[Federal Register Volume 64, Number 219 (Monday, November 15, 1999)]
[Proposed Rules]
[Pages 62054-62073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-29412]
[[Page 62053]]
_______________________________________________________________________
Part IV
Department of Labor
_______________________________________________________________________
Pension and Welfare Benefits Administration
_______________________________________________________________________
Department of Health and Human Services
_______________________________________________________________________
Office of Child Support Enforcement
_______________________________________________________________________
29 CFR Part 2590
45 CFR Part 303
National Medical Support Notice; Proposed Rules
Federal Register / Vol. 64, No. 219 / Monday, November 15, 1999 /
Proposed Rules
[[Page 62054]]
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
RIN 1210-AA72
29 CFR Part 2590
National Medical Support Notice
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains a proposed rule that, upon adoption,
would implement an amendment to section 609(a) of Title I of the
Employee Retirement Income Security Act (ERISA) made by section 401 of
the Child Support Performance and Incentive Act of 1998 (CSPIA), Public
Law 105-200. CSPIA requires the Secretaries of Labor and Health and
Human Services to jointly promulgate a National Medical Support Notice
to be issued by State agencies as a means of enforcing the health care
coverage provisions in a child support order, and to be treated by plan
administrators of group health plans as a qualified medical child
support order under section 609(a) of ERISA. This proposed rule would
affect group health plans, participants in group health plans,
noncustodial children of such participants, and State agencies that
administer child support enforcement programs.
DATES: Written comments on these proposed rules must be received by the
Department of Labor on or before February 14, 2000.
ADDRESSES: Interested persons are invited to submit written comments
(preferably three copies) concerning the proposed rules to: Office of
Regulations and Interpretations, Pension and Welfare Benefits
Administration, U.S. Department of Labor, 200 Constitution Avenue, NW,
Room N-5669, Washington, DC 20210. Attention: National Medical Support
Notice. All submissions will be open to public inspection and copying
in the Public Disclosure Room, Pension and Welfare Benefits
Administration, U.S. Department of Labor, 200 Constitution Avenue, NW,
Room N-5638, Washington, DC, from 8 a.m. to 4:30 p.m., E.S.T.
FOR FURTHER INFORMATION CONTACT: David Lurie or Susan Rees, Office of
Regulations and Interpretations, Pension and Welfare Benefits
Administration, (202) 219-8671 (this is not a toll-free number).
SUPPLEMENTARY INFORMATION:
1. Background
Section 609(a) of the Employee Retirement Income Security Act of
1974, as amended (ERISA), provides that each group health plan, as
defined in ERISA section 607(1), shall provide benefits in accordance
with the applicable requirements of any ``qualified medical child
support order'' (QMCSO). A QMCSO is a medical child support order
issued under State law that creates or recognizes the existence of an
``alternate recipient's'' right to receive benefits for which a
participant or beneficiary is eligible under a group health plan, and
which satisfies certain additional requirements contained in section
609(a). An ``alternate recipient'' is any child of a participant
(including a child adopted by or placed for adoption with a participant
in a group health plan) who is recognized under a medical child support
order as having a right to enrollment under a group health plan with
respect to such participant. Upon receipt, the administrator of a group
health plan is required to determine, within a reasonable period of
time, whether a medical child support order received by the plan is
qualified, and to administer benefits in accordance with the applicable
terms of each order that is qualified. Section 514(b)(7) also provides
that ERISA preemption of State laws does not apply to QMCSOs and
provisions of State law described in section 1908 of the Social
Security Act (SSA) to the extent that they apply to a
QMCSO.1
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\1\ Section 1908 of the SSA conditions State eligibility for
Medicaid matching funds on the enactment of certain specified laws
relating to medical child support. Under section 1908 of the SSA,
for instance, States must enact laws under which insurers (including
group health plans) may not deny enrollment of a child under the
health coverage of the child's parent on the ground that the child
is born out of wedlock, not claimed as a dependent on the parent's
tax return, or not in residence with the parent or in the insurer's
service area. Section 1908 also sets out rules for States to require
of employers and insurers when a parent is ordered by a court or
administrative agency to provide health coverage for a child and the
parent is eligible for health coverage from that insurer or
employer, including a provision which permits the noncustodial
parent or the State agency to apply for available coverage for the
child.
