National Medical Support Notice

SUMMARY: This document contains a proposed rule that, upon adoption,

would implement an amendment to section 609(a) of Title I of the

Employee Retirement Income Security Act (ERISA) made by section 401 of

the Child Support Performance and Incentive Act of 1998 (CSPIA), Public

Law 105-200. CSPIA requires the Secretaries of Labor and Health and

Human Services to jointly promulgate a National Medical Support Notice

to be issued by State agencies as a means of enforcing the health care

coverage provisions in a child support order, and to be treated by plan

administrators of group health plans as a qualified medical child

support order under section 609(a) of ERISA. This proposed rule would

affect group health plans, participants in group health plans,

noncustodial children of such participants, and State agencies that

administer child support enforcement programs.

DATES: Written comments on these proposed rules must be received by the

Department of Labor on or before February 14, 2000.

ADDRESSES: Interested persons are invited to submit written comments

(preferably three copies) concerning the proposed rules to: Office of

Regulations and Interpretations, Pension and Welfare Benefits

Administration, U.S. Department of Labor, 200 Constitution Avenue, NW,

Room N-5669, Washington, DC 20210. Attention: National Medical Support

Notice. All submissions will be open to public inspection and copying

in the Public Disclosure Room, Pension and Welfare Benefits

Administration, U.S. Department of Labor, 200 Constitution Avenue, NW,

Room N-5638, Washington, DC, from 8 a.m. to 4:30 p.m., E.S.T.

FOR FURTHER INFORMATION CONTACT: David Lurie or Susan Rees, Office of

Regulations and Interpretations, Pension and Welfare Benefits

Administration, (202) 219-8671 (this is not a toll-free number).

SUPPLEMENTARY INFORMATION:

1. Background

Section 609(a) of the Employee Retirement Income Security Act of

1974, as amended (ERISA), provides that each group health plan, as

defined in ERISA section 607(1), shall provide benefits in accordance

with the applicable requirements of any ``qualified medical child

support order'' (QMCSO). A QMCSO is a medical child support order

issued under State law that creates or recognizes the existence of an

``alternate recipient's'' right to receive benefits for which a

participant or beneficiary is eligible under a group health plan, and

which satisfies certain additional requirements contained in section

609(a). An ``alternate recipient'' is any child of a participant

(including a child adopted by or placed for adoption with a participant

in a group health plan) who is recognized under a medical child support

order as having a right to enrollment under a group health plan with

respect to such participant. Upon receipt, the administrator of a group

health plan is required to determine, within a reasonable period of

time, whether a medical child support order received by the plan is

qualified, and to administer benefits in accordance with the applicable

terms of each order that is qualified. Section 514(b)(7) also provides

that ERISA preemption of State laws does not apply to QMCSOs and

provisions of State law described in section 1908 of the Social

Security Act (SSA) to the extent that they apply to a

QMCSO.1

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\1\ Section 1908 of the SSA conditions State eligibility for

Medicaid matching funds on the enactment of certain specified laws

relating to medical child support. Under section 1908 of the SSA,

for instance, States must enact laws under which insurers (including

group health plans) may not deny enrollment of a child under the

health coverage of the child's parent on the ground that the child

is born out of wedlock, not claimed as a dependent on the parent's

tax return, or not in residence with the parent or in the insurer's

service area. Section 1908 also sets out rules for States to require

of employers and insurers when a parent is ordered by a court or

administrative agency to provide health coverage for a child and the

parent is eligible for health coverage from that insurer or

employer, including a provision which permits the noncustodial

parent or the State agency to apply for available coverage for the

child.

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2. The Child Support Performance and Incentive Act

Based on concerns raised both by State agencies that enforce the

programs under Title IV-D of the SSA (known as the Child Support

Enforcement Program, which is administered by the Federal Office of

Child Support Enforcement (OCSE) in the Department of Health and Human

Services (HHS)) and by sponsors and administrators of group health

plans concerning difficulties in establishing medical child support

orders that are qualified, Congress enacted section 401 of the Child

Support Performance and Incentive Act of 1998 (CSPIA) to amend both

ERISA and the SSA. CSPIA requires State agencies to enforce the medical

child support obligations of noncustodial parents by issuing to their

employers a National Medical Support Notice (Notice), and requires plan

administrators, upon receipt of the Notice from the employer, to accept

an appropriately completed Notice that also satisfies the requirements

of ERISA section 609(a) as a QMCSO.

In addition to complying with ERISA requirements and the

requirements of Title IV-D of the SSA, the Notice must include a

separate and easily severable employer withholding notice informing the

employer of the noncustodial parent of applicable provisions of State

and Federal law relating to any necessary withholding of employee

contributions that may be required by the plan to extend coverage to

any child named in the Notice. The changes made by section 401 of

CSPIA, and that would be implemented by the proposed regulations, will

simplify the issuance and processing of medical child support orders,

provide standardized communication between State agencies, employers,

and plan administrators, and create a uniform and streamlined process

for enforcement of medical child support to ensure that all children

receive the health care coverage for which they are eligible and to

which they are entitled.

Section 401(c) of CSPIA amended section 466(a)(19) of the SSA to

require States to enact laws requiring the use of the Notice to enforce

medical child support obligations of parents.2 Pursuant to

such laws, State IV-D agencies will be required to use the Notice to

notify the employer of the noncustodial parent that a State court or

[[Page 62055]]

administrative agency has issued a child support order providing for

health care coverage. The employer will then be required to separate

and retain the part of the Notice directing the employer to withhold

employee contributions and transfer, within 20 business days of the

date of the Notice, the remaining part of the Notice to the appropriate

group health plan.

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\2\ This requirement is effective for each State on or after the

later of October 1, 2001, or the effective date of laws enacted by

the legislature of such State implementing the amendments to the SSA

made by section 401 of CSPIA, but in no event later than the first

day of the first calender quarter beginning after the close of the

first regular session of the State legislature that begins after

October 1, 2001. In the case of a State that has a 2-year

legislative session, each year of such session shall be deemed to be

a separate regular session of the State legislature. Some States,

therefore, may not have laws mandating the use of the Notice until

2003. Until that time, such States may continue to use medical child

support orders other than the Notice. Plan administrators are

advised that such orders are ``medical child support orders'' as

defined in ERISA section 609(a)(2)(B), that the procedures mandated

by section ERISA 609(a)(5)(A) and (B) remain applicable with respect

to such orders, and that if such orders satisfy section ERISA

609(a)(3) and (4), they are QMCSOs.

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Section 401(d) of CSPIA added a new subparagraph (C) to section

609(a)(5) of ERISA. Section 609(a)(5)(C) provides that if a plan which

is maintained by the employer of a noncustodial parent of a child, or

to which such employer contributes, receives an appropriately completed

Notice in the case of such child, and the Notice satisfies the

conditions of paragraphs (3) and (4) of section 609(a), the Notice

shall be deemed to be a QMCSO in the case of such child. In such a

case, the plan administrator, within 40 business days after the date of

the Notice, shall notify the State agency issuing the Notice with

respect to such child whether coverage is available under the terms of

the plan, and, if so, whether the child is covered under the plan and

either the effective date of coverage or, if necessary, any steps to be

taken by the custodial parent to effectuate such coverage, and provide

to the custodial parent a description of the coverage available and any

forms or documents necessary to effectuate such coverage.

