, we suggest that States

use the postal certification services of the United States Post Office.

No later than 90 days after we receive a State's proposed

alternative mechanism, we will take at least one of the following

actions:

Notify the State that we have accepted its proposed

alternative mechanism. (This notification may be before the 90-day

review period ends.)

Make no determination concerning the State's alternative

mechanism; therefore, the State may presume we have accepted its

alternative mechanism.

Forward to the State a request for additional information

or a notification that we need to discuss further with the CEO (or his

or her designee) the proposed alternative mechanism. We expect to make

requests for additional information or initiate discussions as soon as

possible after receiving the State's proposed alternative mechanism. If

we notify the State of our need for additional information or further

discussions on its submission, we will suspend the review period until

the State provides the necessary information or participates in the

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necessary discussions. If the State chooses not to provide the

necessary information or our discussions with the State cannot be

concluded satisfactorily, we may disapprove the State's submission. We

discuss disapproval and the consequences of disapproval in sections

VII.B. and C. of this notice. The State may contact us for information

on implementing the Federal default requirements.

4. Where To Submit a Package

We request each State submit its proposed alternative mechanism, in

duplicate, to the following address: HCFA, Bureau of Policy

Development, Office of Chronic Care and Insurance Policy, Insurance

Reform Implementation Task Force, S-LL-17, Attention: Marc Thomas, 7500

Security Boulevard, Baltimore, Maryland 21244-1850.

5. Future Adoptions and Revisions

A State with an approved alternative mechanism may request approval

of revisions to its alternative mechanism. Similarly, a State operating

under the Federal default provisions may, at any time, submit a

proposed alternative mechanism. The State should mail its submission to

the above address. We request that future revisions to already approved

mechanisms be submitted no earlier than July 1, 1997.

E. Continued Presumption for States Entitled to Statutory Delay

In accordance with section 2744(b) of the PHS Act, States whose

legislatures do not meet within the 12-month period beginning August

21, 1996 and ending August 20, 1997, and that need legislative

authority in order to enact an acceptable alternative mechanism may

qualify for extended deadlines for implementing an acceptable

alternative mechanism. To qualify for an extension, the State must

comply with the following deadlines:

In order for the State to be entitled to the presumption

that it has an acceptable alternative mechanism in effect as of July 1,

1997, the Chief Executive Officer (generally the Governor) must notify

us by April 1, 1997 about the following:

+ The State legislature has not and will not meet during the 12-month

period beginning August 21, 1996 and ending August 20, 1997.

+ The State intends to implement an alternative mechanism by July 1,

1998.

In order for the presumption to continue on and after July

1, 1998, the State must--

+ Notify us by April 1, 1998 that the State has enacted any necessary

legislation to provide for implementation of an acceptable alternative

mechanism as of July 1, 1998, and

+ Provide us with the information described in this section to enable

us to review the mechanism and its implementation.

VII. Notification to the State

A. Time Frames

For State submissions received by April 1, 1997, we will do a

preliminary review to determine whether the package appears to be

complete enough for us to make a determination. If not, we will notify

the State by telephone and in writing, and provide the State the

opportunity to submit supplemental information. We will issue a written

response to each State's request as soon as possible, and no later than

90 days after receipt of the State's submission.

B. Disapproval

In accordance with section 2744(b)(2) of the PHS Act, we will

review the information submitted and make a preliminary determination

whether the State has or has not submitted an acceptable alternative

mechanism.

If our preliminary determination is that the mechanism is not

acceptable, we will consult with the Chief Executive Officer (generally

the Governor) of the State, or his or her designee, and the State

Insurance Commissioner or the Chief Insurance Regulatory Official of

the State. If after these consultations, we still conclude that the

State's alternative mechanism is not acceptable, we will--

Notify the State of that determination; and

Inform the State that if the State fails to implement an

acceptable alternative mechanism, the Federal default provisions will

take effect.

