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New Safe Harbor Limits Supplemental Health Underwriting

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The Employee Benefits Security Administration has issued a batch of guidance that could affect companies that sell supplemental health insurance benefits.

Daniel Maguire, director of health plan standards and compliance assistance at EBSA, an arm of the U.S. Department of Labor, has presented EBSA’s views on supplemental health in Field Assistance Bulletin Number 2007-04.

The bulletin covers the relationship between supplemental health insurance products and consumer-protection requirements in benefits laws such as the Health Insurance Portability and Accountability Act of 1996.

Federal laws and regulations exclude supplemental health insurance from provisions in HIPAA and later laws that do things such as restricting use of preexisting condition exclusions, mandating mental health parity, prohibiting discrimination based on health factors, and providing special enrollment rights for individuals who have maintained continuous “creditable coverage,” Maguire writes.

Existing regulations indicate the supplemental coverage, referred to as “similar supplemental coverage,” “must be specifically designed to fill gaps in primary coverage, such as coinsurance or deductibles,” Maguire writes.

The Labor Department has come across situations that raise concerns about whether some products marketed as supplemental coverage really qualify as such, Maguire writes.

In the EBSA bulletin, EBSA establishes an “enforcement safe harbor” under which supplemental health insurance will be treated as benefits “excepted” from the usual preexisting condition provision and other consumer-protection provisions that apply to major medical coverage, Maguire writes.

To qualify for the enforcement safe harbor, a supplemental health product must be a separate policy, certificate, or contract of insurance that satisfies all of the following requirements:

- The product must be separate from the primary health coverage and issued by an “entity that does not provide the primary coverage.”

- The cost of the supplemental coverage must not exceed 15% of the cost of the primary coverage.

- The coverage must to be “similar to Medicare supplemental coverage.” That, according to Maguire, means that the seller of the coverage “must not differentiate among individuals in eligibility, benefits, or premiums based on any health factor of an individual (or any dependent of the individual).”

A copy of the bulletin is available


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