3. The Medical Child Support Working Group

Section 401(a) of CSPIA mandated that the Secretaries jointly

establish a Medical Child Support Working Group (the Working Group)

whose purpose is to identify the impediments to the effective

enforcement of medical support by State IV-D agencies and to submit a

report to the Secretaries containing recommendations for appropriate

measures to address such impediments. CSPIA specifically directs the

Working Group, among other things, to make recommendations based on

assessments of the form and content of the Notice. The Working Group is

composed of 30 members, who represent the DOL and HHS, directors of

State IV-D and Medicaid agencies, employers (including owners of small

businesses) and their trade or industry representatives and certified

human resource and payroll professionals, administrators and sponsors

of group health plans (as defined in section 607(1) of ERISA), children

potentially eligible for medical support, State medical child support

programs, and organizations representing State child support programs.

In the interest of developing a proposed Notice that best addresses

the needs and concerns of the affected parties, DOL and HHS solicited

comments and suggestions regarding the Notice from the Working Group at

its public meetings of April 13, and May 12 and 13, 1999. Comments from

the Working Group proved very helpful in the development of the Notice

that is proposed herein. In an effort to ensure that the statutorily

mandated Notice facilitates, rather than complicates, State agency

efforts to secure health care coverage for children, consistent with

congressional intent, and taking into account the views of the Working

Group, the Department has determined it appropriate to promulgate the

Notice as a proposed rulemaking, rather than as an interim

regulation.3 We believe that this more closely comports with

congressional intent to permit the affected parties, including the

Working Group, to comment on the Notice before it becomes effective.

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\3\ Section 401(b)(5) of CSPIA provides for the issuance of

interim regulations within ten months of enactment of CSPIA, and

final regulations within one year of the issuance of the interim

regulations. As stated above, under section 401(a)(5) of CSPIA, the

Working Group is required to make recommendations, within eighteen

months of the enactment of CSPIA, on the form and content of the

Notice as issued under interim regulations. CSPIA also provides that

State agencies will not be required to use the Notice prior to

October of 2001.

The initial meetings of the Working Group have led the

Departments to a more complete appreciation of the complexity of the

issues involved in the development of the Notice. In the interest of

developing a more useful Notice, the Agencies decided to obtain

additional input from the Working Group, which necessitated taking

additional time in promulgating these proposed regulations. In

addition, it was decided that the final regulations would benefit

from public comments, in addition to those from the Working Group.

Furthermore, concerns were raised as to the applicability of the

Notice if it was promulgated pursuant to interim regulations,

subject to alteration in the final regulations. Accordingly, in

order to encourage greater public participation in this rulemaking

and reduce the possibility for confusion, the Departments decided to

issue these regulations in proposed form.

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4. The Proposed National Medical Support Notice

A. General

The Departments of Labor and HHS are jointly promulgating the

Notice. The Notice has two parts, Part A, the ``Employer Withholding

Notice,'' and Part B, the ``Medical Support Notice to Plan

Administrator.'' Also being published in the Federal Register today is

a parallel proposed regulation issued by OCSE, under sections 452(f)

and 466(a)(19) of the SSA, 42 U.S.C. 652(f) and 666(a)(19), as amended

by section 401 of the CSPIA. That proposed regulation, in addition to

promulgating the Notice, provides guidance to States on implementing

the laws required by such sections. These laws describe the duties and

obligations of employers and State agencies with respect to the Notice.

B. Employer Withholding Notice

As described in the OCSE proposed regulation, a State agency will

issue the two part Notice to an employer of an employee who is a

noncustodial parent obligated by a child support order to provide

medical support for his or her children, which employer may maintain or

contribute to a group health plan. Part A, the ``Employer Withholding

Notice'' identifies the obligated employee as well as the child(ren) to

whom the order applies. The Instructions to Employer inform the

employer of its obligations (i) to transfer Part B to the administrator

of each group health plan providing coverage for which the children may

be eligible within 20 business days of the date of the Notice, (ii) to

withhold from the earnings of the employee/obligor any participant

contributions required under the group health plan for such coverage,

and (iii) to transmit those amounts to the plan. Part A also includes

an Employer Response, which the Employer would use to notify the State

agency if the employer does not maintain or contribute to a group

health plan that offers family health care coverage or that the

employee is among a class of employees (e.g., part-time or non-union)

that is not eligible for family health coverage under any plan

maintained by the employer or to which the employer contributes, if the

individual is not employed by the employer, or if Federal or State

withholding limitations or prioritization rules prevent the withholding

from the employee's income of the amount required to obtain coverage

for the children under the terms of the plan (participant

contribution).

The Instructions in Part A also notifies the employer (i) of

Federal and State limitations on withholding, (ii) of the obligation to

comply with any applicable withholding prioritization established by

the State of the employee's principal place of employment and to notify

the State agency which issued the Notice of the employee's termination

of employment, (iii) of the duration of the withholding obligation,

(iv) of sanctions that the employer might be subject to for failure to

withhold as required by the Notice, and (v) that the employee is liable

for any employee contributions required by the terms of the plan.

[[Page 62056]]

As described below, Part B of the Notice and its Instructions were

developed to insure that the Notice would comply with the ERISA QMCSO

requirements, and to provide guidance to the administrator of a group

health plan that receives Part B. Part B was also developed to comply

with the requirements placed on group health plans under State laws

described in SSA section 1908, and to accommodate the requirements for

State agencies to use automated processing of medical child support

orders.

C. Notice to Plan Administrator

Part B of the proposed Notice, the ``Medical Support Notice to Plan

Administrator,'' includes the same information as is contained in Part

A, and a Plan Administrator Response to be returned to the State

Agency, along with Instructions to Plan Administrator (Instructions)

regarding the administrator's responsibilities in processing Part B.

Part B notifies the administrator of the group health plan in which

the named employee is enrolled or eligible for enrollment that the

employee is obligated by a court or administrative child support order

to provide medical support coverage for the named alternate

recipient(s). Part B provides the information necessary for the plan

administrator to determine, as required by section 609(a)(5)(A),

whether the notice is a QMCSO under section 609(a) of ERISA, and to

enroll the alternate recipient(s) as dependent(s) in the group health

plan. Part B also includes a Plan Administrator Response that the plan

administrator will use to inform the State IV-D agency whether the

Notice constitutes a QMCSO and, if it does, to notify the State agency

either that the alternate recipient is enrolled in the coverage offered

by the plan, or, if there is more than one option available under the

plan, inform the State agency of the options from which to elect

coverage.

Receipt by a plan administrator of Part B of a Notice that

identifies (i) an issuing State agency (the Issuing Agency), (ii) a

participant who is enrolled or eligible to enroll in the plan, and

(iii) one or more alternate recipients with respect to the participant

is considered receipt of a medical child support order as defined in

ERISA section 609(a)(2)(B). Accordingly, the plan administrator would

be subject to the statutory requirements of ERISA section 609(a),

including section 609(a)(5)(A), which requires the administrator to

notify the participant and alternate recipient(s) of the receipt of the

Notice and the plan's procedures for determining if a medical child

support order is a QMCSO. The Notice is to be treated as an application

by the Issuing Agency for health coverage for the alternate

recipient(s), to the extent such application is required by the plan

and has not been undertaken by the participant.

