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October 12, 2010

HRB 22 - Limited PPACA Exemption for Self-Funded, Non-Federal Governmental Plans

Released October 12, 2010I Download as a PDF

October 12, 2010 --  Since the enactment of HIPAA in 1996, if certain conditions are met, a self-funded or partially self-funded health plan sponsored by a State and local government entity, such as a city, township, or school district, can elect to exempt itself from being considered a group health plan for purposes of the HIPAA portability, preexisting condition exclusion limitation, and related provisions of the law.  This exemption is only available as it relates to the self-funded portion of the plan. 

To be exempt, the self-funded, non-federal government plan must notify the Centers for Medicare and Medicaid Services prior to the beginning of the plan year.  The plan must also notify each plan participant at enrollment time, and annually thereafter, of its decision to exempt itself from the law and the consequences thereof.  A self-funded, non-federal government plan must comply with the HIPAA certification requirements of the law.

The Patient Protection and Affordable Care Act (PPACA), however, seems to curtail this ability.  Due to the confusion caused by this provision, the HHS Office of Consumer Information and Insurance Oversight has issued an interpretive memorandum clarifying the situation, as follows.  According to this guidance, for plan years beginning on or after September 23, 2010, a self-funded, non-federal governmental plan can opt out of the following four provisions:

  1. Maternity length of stay, pursuant to the Newborns’ and Mothers’ Health Protection Act;
  2. Mental health parity laws, pursuant to the Mental Health Parity Act and the Paul Wellstone and Pete Domenici Mental Health Parity and Addition Equity Act;
  3. Mastectomy-related coverage, pursuant to the Women’s Health and Cancer Rights Act; and
  4. Health coverage continuation rights for students on medical leave, pursuant to Michelle’s Law.

This opt-out provision applies to both grandfathered and non-grandfathered plans.  For plans subject to a collective bargaining agreement in effect before March 23, 2010, the provisions apply beginning the first day of the first plan year occurring after the current agreement expires. 

The Memo includes a non-enforcement period to allow plans to become compliant.  The non-enforcement period ends for plan years beginning on or after April 1, 2011.  The non-enforcement provision does not, however, preclude a participant from challenging an employer who attempts to continue to opt out of relevant provisions.

Clarification of Claims and Appeals and External Review Process

With regard to the PPACA rules governing internal claims and appeals, and the external review process, HHS issued technical guidance on September 23, 2010, affirming that self-funded, non-federal government plans may follow the procedures set forth in Technical Release No. 2010-01, issued August 23, 2010. What this means is that a self-funded, non-federal government plan can either follow the federal procedures for external review, or voluntarily comply with a state’s external review process, if available.  These directives apply until further guidance is issued. 


About the Author:  Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc.  She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law.  Ms. McLeese is based in the CBIZ Leawood, Kansas office.



The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.  As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.


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