What a Health Factor Is, and What a Group Plan May Not Do With It

Answer first: eight named factors, and two prohibitions built on them

The statute names them health status-related factors and the regulation calls them health factors, and the lists are the same eight items. Health status. Medical condition, including both physical and mental illnesses. Claims experience. Receipt of health care. Medical history. Genetic information. Evidence of insurability. And disability.

The two prohibitions sit on top of that list. On eligibility, a group health plan and an issuer offering group coverage in connection with such a plan may not establish rules for eligibility, including continued eligibility, of any individual to enrol under the terms of the plan based on any of those factors in relation to the individual or a dependent of the individual. The statute adds a construction rule: rules for eligibility to enrol include rules defining any applicable waiting periods for enrollment.

On price, the plan or issuer may not require any individual, as a condition of enrollment or continued enrollment, to pay a premium or contribution greater than that for a similarly situated individual enrolled in the plan, on the basis of any health status-related factor in relation to the individual or to a person enrolled as their dependent.

Evidence of insurability is the item that carries the most freight, and the two texts handle it slightly differently. The statute puts the qualifier inside the item: evidence of insurability, including conditions arising out of acts of domestic violence. The regulation gives it a paragraph of its own, providing that evidence of insurability includes conditions arising out of acts of domestic violence, and participation in activities such as motorcycling, snowmobiling, all-terrain vehicle riding, horseback riding, skiing, and other similar activities. Both formulations are set out here rather than merged.

The regulation also removes one thing from the category. The decision whether health coverage is elected for an individual, including the time chosen to enrol — such as under special enrollment or late enrollment — is not, itself, within the scope of any health factor.

What a rule for eligibility covers, which is more than enrollment

The phrase rule for eligibility sounds like it means getting in. The regulation defines it much more widely, and the list is the reason this provision reaches plan design rather than just enrollment paperwork.

Rules for eligibility include, but are not limited to, rules relating to enrollment; the effective date of coverage; waiting or affiliation periods; late and special enrollment; eligibility for benefit packages, including rules for individuals to change their selection among packages; benefits, including rules relating to covered benefits, benefit restrictions, and cost-sharing mechanisms such as coinsurance, copayments and deductibles; continued eligibility; and terminating coverage, including disenrolment, of any individual under the plan.

The regulation's own examples show what that catches. A plan available to all employees who enrol within their first thirty days, where employees who do not enrol then cannot enrol later unless they pass a physical examination: the requirement to pass a physical is a rule for eligibility that discriminates based on a health factor.

A second example separates the health question from the timing question. Where late enrollees may enrol only in one option and only on providing evidence of good health, the evidence-of-good-health requirement violates the rule — but if the plan simply limited late enrollees to that option without any health evidence, it would not, because the time an individual chooses to enrol is not itself within the scope of any health factor.

A third reaches conduct rather than condition. Excluding from a plan individuals who participate in certain recreational activities, including motorcycling, is a rule for eligibility that discriminates based on one or more health factors.

A fourth reaches the issuer. Where an issuer receives health information as part of a plan's application and excludes a particular employee and their dependents from the group policy on the basis of their claims history, the exclusion is a rule for eligibility that discriminates based on a health factor; and if the plan provides coverage through that policy and does not provide equivalent coverage for them through other means, the plan violates the rule too.

The rule that does not require any particular benefit

This is the part that resolves an apparent contradiction, and both the statute and the regulation are explicit about it.

The statute says the eligibility prohibition shall not be construed to require a plan or coverage to provide particular benefits other than those provided under the terms of the plan, or to prevent a plan or coverage from establishing limitations or restrictions on the amount, level, extent, or nature of the benefits or coverage for similarly situated individuals.

The regulation states the general rule the same way: a plan or issuer is not required to provide coverage for any particular benefit to any group of similarly situated individuals.

Then it states the test that governs the exclusions a plan does have. Benefits provided under a plan must be uniformly available to all similarly situated individuals. Likewise, any restriction on a benefit must apply uniformly to all similarly situated individuals and must not be directed at individual participants or beneficiaries based on any health factor, determined on all the relevant facts and circumstances.

