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01-01: Missouri's Group Discontinuance And Replacement Law and HIPAA

The Missouri Department of Insurance has been receiving numerous complaints concerning the relative obligations of prior carriers and succeeding carriers for claims of disabled individuals when an employer changes health carriers for its employee benefit plan. In 1985, the Missouri legislature enacted the NAIC "Group Coverage Discontinuance and Replacement Model" as Sections 376.431 to 376.442. These sections have governed the relative obligations of the prior carrier and the succeeding carrier to a disabled individual in a discontinuance and replacement situation since that time. With the passage of the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), however, these relative obligations have changed. To illustrate this change, it might be best to compare the situation before HIPAA and after HIPAA.

How Sections 376.438 and 376.441 worked before HIPAA

• When an employer's group health policy/contract was discontinued, any covered individual who was disabled at the time of discontinuance was entitled to an extension of benefits by the terminating carrier (the "prior carrier") pursuant to 376.438.
• If the group health policy/contract was being replaced by another carrier (the "succeeding carrier"), Section 376.441 recognized that the succeeding carrier may impose eligibility requirements that would prohibit a disabled individual from enrolling in the succeeding carrier's plan.
• To remedy this situation, Section 376.441 required the succeeding carrier to provide a limited amount of alternative coverage in lieu of enrollment and specified that such alternative coverage would be secondary to the extended benefits provided by the prior carrier. Section 376.441 did not require the succeeding carrier to enroll the disabled individual in the succeeding carrier's plan.

How Sections 376.438 and 376.441 work since HIPAA

• In Program Memorandum No. 00-04, the Health Care Financing Administration (HCFA) has made it clear that HIPAA preempts the provisions of Section 376.441 that allow succeeding carriers to have eligibility rules that exclude disabled individuals from enrollment in the succeeding carrier's plan. Therefore, the succeeding carrier must allow these disabled individuals to enroll in its plan just as it would any other individual. As a consequence, the subsequent provisions of Section 376.441 setting forth the parameters for the limited alternative coverage to be provided to disabled individuals by the succeeding carrier -- including those provisions making the succeeding carrier's alternative coverage secondary to the prior carrier's extended coverage -- become moot.
• In its Program Memorandum No. 00-04, HCFA has also made it clear that HIPAA does not preempt the extension of benefits for disabled individuals required of prior carriers by Section 376.438, and that states are free to enforce these requirements. Consequently, a disabled individual in an employee benefit plan discontinuance and replacement situation is entitled to coverage under two plans -- enrollment under the succeeding carrier's plan and extension of benefits coverage under the prior carrier's plan.
• When an individual is covered by two group health plans, we must look to Missouri's "Group Coordination of Benefits" regulation, 20 CSR 400-2.300, in order to determine which carrier is primary and which carrier is secondary. From a review of the "Rules for Coordination of Benefits -- Order of Benefit Determination" in Section (4), Subsection (B), the rule for benefit determination that seems to best describe the circumstances for disabled individuals in a plan discontinuance and replacement situation is Paragraph 5:
  1. 5. Continuation Coverage
     1. If a person whose coverage is provided under a right of continuation pursuant to federal or state law also is covered under another plan, the following shall be the order of benefit determination:
        1. First, the benefits of a plan covering the person as an employee, member or subscriber (or as that person's dependent); and
        2. Second, the benefits under the continuation of coverage.
• Since the succeeding carrier's plan is required to enroll a disabled individual in its plan just like any other "employee, member or subscriber," the coverage provided by the succeeding carrier should be primary. And since the prior carrier's extension of benefits can be seen as a form of "continuation" required by "state law," the prior carrier's coverage should be secondary.

We hope that the above discussion has helped clarify the interaction between the provisions of Missouri's discontinuance and replacement law and the provisions of HIPAA. Should you have any additional questions, however, please feel free to contact the Department.