HIPAA EDI Reminder

As reported in past issues of Tech Flex, effective October 16, 2002, the Health Insurance Portability and Accountability Act (HIPAA) requires that Health Plans, Health Care Clearinghouses, and Health Care Providers (Covered Entities) and their Business Associates that engage in certain specified electronic transactions will be required to comply with rules that are designed to standardize the format and content (the EDI Standards) of these specified transactions.

The final HIPAA EDI regulations require that any Covered Entity engaging in a Covered Transaction either internally or with another Covered Entity, or its Business Associate, must comply with the EDI Standards, unless the Covered Entity has filed an extension. In addition, a Business Associate performing a Covered Transaction (e.g. electronically transmitting eligibility data) on behalf of a Covered Entity (plan sponsor) also must also comply with certain standards related to the EDI Standards.

Please note: Insured plans with less than $5 million in annual premiums or a self-insured plan paying less than $5 million in benefits has an automatic (no filing required) one-year extension in relation to HIPAA EDI. These plans must be HIPAA EDI compliant by October 16, 2003.

Final HIPAA Privacy Regulations

On August 14, 2002, the Department of Health and Human Services (DHHS) released the final modifications to the December 2000 HIPAA privacy regulations. Generally, the final modifications adopt the changes to the 2000 regulations that were proposed in March 2002. Of important note, however, is that the August 14 release makes it clear that the Administration is committed to full implementation of the privacy regulations by April 14, 2003. Note that ProBusiness does not set up Client compliance related to HIPAA - please seek legal guidance when making determinations related to HIPAA or any other compliance matter.

Following is a summary of some of the most significant modifications and additions to the privacy regulations based on the August 14 release.

Extension for Business Associate Contracts
The August 14, 2002 release provided an additional year for certain Covered Entities to modify its service agreements (contracts) with Business Associates. The additional time is available only to Covered Entities that have existing written contracts in place with their Business Associates prior to October 15, 2002 and where that written contract is not renewed or modified prior to April 14, 2003. The extension of the deadline ends on the earlier of (1) the date the contract with the Business Associate is renewed or modified, or (2) April 14, 2004. Written contracts entered into, renewed, or modified after October 15, 2002 will not qualify for the extension of time.

Clarification - Employment Records are Not Protected Health Information (PHI)
The final modifications state that "employment records" maintained by a Covered Entity in its capacity as an employer are not PHI, even though these records may include individual identifiable health information.

Enrollment/Disenrollment Information is PHI But May Be Disclosed to Plan Sponsor Without Plan Amendment
The DHHS rejected the suggestion of excluding health plan enrollment information from the definition of PHI and confirmed that enrollment/disenrollment data (which may first be compiled by the employer) becomes PHI when it is received by the group health plan. However, enrollment and disenrollment information may be provided to the plan sponsor by a health plan or issuer without having to amend its plan documents.

Accounting of Disclosures of Protected Health Information
A Covered Entity or its Business Associates are not required to account for disclosures for which individuals provided written authorization.

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HIPAA EDI and Privacy Regulations and ProBusiness

HIPAA stipulates that the "Covered Entities," listed below must comply with the EDI and privacy regulations.

Health Plans - defined as an individual or group that provides, or pays the cost of medial care. This includes virtually all arrangements that pay the cost of medical care, including group health plans, health insurance issuers, managed care organizations, HMOs, and ERISA plans.

Health Care Provider - defined as a provider of medical or other services, or one that furnishes medical or health care services or supplies, or any entity that furnishes, bills, or is paid for health care in the normal course of business.

Health Care Clearinghouse - defined as public or private entities that process, or facilitate the processing of, nonstandard formats and data into standard formats and data, and vice versa.

ProBusiness does not meet the definition of any of the above, but EDI and privacy rules apply, in some measure, to outside entities such as ProBusiness when Covered Entities utilize such entities to perform certain contracted administration duties. Entities such as ProBusiness may be defined as "Business Associates," not Covered Entities, and as such, may have different requirements in relation to HIPAA as noted below:

The assurances that Covered Entities must obtain prior to disclosing protected health information (PHI) to Business Associates create a set of contractual obligations far narrower that the provisions of the rule, to protect information generally and help the Covered Entity comply with its obligations under the rule. For example, Covered Entities do not need to ask their Business Associates to agree to appoint a privacy officer, or develop policies and procedures for use and disclosure of PHI. ("Standards for Privacy of Individually Identifiable Health Information" (July 6, 2001)).

Employers should seek counsel regarding the Business Associate issue since they may be required to have entities such as ProBusiness sign a Business Associate Addendum which will need to be appended to any current Services Agreement.

ProBusiness is currently, or will be by the varying effective dates, compliant with all applicable HIPAA rules and regulations. Clients should seek counsel to determine their own compliance in relation to HIPAA as they would in relation to any other compliance issue.

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Trade Act of 2002 Provides Second COBRA Election Period

On August 6, 2002, the Trade Act of 2002 was signed into law. This legislation expands the benefits available to workers who lose their jobs as a result of import competition or transfer of production to other countries. One of these new benefits comes in the form of a tax credit. Specifically, an eligible individual may take a federal income tax credit for up to 65% of the premiums for COBRA coverage, or other qualified health insurance. This benefit effective December of 2002, is available to the qualifying individual and his or her qualifying family members.