If we disapprove a State's proposed alternative mechanism, we will

give the State a reasonable opportunity to modify the mechanism (or to

adopt another mechanism).

C. Consequences of Disapproval and Enforcement Action

If we make a final determination that (1) the design of a State's

alternative mechanism is not acceptable or (2) the State is not

substantially enforcing an otherwise acceptable alternative mechanism,

we will notify the State in writing of our determination. We will

provide the State with notice that the requirements of section 2741 of

the PHS Act apply to health insurance coverage offered in the

individual market in the State, effective as of a date specified in our

notice.

VIII. Alternative Coverage Where There Is No State Mechanism

In accordance with section 2741(c) of the PHS Act, if a State is

not implementing an acceptable alternative mechanism, a health

insurance issuer may elect to limit coverage offered through the

individual market within prescribed parameters. The issuer may limit

the individual market coverage offered as long as there are two

different policy forms of coverage offered. Both policy forms must be

designed for, made generally available to, actively marketed to, and

enroll both eligible and other individuals, and meet one of two

requirements regarding policy forms described in section 2741(c)(2) or

(c)(3) of the PHS Act.

Under section 2741(c)(2), the health insurance issuer must offer

the policy forms for individual health insurance coverage with the

largest, and next to largest, premium volume of all similar policy

forms offered by the issuer in the State or applicable marketing or

service area by the issuer in the individual market for the period

involved. Under section 2741(c)(3), the health insurance issuer must

offer a lower-level coverage policy form that meets the requirements of

section 2741(c)(3)(B) and a higher-level coverage policy form that

meets the requirements of section 2741(c)(3)(C). Each of these policy

forms must include benefits substantially similar to other individual

health insurance coverage offered by the issuer in the State and each

must be covered under a method described in section 2744(c)(3)(A)

pertaining to risk adjustment, risk spreading, or financial

subsidization.

IX. Information Collection Requirements

Under the Paperwork Reduction Act of 1995, agencies are required to

provide 60-day notice in the Federal Register and solicit public

comment before a collection of information requirement is submitted to

the Office of Management and Budget (OMB) for review and approval. This

notice contains information collections that are subject to review by

OMB under the Paperwork Reduction Act of 1995. The title, description,

and respondent description of the information collections are shown

below with an estimate of the annual reporting and recordkeeping

burden. Included in the estimate is the time for reviewing

instructions, searching existing data sources, gathering and

maintaining the data needed, and

[[Page 1776]]

collecting and reviewing the collection of information.

We are, however, requesting an emergency review of this notice. In

compliance with section 3506(c)(2)(A) of the Paperwork Reduction Act of

1995, we have submitted to the OMB the following information collection

for emergency review. We are requesting an emergency review because the

collection of this information is needed before the expiration of the

normal time limits under OMB's regulations at 5 CFR, part 1320. So that

a State does not have to incur the burden of temporarily implementing

the Federal default requirements or live under Federal enforcement of

those requirements, HIPAA requires a State to submit to us its proposed

alternative mechanisms by April 1, 1997. A State may voluntarily submit

the suggested information collection referenced in this notice when it

submits its proposed alternative mechanisms. The description of the

information collection will assist a State in submitting sufficient

information for our review of its proposed alternative mechanisms.

We are requesting that OMB provide a 2-day public comment period

with a 2-day OMB review period and a 180-day approval. During this 180-

day period, we will publish a separate Federal Register notice

announcing the initiation of an extensive 60-day agency review and

public comment period on these requirements. We will submit the

requirements for OMB review and an extension of this emergency

approval.

Type of Information Request: New collection.

Title of Information Collection: Notification Procedures for States

Implementing ``Alternative Mechanisms'' in the Individual Health

Insurance Market and Supporting Notice (BPD-882-N).

Form Number: HCFA-R-202.

Use: To outline the documentation for States to obtain Federal

approval of a State's alternative mechanism under section 111 of HIPAA.