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2. The Child Support Performance and Incentive Act
Based on concerns raised both by State agencies that enforce the
programs under Title IV-D of the SSA (known as the Child Support
Enforcement Program, which is administered by the Federal Office of
Child Support Enforcement (OCSE) in the Department of Health and Human
Services (HHS)) and by sponsors and administrators of group health
plans concerning difficulties in establishing medical child support
orders that are qualified, Congress enacted section 401 of the Child
Support Performance and Incentive Act of 1998 (CSPIA) to amend both
ERISA and the SSA. CSPIA requires State agencies to enforce the medical
child support obligations of noncustodial parents by issuing to their
employers a National Medical Support Notice (Notice), and requires plan
administrators, upon receipt of the Notice from the employer, to accept
an appropriately completed Notice that also satisfies the requirements
of ERISA section 609(a) as a QMCSO.
In addition to complying with ERISA requirements and the
requirements of Title IV-D of the SSA, the Notice must include a
separate and easily severable employer withholding notice informing the
employer of the noncustodial parent of applicable provisions of State
and Federal law relating to any necessary withholding of employee
contributions that may be required by the plan to extend coverage to
any child named in the Notice. The changes made by section 401 of
CSPIA, and that would be implemented by the proposed regulations, will
simplify the issuance and processing of medical child support orders,
provide standardized communication between State agencies, employers,
and plan administrators, and create a uniform and streamlined process
for enforcement of medical child support to ensure that all children
receive the health care coverage for which they are eligible and to
which they are entitled.
Section 401(c) of CSPIA amended section 466(a)(19) of the SSA to
require States to enact laws requiring the use of the Notice to enforce
medical child support obligations of parents.2 Pursuant to
such laws, State IV-D agencies will be required to use the Notice to
notify the employer of the noncustodial parent that a State court or
[[Page 62055]]
administrative agency has issued a child support order providing for
health care coverage. The employer will then be required to separate
and retain the part of the Notice directing the employer to withhold
employee contributions and transfer, within 20 business days of the
date of the Notice, the remaining part of the Notice to the appropriate
group health plan.
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\2\ This requirement is effective for each State on or after the
later of October 1, 2001, or the effective date of laws enacted by
the legislature of such State implementing the amendments to the SSA
made by section 401 of CSPIA, but in no event later than the first
day of the first calender quarter beginning after the close of the
first regular session of the State legislature that begins after
October 1, 2001. In the case of a State that has a 2-year
legislative session, each year of such session shall be deemed to be
a separate regular session of the State legislature. Some States,
therefore, may not have laws mandating the use of the Notice until
2003. Until that time, such States may continue to use medical child
support orders other than the Notice. Plan administrators are
advised that such orders are ``medical child support orders'' as
defined in ERISA section 609(a)(2)(B), that the procedures mandated
by section ERISA 609(a)(5)(A) and (B) remain applicable with respect
to such orders, and that if such orders satisfy section ERISA
609(a)(3) and (4), they are QMCSOs.
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Section 401(d) of CSPIA added a new subparagraph (C) to section
609(a)(5) of ERISA. Section 609(a)(5)(C) provides that if a plan which
is maintained by the employer of a noncustodial parent of a child, or
to which such employer contributes, receives an appropriately completed
Notice in the case of such child, and the Notice satisfies the
conditions of paragraphs (3) and (4) of section 609(a), the Notice
shall be deemed to be a QMCSO in the case of such child. In such a
case, the plan administrator, within 40 business days after the date of
the Notice, shall notify the State agency issuing the Notice with
respect to such child whether coverage is available under the terms of
the plan, and, if so, whether the child is covered under the plan and
either the effective date of coverage or, if necessary, any steps to be
taken by the custodial parent to effectuate such coverage, and provide
to the custodial parent a description of the coverage available and any
forms or documents necessary to effectuate such coverage.
