Guest Article

(From the Employer's Guide to HIPAA Privacy Requirements, Thompson Publishing Group)

CMS Clarifies HIPAA Definition of 'Small Health Plan'

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Summary: The definition of a "small health plan" was clarified in three questions-and-answers (Q&As) posted Sept. 19 on the Centers for Medicare and Medicaid Services (CMS) Web site. Generally, insured plans should use total premiums, not including stop-loss premiums, and self-insured plans should use the total amount paid for claims.

The definition of a "small health plan" was clarified in three questions-and-answers (Q&As) posted Sept. 19 on the Centers for Medicare and Medicaid Services (CMS) Web site.

Small health plans have an extra year, until April 14, 2004, to comply with HIPAA's privacy rules and until Oct. 16, 2003, to comply with HIPAA's electronic data interchange (EDI) rules (and therefore do not have to file for an EDI compliance extension under the Administrative Simplification Compliance Act). Self-administered group health plans with fewer than 50 participants are exempted altogether.

HIPAA's privacy and transaction rules define a small health plan as "a health plan with annual receipts of $5 million or less," which is based on the Small Business Administration's (SBA's) definition of a "small business concern." The CMS definition has caused confusion regarding what constitutes "receipts" in the group health plan context.

The CMS Q&A explains the "proxy measures" that should be used to determine annual receipts by ERISA plans and others that do not report receipts to the Internal Revenue Service (IRS). "Fully insured health plans should use the amount of total premiums which they paid for health insurance benefits during the plan's last fiscal year," CMS states. "Self-insured plans, both funded and unfunded, should use the total amount paid for health care claims by the employer, plan sponsor or benefit fund, as applicable to their circumstances, on behalf of the plan during the plan's last full fiscal year." Furthermore, a separate Q&A notes that, "the premiums or amounts paid for stop-loss insurance by an employer or sponsor of a self-insured plan should not be included in the amount of receipts."

Group health plans "that provide health benefits through a mix of purchased insurance and self-insurance" should combine these two methods to calculate receipts, CMS adds. For health plans that do file income tax returns, such as insurers, receipts mean "total income" plus "cost of goods sold," as the IRS defines those terms, but exclude certain other items, such as capital gains or losses.

While the Q&A does not have the force of law, "it's something people can rely on," said a CMS spokesperson. "Nobody's going to fault you for following it."

In another separate Q&A, the CMS Web site also noted the impact of the SBA's change of the receipts limit under its "small business concern" definition from less than $5 million to less than $6 million. According to CMS, this change does not affect HIPAA's definition of small health plan. CMS added that while HHS relied on SBA advice in developing its definition, the SBA definition was not formally adopted for HIPAA purposes. Therefore, $5 million or less per year in receipts is still part of HIPAA's definition for small health plans.

The Q&As are titled:

"How should a health plan determine what receipts to use to decide whether it qualifies as a 'small health plan?'" "How does the Small Business Administration definition change affect the HIPAA definition?" "Should the premiums paid for stop-loss insurance be included in the amount of receipts?"

They can be found at http://cmshhs.custhelp.com. Select "HIPAA" as the category and "Admin. Simplification" as the subcategory.

Reprinted with permission from the October 2002 newsletter of the Employer's Guide to HIPAA Privacy Requirements, © Thompson Publishing Group, Inc., 2002. All rights reserved.

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