ERISA section 609(a)(5)(C) provides that if a plan receives an

appropriately completed Notice and the Notice satisfies the conditions

of paragraphs (3) and (4) of section 609(a), the Notice shall be deemed

to be a QMCSO. It is the view of the Department that a Notice is

appropriately completed, within the meaning of section 609(a)(5)(C), if

Part B of the Notice (i) identifies an employee of an employer,

enrolled or eligible for enrollment in a group health plan sponsored by

an employer or to which an employer contributes, who is a noncustodial

parent obligated by a State court or administrative order to provide

medical child support for one or more alternate recipients named in the

Notice, and (ii) indicates the type of health care coverage to be

provided to the alternate recipient(s). The Notice satisfies ERISA

section 609(a)(3) by including the necessary information in Part B, by

expressly requiring the plan to treat an alternate recipient as a

dependent under the terms of the plan and by specifying that coverage

may only end for the alternate recipient when similarly situated

dependents are no longer eligible for coverage under the terms of the

plan, or upon the occurrence of certain specified events.4

(Certain other events that may lead to a loss of coverage of the

alternate recipient (e.g., the death of the participant) may be

``qualifying events'' as specified in ERISA section 603, thereby

triggering the continuation coverage (also known as COBRA) provisions

of ERISA.) The Notice satisfies ERISA section 609(a)(4) because it

states that the alternate recipient(s) must be provided only the

coverage that the plan provides, or be enrolled in an option provided

under the plan, except to the extent necessary to meet the requirements

of a State law described in SSA section 1908. Accordingly, if Part B is

appropriately completed as specified above, and in the Instructions,

the Notice is deemed to be a QMCSO.

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\4\ Section 1908(a)(2)(C) and (3)(C) of the SSA provide that,

when a child is provided health care coverage by a parent's insurer

pursuant to a court or administrative order, the child may only be

disenrolled if the employer or insurer is provided satisfactory

evidence that the order is no longer in effect, the child is or will

be enrolled in comparable coverage which will take effect no later

than the effective date of disenrollment, or the employer eliminates

family health coverage for all of its employees.

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The Instructions also inform the plan administrator that coverage

may not be denied because the alternate recipient was born out of

wedlock, is not claimed as a dependent on the participant's Federal

income tax return, or does not reside with the participant or in the

plan's service area. The Instructions further provide that all

enrollments are to be made without regard to open season

restrictions.5 Further, if Part B is appropriately

completed, the plan administrator must treat the Notice as QMCSO, even

if there is a waiting period to enroll in the plan or there are

additional steps to be taken to include the alternate recipient(s) in

the group health plan. Even if coverage does not begin immediately, the

plan administrator must provide the notifications and information

required by section 609(a)(5) and the Notice to the alternate

recipient(s), custodial parent, and Issuing Agency.

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\5\ This requirement is derived from SSA section 1908(a)(2) and

(3).

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ERISA section 609(a)(5)(A)(ii) requires that a plan administrator

determine whether a medical child support order is qualified within a

reasonable period of time after receipt of the order and notify the

participant and each alternate recipient named in the order of such

determination. Section 609(a)(5)(C)(ii) requires the plan

administrator, within 40 days of the date of an Notice, to notify the

Issuing Agency whether coverage is available under the terms of the

plan, whether the alternate recipient(s) is/are covered under the plan,

and either the effective date of coverage or, if necessary, any

additional steps to be taken by the custodial parent (or by a State or

local official who has been substituted for the address of the

alternate recipient) to effectuate the coverage, and provide to the

custodial parent (or such substituted official) a description of the

coverage available and any forms or documents necessary to effectuate

the coverage. In order to align these requirements, the Instructions

provide that the plan administrator shall, within 40 business days of

the date of the Notice, or sooner if reasonable, provide the required

notifications and information to the Issuing Agency, the participant/

non-custodial parent and the alternate recipient/child. Although what

constitutes a reasonable period will depend on the specific

circumstances of each medical child support order, it is the view of

the Department that, given the uniform nature of Part B of the Notice,

a plan administrator should

[[Page 62057]]

require less time to review Part B than a medical child support order

that is not based on such uniform form and content.

The Plan Administrator Response is to be completed by the plan

administrator and returned to the Issuing Agency. If the plan

administrator determines that a Notice received by the plan is not

qualified, he or she completes part 1 of the Response and identifies

the specific reason(s) why the Notice is not qualified. If the

administrator determines that the Notice is a QMCSO, he or she

completes part 2 of the Response, indicating whether there is only one

type of coverage provided by the plan (e.g., indemnity coverage) and

that the alternate recipient(s) is/are covered, or if there is more

than one type of coverage available (e.g., indemnity coverage and a

health maintenance organization), the administrator must identify each

available option. If there is more than one type of coverage available

under the plan, the Issuing Agency will select the option in which to

enroll the alternate recipient(s) and return the Response to the plan

administrator. Upon completion of the enrollment information, the plan

administrator transfers the applicable information on the Plan

Administrator Response to the employer for a determination that the

necessary participant contributions are available.

The Department is proposing to make the regulation as adopted

effective October 1, 2001. This is the earliest date on which States

will be required, under section 401(c)(3) of CSPIA, to use the Notice

to enforce the health care coverage provisions of a child support

order.

Economic Analysis Under Executive Order 12866

Under Executive Order 12866 (58 FR 51735, Oct. 4, 1993), the

Department must determine whether a regulatory action is

``significant'' and therefore subject to review by the Office of

Management and Budget (OMB). Section 3(f) of the Executive Order

defines a ``significant regulatory action'' as an action that is likely

to result in a rule (1) having an annual effect on the economy of $100

million or more, or adversely and materially affecting a sector of the

economy, productivity, competition, jobs, the environment, public

health or safety, or State, local or tribal governments or communities

(also referred to as ``economically significant''); (2) creating

serious inconsistency or otherwise interfering with an action taken or

planned by another agency; (3) materially altering the budgetary

impacts of entitlement grants, user fees, or loan programs or the

rights and obligations of recipients thereof; or (4) raising novel

legal or policy issues arising out of legal mandates, the President's

priorities, or the principles set forth in the Executive Order.

Pursuant to the terms of the Executive Order, it has been

determined that this proposed regulation would raise novel legal or

policy issues arising out of legal mandates. Therefore, this proposed

regulation is ``significant'' and subject to review under section

3(f)(4) of the Executive Order. Consistent with the Executive Order,

the Department has undertaken an assessment of the costs and benefits

of this regulatory action. The analysis is detailed below, following a

description of the medical child support process and its relationship

to this proposed regulation.

Overview

The medical child support process requires that a State child

support enforcement agency (State agency) issue a notice to the

employer of a non-custodial parent, who is subject to a child support

order issued by a court or administrative agency, informing the

employer of the parent's obligation to provide health care coverage for

the child(ren). The employer must then determine whether family health

care coverage is available for which the dependent child(ren) may be

eligible, and if so, the employer must notify the administrator of the

plan. The plan administrator is then required to determine whether the

dependent child(ren) are eligible for coverage under a plan. If

eligible, the plan administrator is required to enroll the dependent

child(ren) in an appropriate plan.

Even with a medical child support process in place, State agencies

and administrators of group health plans have experienced difficulties

in obtaining medical coverage for children of non-custodial parents due

to problems encountered in establishing what constitutes a qualified

medical child support order (QMCSO). In response to these and other

problems affecting the child support process, the Child Support

Performance and Incentive Act of 1998 (CSPIA) was enacted.