3. The Medical Child Support Working Group
Section 401(a) of CSPIA mandated that the Secretaries jointly
establish a Medical Child Support Working Group (the Working Group)
whose purpose is to identify the impediments to the effective
enforcement of medical support by State IV-D agencies and to submit a
report to the Secretaries containing recommendations for appropriate
measures to address such impediments. CSPIA specifically directs the
Working Group, among other things, to make recommendations based on
assessments of the form and content of the Notice. The Working Group is
composed of 30 members, who represent the DOL and HHS, directors of
State IV-D and Medicaid agencies, employers (including owners of small
businesses) and their trade or industry representatives and certified
human resource and payroll professionals, administrators and sponsors
of group health plans (as defined in section 607(1) of ERISA), children
potentially eligible for medical support, State medical child support
programs, and organizations representing State child support programs.
In the interest of developing a proposed Notice that best addresses
the needs and concerns of the affected parties, DOL and HHS solicited
comments and suggestions regarding the Notice from the Working Group at
its public meetings of April 13, and May 12 and 13, 1999. Comments from
the Working Group proved very helpful in the development of the Notice
that is proposed herein. In an effort to ensure that the statutorily
mandated Notice facilitates, rather than complicates, State agency
efforts to secure health care coverage for children, consistent with
congressional intent, and taking into account the views of the Working
Group, the Department has determined it appropriate to promulgate the
Notice as a proposed rulemaking, rather than as an interim
regulation.3 We believe that this more closely comports with
congressional intent to permit the affected parties, including the
Working Group, to comment on the Notice before it becomes effective.
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\3\ Section 401(b)(5) of CSPIA provides for the issuance of
interim regulations within ten months of enactment of CSPIA, and
final regulations within one year of the issuance of the interim
regulations. As stated above, under section 401(a)(5) of CSPIA, the
Working Group is required to make recommendations, within eighteen
months of the enactment of CSPIA, on the form and content of the
Notice as issued under interim regulations. CSPIA also provides that
State agencies will not be required to use the Notice prior to
October of 2001.
The initial meetings of the Working Group have led the
Departments to a more complete appreciation of the complexity of the
issues involved in the development of the Notice. In the interest of
developing a more useful Notice, the Agencies decided to obtain
additional input from the Working Group, which necessitated taking
additional time in promulgating these proposed regulations. In
addition, it was decided that the final regulations would benefit
from public comments, in addition to those from the Working Group.
Furthermore, concerns were raised as to the applicability of the
Notice if it was promulgated pursuant to interim regulations,
subject to alteration in the final regulations. Accordingly, in
order to encourage greater public participation in this rulemaking
and reduce the possibility for confusion, the Departments decided to
issue these regulations in proposed form.
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4. The Proposed National Medical Support Notice
A. General
The Departments of Labor and HHS are jointly promulgating the
Notice. The Notice has two parts, Part A, the ``Employer Withholding
Notice,'' and Part B, the ``Medical Support Notice to Plan
Administrator.'' Also being published in the Federal Register today is
a parallel proposed regulation issued by OCSE, under sections 452(f)
and 466(a)(19) of the SSA, 42 U.S.C. 652(f) and 666(a)(19), as amended
by section 401 of the CSPIA. That proposed regulation, in addition to
promulgating the Notice, provides guidance to States on implementing
the laws required by such sections. These laws describe the duties and
obligations of employers and State agencies with respect to the Notice.
B. Employer Withholding Notice
As described in the OCSE proposed regulation, a State agency will
issue the two part Notice to an employer of an employee who is a
noncustodial parent obligated by a child support order to provide
medical support for his or her children, which employer may maintain or
contribute to a group health plan. Part A, the ``Employer Withholding
Notice'' identifies the obligated employee as well as the child(ren) to
whom the order applies. The Instructions to Employer inform the
employer of its obligations (i) to transfer Part B to the administrator
of each group health plan providing coverage for which the children may
be eligible within 20 business days of the date of the Notice, (ii) to
withhold from the earnings of the employee/obligor any participant
contributions required under the group health plan for such coverage,
and (iii) to transmit those amounts to the plan. Part A also includes
an Employer Response, which the Employer would use to notify the State
agency if the employer does not maintain or contribute to a group
health plan that offers family health care coverage or that the
employee is among a class of employees (e.g., part-time or non-union)
that is not eligible for family health coverage under any plan
maintained by the employer or to which the employer contributes, if the
individual is not employed by the employer, or if Federal or State
withholding limitations or prioritization rules prevent the withholding
from the employee's income of the amount required to obtain coverage
for the children under the terms of the plan (participant
contribution).