Eligibility
An individual is eligible for the tax credit if he or she is:

• Eligible for trade adjustment assistance (requires government certificate as provided under the 1974 Trade Act); or
• At least 55 years old and receiving pension benefits paid by the Pension Benefit Guaranty Corporation.

Qualifying Family Members
Qualifying family members include the taxpayer's spouse and any dependent for whom the taxpayer is entitled to a dependent deduction under Code Section 151 (c) in relation to personal exemptions.

Qualified Health Insurance
Qualified health insurance includes federal COBRA coverage as well as coverage under state law including state high-risk pools. However, Health Care Spending Accounts and HIPAA excepted benefits are excluded from the definition of qualified health insurance.

Advance Credit Payments
The Trade Act of 2002 requires the Treasury Department to establish a program for making premium payments directly to the insurance carrier on behalf of certified individuals, no later than August 1, 2003. The government will pay up to 65% of the premium required to provide health insurance coverage to the certified individual and his or her qualifying family members. For example, a certified individual is required to pay $500 per month for family health insurance coverage. Should the certified individual receive the maximum 65%, the Treasury Department would pay 65% of $500 ($325) directly to the insurance carrier. The certified individual will be required to pay 35% of $500 ($175) of the $500 premium. Any credit payments made on behalf of the certified individual would reduce the amount of health insurance tax credit that could be claimed on the certified individual's tax return.

Another feature of this new law is a second COBRA election period for those workers who become eligible for trade adjustment assistance. Generally, the COBRA election period is a 60-day window measured from the later of (1) the loss of coverage under the employer's plan, or (2) the date the individual is notified of his or her COBRA rights. Although, the 2002 Trade Act creates a second COBRA election period for displaced workers who have not yet elected COBRA, it does not create a COBRA entitlement if none existed before.

Eligibility
An individual may elect COBRA during the second election period if he or she:

• Is eligible for trade adjustment assistance (requires government certificate as provided under the 1974 Trade Act).
• Lost group health plan coverage due to job loss that resulted in eligibility for trade adjustment assistance.
• Failed to elect COBRA during initial COBRA election period.

Election Period
The second 60-day COBRA election period begins on the first day of the month in which the worker becomes eligible for trade adjustment assistance. However, the election must be made within six months of the original loss of the group health coverage.

Period of COBRA Coverage
There is no retroactive coverage for the period of time between the initial loss of coverage and the first day of second election period. However, the Trade Act of 2002 does not address the issue of whether the COBRA coverage period is to be measured from the date of the initial loss of coverage or from the first day of the Trade Act second election period. Consequently, this lack of clarification has given rise to two interpretations within the industry. The first being that if an employee initially loses active coverage due to termination on, for example, January 1, but did not elect COBRA until June (to be effective June 1), under the Trade Act provisions, that this employee would receive 18 months as measured from January 1. Consequently, the employee would only receive 13 months of COBRA coverage. The second interpretation, using the example above, is that the employee's coverage period is to be measured from the June 1 effective date, rather than the January 1 initial loss of coverage date, which would give the employee 18 months of COBRA coverage from the June 1 effective date. It is expected that clarification in this matter will be forthcoming from the government shortly.

Effective Date
The newly created COBRA election period is effective for individuals who file for certification for trade adjustment assistance on or after November 4, 2002.

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Mergers and Acquisitions and FSA Elections

The Cafeteria Plan regulations under Internal Revenue Code § 125 do not address how employee cafeteria plan regulations should be treated in the event of a corporate merger or acquisition. There has been, however, informal Internal Revenue Service (IRS) guidance and ProBusiness has passed that informal guidance on to clients when asked. Recently, on June 10, 2002, the IRS released Revenue Ruling 2002-32, which specifically addresses the treatment of employee cafeteria plan elections in the event of a corporate merger or acquisition. This is very useful information and important guidance - a welcomed clarification from the IRS!

A link to Revenue Ruling 2002-32 has been included below for your convenience.

http://www.unclefed.com/Tax-Bulls/2002/rr02-32.pdf

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IRS Decreases Mileage Allowance For Transportation

The Internal Revenue Service announced on September 19, 2002 via IRS Rev. Proc. 2002-61, that the standard mileage rate for the use of an automobile to and from medical care (as defined in Section 213) will decrease from the current $0.13 to $0.12 per mile for tax year 2003. Therefore, any medical mileage claims incurred from January 1, 2003 forward submitted through a Health Care Spending Account should be reimbursed at $0.12 per mile.

A link to IRS Rev. Proc. 2002-61 has been included below for your convenience.

http://www.irs.gov/pub/irs-drop/rp-02-61.pdf

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IRS Reissues Form W-2

The Internal Revenue Service, on August 8, 2002, reissued the Wage and Tax Statement (W-2), for the tax year of 2002. Some of the modifications include:

• Instructions for Copy C ("for employers records) have been modified. Code Q (used by military employers) no longer exists in the list of Box 12 codes provided.
• The instructions on elective deferrals and their Box 12 codes have been revised.

The reissued form can be downloaded using the link below:

http://www.irs.gov/pub/irs-pdf/fw2_02.pdf

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Please contact ProBusiness for further information at:
20000 North Creek Parkway, Suite 200, Bothell, WA 98011
Phone: (425) 415-4000 Fax: (425) 417-4795
e-mail: bsa@probusiness.com

(ProBusiness does not make any representation or warranty that the information contained in this newsletter, when used in a specific and actual situation, meets applicable legal requirements. This newsletter should not be construed as legal advice. Your legal counsel should be consulted on all specific fact situations.)

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