As required by CSPIA, the Department and HHS are jointly

promulgating a proposed uniform National Medical Support Notice

(Notice) to be used throughout the child support process by State

agencies, employers, and plan administrators. This Notice is intended

to simplify the issuance and processing of medical child support

orders, provide standardized communication between State agencies,

employers, and plan administrators, and create a uniform process for

the enforcement of medical child support.

The Notice has two parts, Part A, the ``Employer Withholding

Notice,'' and Part B, the ``Medical Support Notice to Plan

Administrator.'' The proposed regulation establishes procedures that

would be followed once the Notice has been transmitted by the State to

the employer and by the employer to the plan administrator. Thus, the

proposed regulation provides guidance to plan administrators for

meeting Part B requirements. Part B incorporates the provisions of the

CSPIA as it pertains to ERISA. Specifically, Part B would implement

section 609(a)(5)(C) of Title I of ERISA, which was added by section

401(d) of CSPIA to provide specific rules for plan administrators to

follow upon receipt from an employer of Part B.

For purposes of this economic analysis, the Department estimated

the benefits and costs of the proposed regulation relative to the costs

of processing child support orders in the current environment. The

benefits and costs of the rights conferred by the statute and current

practices for processing medical child support orders are included in

the baseline and are therefore not considered benefits or costs of the

proposed regulation. These include the rights for enrollment in a plan,

as well as increased health care coverage and the attendant increases

in claims costs faced by employee benefit plans. The Department is not

aware of any analysis presently available that seeks to quantify the

costs and benefits of the medical support order provisions of CSPIA,

and is therefore not presenting estimates of the costs and benefits of

the statute in conjunction with evaluating the incremental cost and

benefits of discretion exercised in the regulation.

The Department's analysis indicates that the benefits of the

proposed regulation substantially exceed the costs. There are two types

of economic effects of the regulation: (1) The more general and

primarily indirect societal welfare gains associated with facilitating

access to health care for dependent children, and (2) the direct

administrative benefits and costs associated with implementing

standardized Notices. The new procedures will promote timeliness in

processing medical child support orders and accuracy in identifying a

medical child support order as a QMCSO, thus

[[Page 62058]]

providing dependent children greater access to health care on a regular

and timely basis. The new procedures will also increase efficiency and

decrease per Notice administrative costs that arise when a fragmented,

non-standardized notice system is replaced by a standardized Notice

system.

The Department's analysis relies on the basic assumption that plans

incur a baseline cost to process notices in the current manner. Each

notice is assumed to be unique, requiring individualized effort. The

first standardized Notice received by a plan administrator is expected

to require the same time as the unique notices previously received. In

addition, however, it is assumed that many plan administrators will

invest in establishing new procedures upon receiving the first Notice

in anticipation of offsetting this start-up cost in future savings

associated with standardization. The processing time for each second

and subsequent Notice is assumed to be significantly reduced. Plan

administrators who do not have a reasonable expectation of receiving

subsequent Notices are assumed to simply continue to process Notices as

before and therefore to be unaffected by the regulation.

Based on its analysis, the Department believes that significant net

benefits will derive from the direct costs and benefits of the

administrative efficiencies which will result from standardization. The

degree of the net benefit is a function of the size of the plan. All

large plans (those with at least 100 participants) are expected to

benefit almost immediately, as they are expected to receive multiple

notices, thereby recovering their costs to implement new procedures

through decreases in time spent handling subsequent Notices.

An aggregate net benefit is also expected for smaller plans (those

with 10-99 participants) although the initial costs associated with

procedural changes will be repaid through savings over a longer period

of time. The positive cost/benefit ratio for this group is shown to

grow progressively larger over time. Very small plans (those with fewer

than 10 participants) are not expected to be affected in the aggregate

by the regulation due to their relatively infrequent receipt of medical

child support notices.

The estimated net benefits and costs of the regulation in the first

three years of implementation are summarized in the table which

follows. As shown, the regulation is estimated to result in savings of

$26.6 million in the first year, reducing total processing costs by

nearly one-half. The savings which accrue to plans will increase over

the years as a progressively greater proportion of the Notices yield

savings. The analysis indicates a net savings of $26.6 million in the

first year increasing to $34.3 million by year three with a total

aggregate savings of $92.3 million over the period.

[In millions at dollars]

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Cost of Cost of

Baseline investment processing Net savings

cost under under under

regulation regulation regulation

----------------------------------------------------------------------------------------------------------------

Year 1.................................................. $62.3 $5.7 $30.0 $26.6

Year 2.................................................. 62.3 3.5 27.4 31.4

Year 3.................................................. 62.3 3.1 24.9 34.3

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The more general societal welfare gains that are expected to arise

from improvements in the economic security and health of children are

not taken into account in the summary of net benefits because they

cannot be specifically quantified. A detailed discussion of the

development of estimated costs and benefits follows.

Costs of the Proposed Regulation

The cost of this proposed regulation is the start-up cost incurred

by ERISA plans to set up procedures to conform with the format of the

Notice. This start-up process is assumed to require one hour of a

professional's time at an hourly rate of $45, and that plan

administrators will complete this work themselves, rather than purchase

services. The cost is incurred the first time a plan receives a medical

child support order under the standardized Notice format. For the

38,500 plans with 100 or more participants, this start-up cost is

incurred entirely in year one, since every one of these plans receives

its first standardized Notice in year one (because nearly 650,000

Notices are being sent to these plans each year). The start-up cost for

these plans is $1.7 million. For plans with 10 to 99 participants, each

year only a fraction of the 755,000 plans receive a medical child

support order because there are only 95,000 Notices being sent to these

plans yearly. However, the benefits of investing in establishing

procedures to conform with the format of the Notice outweigh the start-

up cost by year three. In year one, the start-up cost to these plans is

$4.0 million. In year two the start-up cost falls to $3.5 million,

because while some plans are receiving their first standardized Notice,

others are receiving their second and subsequent Notices and therefore

are benefitting from the initial investment in the process through cost

savings. By year three, the start-up cost is $3.1 million, with the

cost falling each subsequent year as more plans already have their

procedures in place. Plans with fewer than 10 participants receive

these Notices too infrequently to make the investment in establishing

cost effective procedures (there are 1.7 million of these plans

receiving only 28,000 Notices annually). Therefore it is assumed these

plans will be unaffected by the standardized Notice.

Benefits of the Proposed Regulation

The introduction of a uniform notice with clear instructions may

improve health care quality for children by preventing delays and

denials of enrollment in group health plans, thereby encouraging early

intervention in the treatment of disease and illness. The social

welfare loss resulting from uninsured children is well documented in

economic literature. Based on analysis of the 1998 Current Population

Survey conducted by the Bureau of the Census, 15 percent of all

children (or 10.7 million) are currently uninsured. The lack of private

insurance generally increases the likelihood that needed medical

treatment will be delayed or forgone, and that the ultimate costs of

medical treatment will be shifted to public funding sources.

The link between uninsured children and the deficiencies of the

existing child support process is demonstrated in the legislative

history of CSPIA 6. The legislative history indicates that

there is

[[Page 62059]]

a lack of communication of medical child support information between

the State agencies and plan administrators because many State agencies

simply notify plan administrators that an order has been issued, and in

turn, many plan administrators consider this administrative notice

insufficient to comply with current legal requirements. Although all

child support orders are required to have a medical support component,

only a reported 60 percent of all child support orders actually have

this medical support component.