The Instructions in Part A also notifies the employer (i) of
Federal and State limitations on withholding, (ii) of the obligation to
comply with any applicable withholding prioritization established by
the State of the employee's principal place of employment and to notify
the State agency which issued the Notice of the employee's termination
of employment, (iii) of the duration of the withholding obligation,
(iv) of sanctions that the employer might be subject to for failure to
withhold as required by the Notice, and (v) that the employee is liable
for any employee contributions required by the terms of the plan.
[[Page 62056]]
As described below, Part B of the Notice and its Instructions were
developed to insure that the Notice would comply with the ERISA QMCSO
requirements, and to provide guidance to the administrator of a group
health plan that receives Part B. Part B was also developed to comply
with the requirements placed on group health plans under State laws
described in SSA section 1908, and to accommodate the requirements for
State agencies to use automated processing of medical child support
orders.
C. Notice to Plan Administrator
Part B of the proposed Notice, the ``Medical Support Notice to Plan
Administrator,'' includes the same information as is contained in Part
A, and a Plan Administrator Response to be returned to the State
Agency, along with Instructions to Plan Administrator (Instructions)
regarding the administrator's responsibilities in processing Part B.
Part B notifies the administrator of the group health plan in which
the named employee is enrolled or eligible for enrollment that the
employee is obligated by a court or administrative child support order
to provide medical support coverage for the named alternate
recipient(s). Part B provides the information necessary for the plan
administrator to determine, as required by section 609(a)(5)(A),
whether the notice is a QMCSO under section 609(a) of ERISA, and to
enroll the alternate recipient(s) as dependent(s) in the group health
plan. Part B also includes a Plan Administrator Response that the plan
administrator will use to inform the State IV-D agency whether the
Notice constitutes a QMCSO and, if it does, to notify the State agency
either that the alternate recipient is enrolled in the coverage offered
by the plan, or, if there is more than one option available under the
plan, inform the State agency of the options from which to elect
coverage.
Receipt by a plan administrator of Part B of a Notice that
identifies (i) an issuing State agency (the Issuing Agency), (ii) a
participant who is enrolled or eligible to enroll in the plan, and
(iii) one or more alternate recipients with respect to the participant
is considered receipt of a medical child support order as defined in
ERISA section 609(a)(2)(B). Accordingly, the plan administrator would
be subject to the statutory requirements of ERISA section 609(a),
including section 609(a)(5)(A), which requires the administrator to
notify the participant and alternate recipient(s) of the receipt of the
Notice and the plan's procedures for determining if a medical child
support order is a QMCSO. The Notice is to be treated as an application
by the Issuing Agency for health coverage for the alternate
recipient(s), to the extent such application is required by the plan
and has not been undertaken by the participant.
ERISA section 609(a)(5)(C) provides that if a plan receives an
appropriately completed Notice and the Notice satisfies the conditions
of paragraphs (3) and (4) of section 609(a), the Notice shall be deemed
to be a QMCSO. It is the view of the Department that a Notice is
appropriately completed, within the meaning of section 609(a)(5)(C), if
Part B of the Notice (i) identifies an employee of an employer,
enrolled or eligible for enrollment in a group health plan sponsored by
an employer or to which an employer contributes, who is a noncustodial
parent obligated by a State court or administrative order to provide
medical child support for one or more alternate recipients named in the
Notice, and (ii) indicates the type of health care coverage to be
provided to the alternate recipient(s). The Notice satisfies ERISA
section 609(a)(3) by including the necessary information in Part B, by
expressly requiring the plan to treat an alternate recipient as a
dependent under the terms of the plan and by specifying that coverage
may only end for the alternate recipient when similarly situated
dependents are no longer eligible for coverage under the terms of the
plan, or upon the occurrence of certain specified events.4
(Certain other events that may lead to a loss of coverage of the
alternate recipient (e.g., the death of the participant) may be
``qualifying events'' as specified in ERISA section 603, thereby
triggering the continuation coverage (also known as COBRA) provisions
of ERISA.) The Notice satisfies ERISA section 609(a)(4) because it
states that the alternate recipient(s) must be provided only the
coverage that the plan provides, or be enrolled in an option provided
under the plan, except to the extent necessary to meet the requirements
of a State law described in SSA section 1908. Accordingly, if Part B is
appropriately completed as specified above, and in the Instructions,
the Notice is deemed to be a QMCSO.
