Role Of Preexisting Conditions Under Ark. Code Ann. §23-86-108(7)(C) When Employers Change Carriers. Defining The Term "Employee" Under Ark. Code Ann. §23-86-106(1)(3) And HIPAA To Assess Whether An Employer Is Small Or Large Under The Arkansas Insurance Code

ARKANSAS INSURANCE DEPARTMENT

LEGAL DIVISION

1200 West Third Street

Little Rock, AR 72201-1904

501-371-2820

FAX 501-371-2629

BULLETIN 11-99

August 13 , 1999

TO:

ALL GROUP DISABILITY INSURERS AND AGENTS

FROM:

ARKANSAS INSURANCE DEPARTMENT

SUBJECT: ROLE OF PREEXISTING CONDITIONS UNDER ARK. CODE ANN. §23-

86-108(7)(C) WHEN EMPLOYERS CHANGE CARRIERS.

DEFINING THE TERM "EMPLOYEE" UNDER ARK. CODE ANN. §23-

86-106(1)(3) AND HIPAA TO ASSESS WHETHER AN EMPLOYER IS

SMALL OR LARGE UNDER THE ARKANSAS INSURANCE CODE.

There are two purposes of this Bulletin. The first is to clarify the application of Ark.

Code Ann. §23-86-108(7)(C) with respect to preexisting conditions. The second

purpose is to explain the definition of "employee" under Ark. Code Ann. §23-86-

106(1)(3) and Arkansas' Health Insurance Portability and Accountability Act of 1997

(HIPAA), codified as Ark. Code Ann. §23-86-301 et seq.

ROLE OF PREEXISTING CONDITIONS UNDER ARK. CODE ANN. §23-86-108(7)(C)

WHEN EMPLOYERS CHANGE CARRIERS.

The issue of preexisting conditions has developed due to disability carriers contacting

the Life and Health Division of the Arkansas Insurance Department concerning re-

application of the preexisting condition clause when a policy is transferred to a new

carrier. The problem arises when an employer obtains group coverage through a

carrier and covers his employees. Subsequently, the employer decides to switch

carriers to obtain a better premium rate or for some other reason. The new carrier then

imposes their own preexisting condition clause even though the employee's preexisting

coverage time was initiated upon coverage by the employer.

The Department interprets Ark. Code Ann. §23-86-108(7)(C) to prohibit this type of

conduct. A carrier shall not apply a preexisting condition clause to a condition that

obtain a better premium rate or for some other reason. The new carrier then

imposes their own preexisting condition clause even though the employee's preexisting

coverage time was initiated upon coverage by the employer.

The Department interprets Ark. Code Ann. §23-86-108(7)(C) to prohibit this type of

conduct. A carrier shall not apply a preexisting condition clause to a condition that

began after the employee was initially covered by the employer's plan. If a disability

carrier accepts a new group for their plan in which the employer has previously insured

its group of employees, the preexisting condition date for the subsequent plan shall be

retroactive to the initial date the employee was covered by the employer's plan. The

preexisting condition coverage shall not be determined by the time a particular carrier

instituted coverage but is determined by the time in which the employee was initially

covered by the employer's plan.

The interpretation of preexisting conditions discussed above is subject to the required

provisions of group disability policies under Ark. Code Ann. §23-86-108, including, but

not limited to, the requirement that the group disability benefits were provided to a group

consisting of more than fifteen (15) members.

DEFINING THE TERM "EMPLOYEE" UNDER ARK. CODE ANN. §23-86-106(1)(3)

AND HIPAA TO ASSESS WHETHER AN EMPLOYER IS SMALL OR LARGE UNDER

THE ARKANSAS INSURANCE CODE.

The term "employee" shall be defined in Arkansas as it is provided under Ark. Code

Ann. §23-86-106(1)(3) and HIPAA1. These statutes do not provide the amount of hours

an employee must work to be considered an "employee" for purposes of the size of the

group insured. The Department takes the position that an individual working at least

thirty (30) hours per week for an employer should be considered an “employee” for

purposes of determining the size of the group insured

ode

Ann. §23-86-106(1)(3) and HIPAA1. These statutes do not provide the amount of hours

an employee must work to be considered an "employee" for purposes of the size of the

group insured. The Department takes the position that an individual working at least

thirty (30) hours per week for an employer should be considered an “employee” for

purposes of determining the size of the group insured.

The number of hours a week that must be worked to be considered an "employee" for a

plan can be determined by a carrier. The carrier has the authority to lower the number

of required hours to be a part of a plan as long as applied to all employers in the plan.

Moreover, the employers can increase the number of hours of eligibility an employee

must work above the carrier requirement. The employer may not lower the number of

hours required below the carrier's requirement.

If you have any questions regarding this Bulletin, please contact the Arkansas

Insurance Department Life and Health Division at (501) 371-2800.

_____________________________

MIKE PICKENS

INSURANCE COMMISSIONER

1 "Employee" is defined under HIPAA as having the meaning given to such term under Section 3(6) of the

Employee Retirement Income Security Act of 1974 (ERISA). ERISA is codified as Title 29 U.S.C. §1001

et seq. ERISA defines "employee" as any individual employed by an employer. See 29 U.S.C §1002(6).

2