---------------------------------------------------------------------------

\6\ 144 Cong. Rec. S7318 (daily ed. June 26, 1998) (Legislative

History of Senate and House Amendments to the Child Support

Performance and Incentive Act of 1998, Pub. L. No. 105-200).

---------------------------------------------------------------------------

In addition, the legislative history cites a 1996 GAO review of

state child support enforcement programs which determined that at least

13 states were not petitioning to include a medical support component

in their child support orders, and 20 states were not enforcing

existing medical child support orders. The number of children who are

uninsured as a direct result of failures of this medical child support

process is unknown. However, any reduction in the number of uninsured

children that can be accomplished by the proposed regulation will

produce substantial benefits for the health of those children, and

preserve public resources for those without access to private coverage.

Direct benefits of Part B will accrue to plan administrators, State

agencies, employers, non-custodial parent-participants, custodial

parents, and alternate recipient(s). Part B will overcome the

inefficiencies inherent in current practice, which often requires plan

administrators to work with medical child support notices that differ

from state to state and from individual to individual. Consequently,

confusion arises as to what constitutes a QMCSO, and often as a result,

the medical support is not provided. Specifically, benefits will accrue

to plan administrators because they will all receive a standardized

Notice (Part B) which is easy to comprehend and to administer, and

which limits their risk of exposure to errors in their determinations

of which orders are QMCSOs and therefore accurate identification of the

dependent children eligible for enrollment in a group health plan.

Finally, Part B will promote one of the objectives of the child support

process, which is to ensure access to medical care coverage for

children.

In the first year of a standardized Notice system, the total cost

to private employer group health plans of processing child medical

support orders is expected to drop from the current level of $62.3

million to $35.7 million. This estimate is derived as follows.

The Department estimates that plan administrators of ERISA-covered

group health plans will receive a total of 770,000 Notices annually.

This estimate is based on the HHS's (Office of Child Support

Enforcement (OCSE) of the Administration for Children and Family (ACF))

projection of 1.2 million new child support orders with collections

each year using historical data (through 1996) on total child support

orders established by State agencies. The Department believes that the

HHS data is a reasonable starting point for our analysis because

current law requires that each child support order include a provision

for medical support. Although the CSPIA provisions apply to church

plans and governmental plans, cost estimates for these plans are not

included in our analysis because under section 4(b) of ERISA, church

plans and governmental plans are generally excluded from the coverage

of Title I of ERISA and therefore are outside the Department's

regulatory jurisdiction.

Applying the Bureau of Labor Statistics 1998 Current Population

Survey (CPS) data on employment distribution between the public and

private sectors to the estimated 1.2 million medical support orders

projected to be issued annually yields an estimated 1 million new

Notices issued to private sector employers. The Department then

factored in an estimate of the Notices issued to the private sector

that would be required as a result of employees changing jobs. This

estimate, which was derived from the 1998 March CPS data is 200,000.

Summing these values yields an estimated 1.2 million Notices to private

sector employers annually.

For the purpose of distinguishing between those Notices that are

QMCSOs and those that are not, either because there is no family group

health coverage available through the employer or the parent is no

longer employed by the employer receiving the Notice, the Department

estimated the percentage of employers that offer a group health plan

with family coverage in which a dependent child could be enrolled. This

analysis is based on the April 1993 Employee Benefits CPS Supplement,

the most recent source of complete data on employer offers of health

insurance. These data show that for plans with fewer than 100

participants, 55 percent of plans do not offer family coverage. For

plans with 100 or more participants, 15 percent do not offer family

coverage. In addition, the Department assumed that approximately 2

percent (regardless of plan size) of the Notices will not be deemed to

be qualified because the parent is no longer employed by the employer

receiving the Notice. Applying these percentages to the 1.2 million

Notices yields an expected number of Notices to be forwarded to plan

administrators of 770,000.

The Department then estimated the number of group health plans

potentially impacted by the proposed Notice by calculating the

probability of a plan receiving a Notice. Given that there are 2.5

million ERISA-covered group health plans and only 770,000 Notices being

sent to plans each year, not all health plans will receive a Notice

each year. Furthermore, because the likelihood of receiving a Notice is

a function of the number of participants, and plans vary widely in this

regard, there will be wide variations in the distribution of costs and

benefits based on plan size. Consequently, from year to year, not all

plans will incur the start-up cost to establish procedures to conform

with the Notice, and not all plans will reap the benefits of lower per

Notice processing costs.

The probability of a plan receiving a Notice each year depends on

the probability of any participant in the plan being subject to a

medical child support order. The probability of a participant being the

subject of a Notice is assumed to be independent of plan size or other

factors. The Department therefore estimated this probability for each

participant by dividing the number of participants in private employer

group health plans, 65 million, into the number of Notices issued

annually, 770,000. To translate the individual probabilities to a plan

level required an estimation that would account for the result that

some plans, due to the random distribution, would not receive a Notice.

The plan level probabilities at different size intervals were therefore

estimated as the difference between a 100 percent probability and the

probability that a plan of a given size would not receive a Notice.

Because outcomes are sensitive to plan size, the Department calculated

these probabilities by three plan size groupings--fewer than 10

participants, 10 to 99 participants, and 100 or more participants.

Segmentation of small plans by size is useful because due to the

distribution of participants in small plans, combining all plans with

fewer than 100 participants suggests that no small plans would be

affected by the regulation. Further analysis shows that in the

aggregate small plans with 10 to 99 participants will realize the net

benefits of standardization, while only plans with fewer than 10

participants are expected to be unaffected.

Once the number of Notices by plan size and the probability of a

plan receiving a Notice in any year by plan size were estimated, a

year-by-year

[[Page 62060]]

analysis of the impact of the proposed regulation on group health plans

was conducted. In the first year, plans with 100 or more participants

would be expected to receive an average of 17 Notices each, because

there are only 38,500 of these plans receiving nearly 650,000 Notices

annually. Currently, because notices are not standardized, the time

required to process each of these Notices per plan does not vary from

the first to subsequent Notices. However, with the standardization

benefits of the proposed regulation, the processing time for the second

and subsequent Notices received by each plan is expected to result in

significantly reduced processing time, from 1 hour and 45 minutes to 35

minutes. This reduction in processing time, using a $45 hourly

professional's rate, 2 minutes in photocopying time at a $15 clerical

rate, and $0.37 for materials and postage per required response,

generates a reduction in the cost to plans with 100 or more

participants of processing Notices from $52.4 million under the

baseline to $22.1 million under the regulation. The savings is larger

from the second year on because all of these plans incur the start-up

cost in the first year--the cost falls from $52.4 million to $18.3

million.

In the aggregate, plans with 10 to 99 participants also show

positive net benefits from a reduction in costs under the standardized

Notice system. However, because there are 755,000 of these plans and

only 95,000 Notices being sent to them, as a group these plans do not

benefit from the reduction in cost until the third year in which the

standardized Notice is being used. During the first two years, the

aggregate investment to establish a processing system when the first

standardized Notice is received outweighs the cost reduction from

processing the second and subsequent Notices because more plans receive

a first Notice than receive a second Notice. By the third year, enough

plans have put their system in place to make the savings outweigh the

start-up cost. In year one, the cost of processing medical support

orders for plans with 10 to 99 participants is $7.6 million under the

baseline and $11.4 million under the regulation (the higher cost is due

to the start-up). These estimates assume the same processing hours and

fees outlined above for the 100 or more participant plans. Similarly,

in year two, the costs are $7.6 million and $10.3 million (slightly

lower because of the plans that incurred the start-up cost in year

one). By the third year, these plans face lower costs in processing

medical child support orders because of the standardized Notice--costs

drop from $7.6 million to $7.4 million, with the savings increasing in

subsequent years as the start-up investment is recouped.