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\4\ Section 1908(a)(2)(C) and (3)(C) of the SSA provide that,
when a child is provided health care coverage by a parent's insurer
pursuant to a court or administrative order, the child may only be
disenrolled if the employer or insurer is provided satisfactory
evidence that the order is no longer in effect, the child is or will
be enrolled in comparable coverage which will take effect no later
than the effective date of disenrollment, or the employer eliminates
family health coverage for all of its employees.
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The Instructions also inform the plan administrator that coverage
may not be denied because the alternate recipient was born out of
wedlock, is not claimed as a dependent on the participant's Federal
income tax return, or does not reside with the participant or in the
plan's service area. The Instructions further provide that all
enrollments are to be made without regard to open season
restrictions.5 Further, if Part B is appropriately
completed, the plan administrator must treat the Notice as QMCSO, even
if there is a waiting period to enroll in the plan or there are
additional steps to be taken to include the alternate recipient(s) in
the group health plan. Even if coverage does not begin immediately, the
plan administrator must provide the notifications and information
required by section 609(a)(5) and the Notice to the alternate
recipient(s), custodial parent, and Issuing Agency.
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\5\ This requirement is derived from SSA section 1908(a)(2) and
(3).
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ERISA section 609(a)(5)(A)(ii) requires that a plan administrator
determine whether a medical child support order is qualified within a
reasonable period of time after receipt of the order and notify the
participant and each alternate recipient named in the order of such
determination. Section 609(a)(5)(C)(ii) requires the plan
administrator, within 40 days of the date of an Notice, to notify the
Issuing Agency whether coverage is available under the terms of the
plan, whether the alternate recipient(s) is/are covered under the plan,
and either the effective date of coverage or, if necessary, any
additional steps to be taken by the custodial parent (or by a State or
local official who has been substituted for the address of the
alternate recipient) to effectuate the coverage, and provide to the
custodial parent (or such substituted official) a description of the
coverage available and any forms or documents necessary to effectuate
the coverage. In order to align these requirements, the Instructions
provide that the plan administrator shall, within 40 business days of
the date of the Notice, or sooner if reasonable, provide the required
notifications and information to the Issuing Agency, the participant/
non-custodial parent and the alternate recipient/child. Although what
constitutes a reasonable period will depend on the specific
circumstances of each medical child support order, it is the view of
the Department that, given the uniform nature of Part B of the Notice,
a plan administrator should
[[Page 62057]]
require less time to review Part B than a medical child support order
that is not based on such uniform form and content.
The Plan Administrator Response is to be completed by the plan
administrator and returned to the Issuing Agency. If the plan
administrator determines that a Notice received by the plan is not
qualified, he or she completes part 1 of the Response and identifies
the specific reason(s) why the Notice is not qualified. If the
administrator determines that the Notice is a QMCSO, he or she
completes part 2 of the Response, indicating whether there is only one
type of coverage provided by the plan (e.g., indemnity coverage) and
that the alternate recipient(s) is/are covered, or if there is more
than one type of coverage available (e.g., indemnity coverage and a
health maintenance organization), the administrator must identify each
available option. If there is more than one type of coverage available
under the plan, the Issuing Agency will select the option in which to
enroll the alternate recipient(s) and return the Response to the plan
administrator. Upon completion of the enrollment information, the plan
administrator transfers the applicable information on the Plan
Administrator Response to the employer for a determination that the
necessary participant contributions are available.
The Department is proposing to make the regulation as adopted
effective October 1, 2001. This is the earliest date on which States
will be required, under section 401(c)(3) of CSPIA, to use the Notice
to enforce the health care coverage provisions of a child support
order.