Frequency: On occasion.

Affected Public: States.

Number of Respondents: 55.

Total Annual Responses: 55.

Total Annual Hours Requested: 66,000.

In summary, the information collection referenced in section VI.

``Notification, Documentation, and Review'' provides that each State

electing to implement an alternative mechanism notify us that the State

has enacted, or intends to enact, any necessary legislation to provide

for the implementation of a mechanism reasonably designed to be an

acceptable alternative mechanism and provides us with the information

to review the mechanism and its implementation (or proposed

implementation).

If a State chooses to submit a proposed alternative mechanism, the

State must submit sufficient information to provide us with a

reasonable basis for concluding that the proposed alternative mechanism

meets the criteria described in section VI.C.2. of this notice. Along

with a detailed description of the alternative mechanism and how it

will function, we recommend the State include the name of a contact

person, State Legislative Calendar, and text of existing State laws and

regulations pertaining to the individual health insurance market.

If a State chooses to implement an ``other mechanism'' described in

section 2744(c)(3) of the Act, we recommend that the State submit a

more detailed description of the mechanism than it would if it planned

to implement a mechanism that relies on one of the three NAIC Model

Acts referenced in section 2744 of the PHS Act.

To request copies of the proposed information collections

referenced above, call the Reports Clearance Office on (410) 786-1325.

The information collections of this notice are not effective until

they have been approved by the OMB. We have submitted a copy of this

notice to the OMB for its review of these information collections. A

notice will be published in the Federal Register when approval is

obtained. Interested persons are invited to send comments regarding

this burden or any other aspect of these collections of information,

including any of the following subjects: (1) The necessity and utility

of the information collection for the proper performance of the

agency's functions; (2) the accuracy of the estimated burden; (3) ways

to enhance the quality, utility, and clarity of the information to be

collected; and (4) the use of automated collection techniques or other

forms of information technology to minimize the information collection

burden.

Comments on these information collections may be faxed to Allison

Herron Eydt at 202-395-6974 or mailed directly to the following

address: Office of Information and Regulatory Affairs, Office of

Management and Budget, Room 10235, New Executive Office Building,

Washington, DC 20503, Attn: Allison Herron Eydt, HCFA Desk Officer. A

copy of the comments may be mailed to the following address: Health

Care Financing Administration, Office of Financial and Human Resources,

Management Analysis and Planning Staff, Room C2-26-17, 7500 Security

Boulevard, Baltimore, MD 21244-1850.

X. Waiver of Solicitation of Comments

This notice announces the options a State has under section 111 of

HIPAA to ensure that eligible individuals have access to the individual

health insurance market. As has been our custom, we use general

notices, rather than formal notice and comment rulemaking procedures,

to make these announcements. In doing so, we acknowledge that, under

the Administrative Procedure Act, interpretive rules, general

statements of policy, and rules of agency organization, procedure or

practice are excepted from the requirements of notice and comment

rulemaking.

This notice does not establish new policy or requirements beyond

those found in the statute. We are publishing this notice to assist a

State that chooses to submit a proposed alternative mechanism under

section 111 of HIPAA. We intend that the information we have identified

in this notice provide guidance to a State and assist it in submitting

sufficient information to enable us to approve the State's proposed

alternative mechanism. We intend that this information assist a State

to implement timely HIPAA provisions under its own State requirements.

This would prevent the need for a State to comply with Federal

requirements and subsequently transition to the State's requirements

after we approve a State's proposed alternative mechanism. We wish to

avoid an unnecessary burden on the State.

In accordance with the provisions of Executive Order 12866, this

notice was reviewed by the Office of Management and Budget.

Authority: Section 2741 of the Public Health Service Act.

Dated: December 17, 1996.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

Approved: December 20, 1996.

Donna E. Shalala,

Secretary, Health and Human Services.

[FR Doc. 97-672 Filed 1-10-97; 8:45 am]

BILLING CODE 4120-01-P