Standardization of the Notices is not expected to have an economic

impact on plans with fewer than 10 participants. These plans receive

Notices so infrequently (there are 1.7 million of these plans receiving

only 28,000 Notices), that an investment in establishing a processing

system for the standardized Notice is not cost effective, and these

plans will choose to continue processing notices as they do at the

present time. For these plans, the cost of processing Notices is $2.3

million, assuming 1 hour and 45 minutes processing time at a $45 hourly

professional's rate, 2 minutes in photocopying time at a $15 clerical

rate, and $0.37 for materials and postage per required response.

Alternative Approaches Considered

A number of alternative approaches to this proposed regulation were

considered. Initially the Departments prepared a Notice which consisted

of two parts. This format provided a number of defaults which decreased

the discretion required in responding to the Notice and was

particularly streamlined. This Notice was presented to the Medical

Child Support Working Group at its first meeting in March of 1999.

Members of the Working Group responded unfavorably to this format,

noting that feedback to the Issuing Agency regarding the nature of

coverage available and its effective date was essential to the

effective enforcement of medical child support obligations. Based on

comments received by the Agencies at this meeting, the Notice was

redrafted. A second version of the Notice was developed which included

four parts and a number of feedback loops. Again the Working Group

provided commentary, responding that this version was too complicated

and cumbersome. A third version of the Notice was developed which is

being proposed in this rulemaking. This version provides a feedback

loop to the Issuing Agency, a feature which the State Agency

representatives on the Working Group desired, yet it retains a more

streamlined and comprehensible approach than the previous version.

Overall it represents a significant improvement over previous drafts.

Specifically, it enables the State Agency to select the coverage that

will ultimately be provided to the child(ren) from the options that are

available to the participant/noncustodial parent. Enabling State

Agencies to make this selection, rather than having the child

automatically placed in a default coverage option, ensures that the

child receives meaningful and accessible coverage from among the

particular options available under the plan.

The Department invites comments on its assumptions and estimates of

the potential benefits and costs of this proposal for plan

administrators.

Paperwork Reduction Act

The Department, as part of its continuing effort to reduce

paperwork and respondent burden, conducts a preclearance consultation

program to provide the general public and Federal agencies with an

opportunity to comment on proposed and continuing collections of

information in accordance with the Paperwork Reduction Act of 1995 (PRA

95), 44 U.S.C. 3506(c)(2)(A). This helps to ensure that requested data

can be provided in the desired format, reporting burden (time and

financial resources) is minimized, collection instruments are clearly

understood, and the impact of collection requirements on respondents

can be properly assessed.

Currently, the Pension and Welfare Benefits Administration (PWBA)

is soliciting comments concerning the proposed information collection

request (ICR) included in Part B, Medical Support Notice to Plan

Administrator of the National Medical Support Notice (Notice). A copy

of the ICR may be obtained by contacting the PWBA official identified

below in this Notice of Proposed Rulemaking.

The Department has submitted a copy of the proposed information

collection to the Office of Management and Budget (OMB) for its review

in accordance with 44 U.S.C. 3507(d) of PRA 95. The Department and OMB

are particularly interested in comments that:

Evaluate whether the proposed collection of information is

necessary for the proper performance of the functions of the agency,

including whether the information will have practical utility;

Evaluate the accuracy of the agency's estimate of the

burden of the proposed collection of information, including the

validity of the methodology and assumptions used;

Enhance the quality, utility, and clarity of the

information to be collected; and

Minimize the burden of the collection of information on

those who are to respond, including through the use of appropriate

automated, electronic, mechanical, or other technological collection

techniques or other forms of information technology,

[[Page 62061]]

e.g., permitting electronic submission of the responses.

Comments on the collection of information should be sent to the

Office of Information and Regulatory Affairs, Office of Management and

Budget, Room 10235, New Executive Office Building, Washington, DC

20503; Attention: Desk Officer for the Pension and Welfare Benefit

Administration. Although comments may be submitted through January 14,

2000, OMB requests the comments be received within 30 days of the

publication of the Notice of Proposed Rulemaking to ensure their

consideration.

Requests for copies of the ICR may be addressed to: Gerald B.

Lindrew, Office of Policy and Research, U.S. Department of Labor,

Pension and Welfare Benefits Administration, 200 Constitution Avenue,

NW, Room N-5647, Washington, DC 20210. Telephone: (202) 219-4782 (this

is not a toll-free number); Fax: (202) 219-4745.

Part B of the Notice would permit plan administrators to comply

with the requirements of section 609(a)(5) of ERISA for Qualified

Medical Child Support Orders (QMCSOs), as amended by section 401(d) of

the Child Support Performance and Incentive Act of 1998 (CSPIA) (Pub.

L. 105-200). Part B is comprised of the Medical Support Notice to the

Plan Administrator, Plan Administrator Response, and Instructions to

the Plan Administrator (hereinafter referred to as Part B). This

proposed rule would require the group health plan administrator, upon

receipt of Part B from the employer, to examine it and determine

whether or not the Notice constitutes a QMCSO. Part B includes a

checklist that makes this determination simple for the plan

administrator. If any of the identifying information for the alternate

recipient/child or non-custodial parent/participant is missing or the

alternate recipient is no longer eligible for coverage, the plan

administrator determines that the Notice is not a QMCSO. In this case,

the plan administrator, having identified that the Notice is not a

QMCSO, is required to check off the appropriate reason in Part B and

forward it to the Issuing Agency. The plan administrator must also

notify the non-custodial parent/participant and the custodial parent

and alternate recipient(s) of the specific reasons for this

determination. This requirement is met by mailing copies of Part B to

these parties.

If the plan administrator determines that Notice is a QMCSO, then

he or she must provide information regarding available coverage. Again,

this process has been simplified by the provision of checklists for

this purpose in Part B. Part B must then be forwarded by the plan

administrator to the Issuing Agency. The plan administrator must also

inform the non-custodial parent/participant, custodial parent, and

alternate recipient(s) of the specific reasons for this determination.

Notification of the custodial parent is deemed to be notification to

the alternate recipients if they reside at the same address. This

requirement may be met by mailing copies of the completed Part B to

these parties.

The plan administrator must also provide the custodial parent with

any forms, documents, or other information necessary to effectuate

coverage. The Department has not assessed the cost to the plan

administrator of providing forms, documents or other information

because this information would need to be provided regardless of the

requirements of the proposed regulation. If no other information or

action is necessary, the plan administrator must enroll the alternate

recipient in the available coverage, or notify the Issuing Agency and

custodial parent of any other action to be taken in order to effectuate

coverage.

Once the enrollment information is completed, the plan

administrator must forward Part B to the employer for the determination

that the necessary employee contributions may be made by the employee.

Again, a copy of the completed Part B serves this purpose.