Economic Analysis Under Executive Order 12866
Under Executive Order 12866 (58 FR 51735, Oct. 4, 1993), the
Department must determine whether a regulatory action is
``significant'' and therefore subject to review by the Office of
Management and Budget (OMB). Section 3(f) of the Executive Order
defines a ``significant regulatory action'' as an action that is likely
to result in a rule (1) having an annual effect on the economy of $100
million or more, or adversely and materially affecting a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local or tribal governments or communities
(also referred to as ``economically significant''); (2) creating
serious inconsistency or otherwise interfering with an action taken or
planned by another agency; (3) materially altering the budgetary
impacts of entitlement grants, user fees, or loan programs or the
rights and obligations of recipients thereof; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order.
Pursuant to the terms of the Executive Order, it has been
determined that this proposed regulation would raise novel legal or
policy issues arising out of legal mandates. Therefore, this proposed
regulation is ``significant'' and subject to review under section
3(f)(4) of the Executive Order. Consistent with the Executive Order,
the Department has undertaken an assessment of the costs and benefits
of this regulatory action. The analysis is detailed below, following a
description of the medical child support process and its relationship
to this proposed regulation.
Overview
The medical child support process requires that a State child
support enforcement agency (State agency) issue a notice to the
employer of a non-custodial parent, who is subject to a child support
order issued by a court or administrative agency, informing the
employer of the parent's obligation to provide health care coverage for
the child(ren). The employer must then determine whether family health
care coverage is available for which the dependent child(ren) may be
eligible, and if so, the employer must notify the administrator of the
plan. The plan administrator is then required to determine whether the
dependent child(ren) are eligible for coverage under a plan. If
eligible, the plan administrator is required to enroll the dependent
child(ren) in an appropriate plan.
Even with a medical child support process in place, State agencies
and administrators of group health plans have experienced difficulties
in obtaining medical coverage for children of non-custodial parents due
to problems encountered in establishing what constitutes a qualified
medical child support order (QMCSO). In response to these and other
problems affecting the child support process, the Child Support
Performance and Incentive Act of 1998 (CSPIA) was enacted.
As required by CSPIA, the Department and HHS are jointly
promulgating a proposed uniform National Medical Support Notice
(Notice) to be used throughout the child support process by State
agencies, employers, and plan administrators. This Notice is intended
to simplify the issuance and processing of medical child support
orders, provide standardized communication between State agencies,
employers, and plan administrators, and create a uniform process for
the enforcement of medical child support.
The Notice has two parts, Part A, the ``Employer Withholding
Notice,'' and Part B, the ``Medical Support Notice to Plan
Administrator.'' The proposed regulation establishes procedures that
would be followed once the Notice has been transmitted by the State to
the employer and by the employer to the plan administrator. Thus, the
proposed regulation provides guidance to plan administrators for
meeting Part B requirements. Part B incorporates the provisions of the
CSPIA as it pertains to ERISA. Specifically, Part B would implement
section 609(a)(5)(C) of Title I of ERISA, which was added by section
401(d) of CSPIA to provide specific rules for plan administrators to
follow upon receipt from an employer of Part B.
For purposes of this economic analysis, the Department estimated
the benefits and costs of the proposed regulation relative to the costs
of processing child support orders in the current environment. The
benefits and costs of the rights conferred by the statute and current
practices for processing medical child support orders are included in
the baseline and are therefore not considered benefits or costs of the
proposed regulation. These include the rights for enrollment in a plan,
as well as increased health care coverage and the attendant increases
in claims costs faced by employee benefit plans. The Department is not
aware of any analysis presently available that seeks to quantify the
costs and benefits of the medical support order provisions of CSPIA,
and is therefore not presenting estimates of the costs and benefits of
the statute in conjunction with evaluating the incremental cost and
benefits of discretion exercised in the regulation.