It then names what that permits, and the list is the one that matters most for anyone reading a drug exclusion. A plan may limit or exclude benefits in relation to a specific disease or condition, limit or exclude benefits for certain types of treatments or drugs, or limit or exclude benefits based on a determination of whether the benefits are experimental or not medically necessary — but only if the limitation or exclusion applies uniformly to all similarly situated individuals and is not directed at individual participants or beneficiaries based on any health factor. The same conditions govern deductibles, copayments, coinsurance and other cost-sharing requirements.

The regulation's own examples mark both ends. A uniform annual dollar limit on a specific covered benefit that is not an essential health benefit, applied to every participant and not directed at individuals, does not violate the rule. But where a plan with a general deductible discusses a particular participant's claim for treatment of a condition at a board meeting and shortly afterwards imposes a much higher deductible on benefits for that condition, the regulation says the facts strongly suggest the modification is directed at that person, and absent outweighing evidence to the contrary the plan violates the rule.

A third example applies the same reasoning to a rider. Where an issuer, having received health information about a covered individual with an adverse condition, offers the plan a policy modified by a rider excluding benefits for that individual's condition, the issuer violates the rule.

One timing rule limits how far the directed-at-an-individual theory reaches. A plan amendment applicable to all individuals in one or more groups of similarly situated individuals, and made effective no earlier than the first day of the first plan year after the amendment is adopted, is not considered to be directed at any individual participants or beneficiaries.

Similarly situated individuals, and the classification that has to be real

Everything above turns on a phrase, and the regulation devotes a paragraph to defining it. The requirements of the section apply only within a group of individuals who are treated as similarly situated individuals.

A plan may treat participants as a group separate from beneficiaries. Participants may be treated as two or more distinct groups, and beneficiaries likewise. And where individuals have a choice of two or more benefit packages, those choosing one package may be treated as one or more groups distinct from those choosing another.

For participants, the dividing line has to be a bona fide employment-based classification consistent with the employer's usual business practice. Whether a classification is bona fide is determined on all the relevant facts and circumstances, and the regulation names one that is especially telling: whether the employer uses the classification for purposes independent of qualification for health coverage, such as determining eligibility for other employee benefits or other terms of employment.

Its examples of classifications that may be bona fide are full-time versus part-time status, different geographic location, membership in a collective bargaining unit, date of hire, length of service, current versus former employee status, and different occupations.

Then it closes the loop. A classification based on any health factor is not a bona fide employment-based classification, unless the requirements of the favorable-treatment paragraph are satisfied.

For beneficiaries, the permitted distinctions are a bona fide employment-based classification of the participant through whom the beneficiary receives coverage; relationship to the participant, such as spouse or dependent child; marital status; with respect to children, age or student status; and any other factor that is not a health factor.

Two provisions that cut the other way, and one paragraph left for elsewhere

The section carries a nonconfinement and actively-at-work paragraph aimed at a specific pattern. Under the eligibility and premium rules, a plan or issuer may not establish a rule for eligibility, or set any individual's premium or contribution rate, based on whether an individual is confined to a hospital or other health care institution. Nor may it do so based on an individual's ability to engage in normal life activities, except to the extent separately permitted for distinguishing among employees based on the performance of services.

Its example is direct: where coverage for employees and dependents generally becomes effective on the first day of employment but coverage for a dependent confined to a hospital does not become effective until the confinement ends, the plan violates the paragraph.

In the other direction, the section permits more favorable treatment of individuals with adverse health factors. Nothing in it prevents a plan or issuer from establishing more favorable rules for eligibility for individuals with an adverse health factor, such as disability, than for individuals without it. And nothing prevents charging a higher premium or contribution with respect to individuals with an adverse health factor if they would not be eligible for the coverage were it not for the adverse health factor — subject, the regulation notes, to other laws including state insurance laws that may set or limit premium rates.

Its examples are ordinary ones: dependent children who are disabled remaining eligible beyond the general age limit; and an employee who ceases to perform services by reason of disability remaining covered for a further period at a higher premium.

Finally, one paragraph of this same section is deliberately not developed here. Paragraph (f) contains the wellness program exception — the route by which a plan may vary a benefit or a cost-sharing amount on a standard related to a health factor. That is a separate mechanism with its own conditions, and it has its own treatment in this corpus.

The regulation also flags, in the middle of the benefits rule, that compliance with this section is not the end of the analysis. Whether a plan provision or practice complies with it does not affect whether the provision or practice is permitted under the retirement income security statute, the Affordable Care Act including the essential health benefits requirements, the Americans with Disabilities Act, or any other law, whether state or federal.