The Department estimates the total annual burden to plan

administrators for preparation and distribution of Part B to be 785,000

hours and $1.1 million in the first year, or an average of $7 for each

of the 156,000 plans receiving orders each year. The total hours

includes 1 hour and 45 minutes of time for each first Notice, and 35

minutes for second and subsequent Notices, to determine whether the

Notice is qualified and to prepare a response to the required parties,

as well as one hour for start-up procedures for 128,000 plans. In

addition, 2 minutes for copying and mailing at a $15 hourly clerical

rate and $0.37 for materials and mailing costs for each of the 4

responses required per Notice were assumed for the distribution burden

of $1.1 million. Plans with 100 or more participants are expected to

bear most of this cost--485,000 hours and $960,000, or an average of

$25 per plan--due to their handling of a larger volume of Notices. The

annual burden for plans with 10 to 99 participants is estimated to be

250,000 hours and $140,000, or $2 per plan. The annual burden for plans

with fewer than 10 participants is 50,000 hours and $42,000, or $1.50

per plan. It is assumed that plan administrators will complete this

work themselves, rather than purchase services. Thus, all costs other

than distribution costs (materials and mailing) were attributed to

burden hours rather than dollars.

In the second and third years, the burden declines for two reasons.

First, all plans with 100 or more participants incurred the burden to

establish procedures to conform to the standardized Notice in year 1

and do not incur the burden in subsequent years. Second, plans with 10

to 99 participants incur the burden to establish procedures throughout

years one, two, and three. However, the burden decreases over time

because, of the 90,000 plans with 10 to 99 participants receiving

Notices each year, an increasing number of them over time have already

established the procedures for complying with the standardized Notice.

Specifically, in year two, the Department estimates the total annual

burden to plan administrators for preparation and distribution of Part

B to be 680,000 hours and $1.1 million (the dollar figures do not

change because mailing and distribution costs for the 770,000 Notices

do not change over time). In year three, the Department estimates the

total annual burden to plan administrators for preparation and

distribution of Part B to be 615,000 hours and $1.1 million. The year

two and three totals assume the same time, hourly rates, and fees as in

year one.

Type of Review: New.

Agency: Pension and Welfare Benefits Administration, Department of

Labor.

Title: National Medical Support Notice.

OMB Number: 1210-New.

Affected Public: Individuals or households; Business or other for-

profit institutions; Not-for-profit institutions.

Frequency of Response: On occasion.

Total Respondents: 156,000.

Total Responses: 770,000.

Estimated Burden Hours: 785,000 in 2000; 680,000 in 2001; and

615,000 in 2002.

Estimated Annual Costs (Operating and Maintenance): $1.1 million.

Comments submitted in response to this Notice of Proposed

Rulemaking will be summarized and/or included in the request for OMB

approval of the information collection request; they will also become a

matter of public record.

Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA),

imposes certain requirements with respect to Federal rules that are

subject to the notice and comment requirements of section 553(b) of the

Administrative

[[Page 62062]]

Procedure Act (5 U.S.C. 551 et seq.) and which are likely to have a

significant economic impact on a substantial number of small entities.

Unless an agency certifies that a proposed rule will not have a

significant economic impact on a substantial number of small entities,

section 603 of the RFA requires the agency to present an initial

regulatory flexibility analysis at the time of the publication of the

notice of proposed rulemaking describing the impact of the rule on

small entities, and seek public comment on such impact. Small entities

include small businesses, organizations, and governmental

jurisdictions.

For purposes of analysis under the RFA, the Pension and Welfare

Benefits Administration (PWBA) considers a small entity to be an

employee benefit plan with fewer than 100 participants. The basis for

this definition is found in section 104(a)(2) of ERISA, which permits

the Secretary of Labor to prescribe simplified annual reports for

pension plans which cover fewer than 100 participants. Under section

104(a)(3), the Secretary may also provide for simplified annual

reporting and disclosure if the statutory requirements of part 1 of

Title I of ERISA would otherwise be inappropriate for welfare benefit

plans. Pursuant to the authority of section 104(a)(3), the Department

has previously issued at 29 CFR 2520.104-20, 2520.104-21, 2520.104-41,

2520.104-46 and 2520.104b-10 certain simplified reporting provisions

and limited exemptions from reporting and disclosure requirements for

small plans, including unfunded or insured welfare plans covering fewer

than 100 participants and which satisfy certain other requirements.

Further, while some large employers may have small plans, in

general most small plans are maintained by small employers. Thus, PWBA

believes that assessing the impact of this proposed rule on small plans

is an appropriate substitute for evaluating the effect on small

entities. The definition of small entity considered appropriate for

this purpose differs, however, from a definition of small business

based on size standards promulgated by the Small Business

Administration (SBA) (13 CFR 121.201) pursuant to the Small Business

Act (5 U.S.C. 631 et seq.). PWBA therefore requests comments on the

appropriateness of the size standard used in evaluating the impact of

this proposed rule on small entities.

PWBA is promulgating this regulation because it is required to do

so under section 401(b) of the Child Support Performance and Incentive

Act of 1998 (CSPIA) (Pub. L. 105-200). CSPIA requires the Department of

Labor and the Department of Health and Human Services (HHS) to jointly

develop and promulgate by regulation a National Medical Support Notice

(Notice). The content of the Notice is prescribed by the statute. Thus,

as outlined in the economic analysis section of this preamble, the

benefits and costs attributable to the regulation are those associated

with the discretion exercised by the Department only in the format of

the Notice. The statute affords no regulatory discretion with respect

to application of the statutory requirements to entities of differing

sizes. Nevertheless, analysis of the impact of the regulation indicates

that in the aggregate, small plans with between 10 and 99 participants

will benefit from standardization of medical support Notices, and that

net benefits to these plans will grow progressively larger over time.

Very small plans, those with fewer than 10 participants, are not

expected to be affected by this rulemaking because it is assumed that

due to the infrequency of their receipt of Notices, these plans will

continue to handle medical child support notices as they do in the

existing environment.

The standardized format is expected to reduce costs to process the

Notices once an initial Notice is received and a procedure is

established to handle subsequent Notices. Because of the infrequency

with which very small plans are estimated to receive Notices, and the

fact that administrative savings to offset procedural start-up costs

can be achieved only on the receipt of second and subsequent Notices,

it is assumed that those small plans with fewer than 10 participants

will make an economically rational choice not to invest in establishing

a new procedure to handle the standardized Notice. As a consequence,

each standardized Notice will be handled by very small plans as a

unique event, resulting in no cost or benefit over their current

handling of these infrequent notices.

The objective of the proposed regulation is to introduce Part B--

Medical Support Notice to Plan Administrator (Part B), which implements

section 609(a)(5)(C) of Title I of ERISA, which was added by section

401(d) of CSPIA. Section 609(a)(5)(C) of ERISA provides that a Notice

is deemed to be a Qualified Medical Child Support Order (QMCSO) if the

plan administrator of a group health plan which is maintained by the

employer of a non-custodial parent or to which the employer

contributes, receives an appropriately completed Notice which meets the

requirements for a qualified medical child support order under section

609(a) (3) and (4) of ERISA (which provides the informational

requirements for a qualified order and restrictions on new types of

benefits). New ERISA section 609(a)(5)(C) also establishes the

requirements for plan administrators to enroll alternate recipient(s)

in a group health plan and to notify the appropriate state agency, non-

custodial parent, custodial parent and alternate recipient(s). Thus,

the legal basis for the regulation is found in ERISA section 609(a)(5);

an extensive list of authorities may be found in the Statutory

Authority section, below.