The Department's analysis indicates that the benefits of the
proposed regulation substantially exceed the costs. There are two types
of economic effects of the regulation: (1) The more general and
primarily indirect societal welfare gains associated with facilitating
access to health care for dependent children, and (2) the direct
administrative benefits and costs associated with implementing
standardized Notices. The new procedures will promote timeliness in
processing medical child support orders and accuracy in identifying a
medical child support order as a QMCSO, thus
[[Page 62058]]
providing dependent children greater access to health care on a regular
and timely basis. The new procedures will also increase efficiency and
decrease per Notice administrative costs that arise when a fragmented,
non-standardized notice system is replaced by a standardized Notice
system.
The Department's analysis relies on the basic assumption that plans
incur a baseline cost to process notices in the current manner. Each
notice is assumed to be unique, requiring individualized effort. The
first standardized Notice received by a plan administrator is expected
to require the same time as the unique notices previously received. In
addition, however, it is assumed that many plan administrators will
invest in establishing new procedures upon receiving the first Notice
in anticipation of offsetting this start-up cost in future savings
associated with standardization. The processing time for each second
and subsequent Notice is assumed to be significantly reduced. Plan
administrators who do not have a reasonable expectation of receiving
subsequent Notices are assumed to simply continue to process Notices as
before and therefore to be unaffected by the regulation.
Based on its analysis, the Department believes that significant net
benefits will derive from the direct costs and benefits of the
administrative efficiencies which will result from standardization. The
degree of the net benefit is a function of the size of the plan. All
large plans (those with at least 100 participants) are expected to
benefit almost immediately, as they are expected to receive multiple
notices, thereby recovering their costs to implement new procedures
through decreases in time spent handling subsequent Notices.
An aggregate net benefit is also expected for smaller plans (those
with 10-99 participants) although the initial costs associated with
procedural changes will be repaid through savings over a longer period
of time. The positive cost/benefit ratio for this group is shown to
grow progressively larger over time. Very small plans (those with fewer
than 10 participants) are not expected to be affected in the aggregate
by the regulation due to their relatively infrequent receipt of medical
child support notices.
The estimated net benefits and costs of the regulation in the first
three years of implementation are summarized in the table which
follows. As shown, the regulation is estimated to result in savings of
$26.6 million in the first year, reducing total processing costs by
nearly one-half. The savings which accrue to plans will increase over
the years as a progressively greater proportion of the Notices yield
savings. The analysis indicates a net savings of $26.6 million in the
first year increasing to $34.3 million by year three with a total
aggregate savings of $92.3 million over the period.
[In millions at dollars]
----------------------------------------------------------------------------------------------------------------
Cost of Cost of
Baseline investment processing Net savings
cost under under under
regulation regulation regulation
----------------------------------------------------------------------------------------------------------------
Year 1.................................................. $62.3 $5.7 $30.0 $26.6
Year 2.................................................. 62.3 3.5 27.4 31.4
Year 3.................................................. 62.3 3.1 24.9 34.3
----------------------------------------------------------------------------------------------------------------
The more general societal welfare gains that are expected to arise
from improvements in the economic security and health of children are
not taken into account in the summary of net benefits because they
cannot be specifically quantified. A detailed discussion of the
development of estimated costs and benefits follows.
Costs of the Proposed Regulation
The cost of this proposed regulation is the start-up cost incurred
by ERISA plans to set up procedures to conform with the format of the
Notice. This start-up process is assumed to require one hour of a
professional's time at an hourly rate of $45, and that plan
administrators will complete this work themselves, rather than purchase
services. The cost is incurred the first time a plan receives a medical
child support order under the standardized Notice format. For the
38,500 plans with 100 or more participants, this start-up cost is
incurred entirely in year one, since every one of these plans receives
its first standardized Notice in year one (because nearly 650,000
Notices are being sent to these plans each year). The start-up cost for
these plans is $1.7 million. For plans with 10 to 99 participants, each
year only a fraction of the 755,000 plans receive a medical child
support order because there are only 95,000 Notices being sent to these
plans yearly. However, the benefits of investing in establishing
procedures to conform with the format of the Notice outweigh the start-
up cost by year three. In year one, the start-up cost to these plans is
$4.0 million. In year two the start-up cost falls to $3.5 million,
because while some plans are receiving their first standardized Notice,
others are receiving their second and subsequent Notices and therefore
are benefitting from the initial investment in the process through cost
savings. By year three, the start-up cost is $3.1 million, with the
cost falling each subsequent year as more plans already have their
procedures in place. Plans with fewer than 10 participants receive
these Notices too infrequently to make the investment in establishing
cost effective procedures (there are 1.7 million of these plans
receiving only 28,000 Notices annually). Therefore it is assumed these
plans will be unaffected by the standardized Notice.