The direct cost of compliance with Part B will be borne by ERISA-

covered group health plans. Plans with 10 to 99 participants will

benefit from a net aggregate reduction in costs under the standardized

Notice system. However, because there are 755,000 of these plans and

only 95,000 Notices being sent to them, these plans will first benefit

from the net reduction in cost in the third year in which the

standardized Notice is being used. During the first two years, the

start-up cost to establish a processing system when the first

standardized Notice is received is expected to outweigh the benefit of

the cost reduction from processing the second and subsequent Notices.

By the third year, enough plans will have put their systems in place to

make the savings outweigh the start-up cost.

In year one, the cost of processing medical support order for plans

with 10 to 99 participants is estimated at $7.6 million, or $85 per

plan, under the baseline and $11.4 million, or $127 per plan, under the

regulation (the higher cost is due to the start-up). These estimates

assume the same processing hours and fees outlined in the economic

analysis section of this preamble for large plans (those with at least

100 participants). Similarly, in year two, the costs are $7.6 million,

or $85 per plan, and $10.3 million, or $116 per plan (slightly lower

because of the plans that incurred the start-up cost in year one). By

the third year, these plans face lower costs in processing medical

child support orders because of the standardized Notice--costs drop

from $7.6 million, or $85 per plan, to $7.4 million, or $83 per plan.

Thus, the savings increases in subsequent years as the start-up

investment is recouped by more plans.

Plans with fewer than 10 participants receive Notices so

infrequently (there are 1.7 million of these plans receiving only

28,000 Notices), that an investment in establishing a new processing

system for the standardized Notice would in most cases not be cost

effective--they

[[Page 62063]]

would be unlikely to recoup the start-up costs from future savings

resulting from processing second and subsequent Notices. For these

plans, under the baseline and the regulation, the cost of processing

Notices is $2.3 million, or $81 per plan, assuming 1 hour and 45

minutes processing time at a $45 hourly professional's rate, 2 minutes

in photocopying time at a $15 clerical rate, and $0.37 for materials

and postage per required response.

The data and assumptions underlying these aggregate costs and

benefits are presented in detail above in the economic impact

discussion. As noted, an estimated 770,000 Notices will be received and

processed by plan administrators annually. The Department estimates

that 16 percent, or 123,000, will be received by small plans with fewer

than 100 participants: 95,000 going to plans with 10 to 99 participants

and 28,000 to plans with fewer than 10 participants. This estimate is

based on the 1993 Current Population Survey data on distribution of

workers by firm size and family health insurance sponsorship by firm

size. The Department examined subgroups within the small group health

plan (those with fewer than 100 participants) universe. Most of the

plans within this universe have fewer than 10 participants, yet most of

the participants are found in plans with 10 to 99 participants.

Consequently, most of the Notices are sent to plans with 10 to 99

participants.

For plans with 10 to 99 participants, 90,000 plans are projected to

receive 95,000 Notices in year one. This means that in the first year,

5,000 of these plans will receive more than one Notice, allowing them

to benefit from the cost reduction introduced by the standardized

Notice. For each subsequent year, a growing number of these plans will

receive two or more Notices, making the benefits of the regulation

outweigh the start-up cost for plans with 10 to 99 participants within

3 years.

No federal rules have been identified that duplicate, overlap, or

conflict with this proposed regulation. As discussed previously in the

economic analysis under the Executive Order, a number of alternatives

to this proposed regulation were considered. At least two distinct

versions of the Notice were developed prior to arriving at this

proposal. Prior drafts were critiqued by the Medical Child Support

Working Group, which includes representatives from the small business

community. Based on commentary received from the Working Group, the

Agencies feel that this version of the Notice provides the minimum

information necessary to comply with section 609(a)(5)(C) of ERISA and

imposes the least economic impact on small entities. The establishment

of different compliance requirements or an exemption from compliance

for small entities was not considered in light of the goal of this

rulemaking. Differing compliance schemes for small entities would

frustrate the objective of providing a nationally uniform medical child

support notice to be used by all State Agencies and to be easily

identified by employers, plan administrators and parents.

The Department requests comments from small entities regarding

what, if any, special problems they might encounter if this regulation

were implemented as proposed, and what changes, if any, could be made

to minimize these problems.

Small Business Regulatory Enforcement Fairness Act

The rule proposed in this action is subject to the provisions of

the Small Business Regulatory Enforcement Act of 1996 (5 U.S.C. 801 et

seq.) (SBREFA). The rule, if finalized, will be transmitted to Congress

and the Comptroller General for review.

Unfunded Mandates Reform Act

For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.

104-4), as well as Executive Order 12875, this proposed rule does not

include any Federal mandate that may result in the expenditure by

state, local and tribal governments in the aggregate, or by the private

sector, of $100,000,000 or more in any one year.

Statutory Authority

Sections 505 and 609(e) of ERISA (Pub. L. 93-406, 88 Stat. 894, 29

U.S.C. 1135 & 1169(e)). Section 401(b) of CSPIA (Pub. L. 105-200, 112

Stat. 645).

List of Subjects in 29 CFR Part 2590

Employee benefit plans, Health care, Health insurance, Pensions,

Reporting and recordkeeping requirements.

For the reasons set forth above, Part 2590 of Title 29 of the Code

of Federal Regulations is proposed to be amended as follows:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLAN REQUIREMENTS

1. The part heading is revised to read as shown above.

2. The authority citation for part 2590 is revised to read as

follows:

Authority: 29 U.S.C. 1027, 1059, 1135, 1171, 1194; Sec. 4301,

Pub. L. 103-66, 107 Stat. 372 (29 U.S.C. 1169); Sec. 101, Pub. L.

104-191, 101 Stat. 1936 (29 U.S.C. 1181); Secretary of Labor's Order

No. 1-87, 52 FR 13129, April 21, 1987.

3. Part 2590 is amended by redesignating subparts A, B, and C as

subparts B, C, and D, respectively and a new subpart A is added to read

as follows:

Subpart A--Continuation Coverage, Qualified Medical Child Support

Orders, Coverage for Adopted Children

Sec.

2590.609-1--(Reserved)

Sec. 2590.609-2 National Medical Support Notice.

(a) This section promulgates the National Medical Support Notice

(the Notice), as mandated by section 401(b) of the Child Support

Performance and Incentive Act of 1988 (Pub L. 105-200). If the Notice

is appropriately completed and satisfies paragraphs (3) and (4) of

section 609(a) of the Employee Retirement Income Security Act (ERISA),

the Notice is deemed to be a qualified medical child support order

(QMCSO) pursuant to section 609(a)(5)(C). Section 609(a) of ERISA

delineates the rights and obligations of the alternate recipient, the

participant, and the plan under a QMCSO.

(b) For purposes of this section, a Notice is appropriately

completed if it contains the name of an issuing agency, the name and

mailing address of an employee who is a participant under the plan, the

name and mailing address of one or more alternate recipient(s) (or the

name and address of a substituted official or agency which has been

substituted for the mailing address of the alternate recipient(s)), and

if the family group health care coverage required by the child support

order is identified and available.

(c) For the purposes of this section, an ``Issuing Agency'' is a

State agency that administers the child support enforcement program

under Part D of Title IV of the Social Security Act.

Signed at Washington, DC, this 4th day of November, 1999.

Richard M. McGahey,

Assistant Secretary, Pension and Welfare Benefits Administration,

Department of Labor.

Note: The following appendix will not appear in the Code of

Federal Regulations.

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[FR Doc. 99-29412 Filed 11-12-99; 8:45 am]

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