Benefits of the Proposed Regulation
The introduction of a uniform notice with clear instructions may
improve health care quality for children by preventing delays and
denials of enrollment in group health plans, thereby encouraging early
intervention in the treatment of disease and illness. The social
welfare loss resulting from uninsured children is well documented in
economic literature. Based on analysis of the 1998 Current Population
Survey conducted by the Bureau of the Census, 15 percent of all
children (or 10.7 million) are currently uninsured. The lack of private
insurance generally increases the likelihood that needed medical
treatment will be delayed or forgone, and that the ultimate costs of
medical treatment will be shifted to public funding sources.
The link between uninsured children and the deficiencies of the
existing child support process is demonstrated in the legislative
history of CSPIA 6. The legislative history indicates that
there is
[[Page 62059]]
a lack of communication of medical child support information between
the State agencies and plan administrators because many State agencies
simply notify plan administrators that an order has been issued, and in
turn, many plan administrators consider this administrative notice
insufficient to comply with current legal requirements. Although all
child support orders are required to have a medical support component,
only a reported 60 percent of all child support orders actually have
this medical support component.
---------------------------------------------------------------------------
\6\ 144 Cong. Rec. S7318 (daily ed. June 26, 1998) (Legislative
History of Senate and House Amendments to the Child Support
Performance and Incentive Act of 1998, Pub. L. No. 105-200).
---------------------------------------------------------------------------
In addition, the legislative history cites a 1996 GAO review of
state child support enforcement programs which determined that at least
13 states were not petitioning to include a medical support component
in their child support orders, and 20 states were not enforcing
existing medical child support orders. The number of children who are
uninsured as a direct result of failures of this medical child support
process is unknown. However, any reduction in the number of uninsured
children that can be accomplished by the proposed regulation will
produce substantial benefits for the health of those children, and
preserve public resources for those without access to private coverage.
Direct benefits of Part B will accrue to plan administrators, State
agencies, employers, non-custodial parent-participants, custodial
parents, and alternate recipient(s). Part B will overcome the
inefficiencies inherent in current practice, which often requires plan
administrators to work with medical child support notices that differ
from state to state and from individual to individual. Consequently,
confusion arises as to what constitutes a QMCSO, and often as a result,
the medical support is not provided. Specifically, benefits will accrue
to plan administrators because they will all receive a standardized
Notice (Part B) which is easy to comprehend and to administer, and
which limits their risk of exposure to errors in their determinations
of which orders are QMCSOs and therefore accurate identification of the
dependent children eligible for enrollment in a group health plan.
Finally, Part B will promote one of the objectives of the child support
process, which is to ensure access to medical care coverage for
children.
In the first year of a standardized Notice system, the total cost
to private employer group health plans of processing child medical
support orders is expected to drop from the current level of $62.3
million to $35.7 million. This estimate is derived as follows.
The Department estimates that plan administrators of ERISA-covered
group health plans will receive a total of 770,000 Notices annually.
This estimate is based on the HHS's (Office of Child Support
Enforcement (OCSE) of the Administration for Children and Family (ACF))
projection of 1.2 million new child support orders with collections
each year using historical data (through 1996) on total child support
orders established by State agencies. The Department believes that the
HHS data is a reasonable starting point for our analysis because
current law requires that each child support order include a provision
for medical support. Although the CSPIA provisions apply to church
plans and governmental plans, cost estimates for these plans are not
included in our analysis because under section 4(b) of ERISA, church
plans and governmental plans are generally excluded from the coverage
of Title I of ERISA and therefore are outside the Department's
regulatory jurisdiction.
Applying the Bureau of Labor Statistics 1998 Current Population
Survey (CPS) data on employment distribution between the public and
private sectors to the estimated 1.2 million medical support orders
projected to be issued annually yields an estimated 1 million new
Notices issued to private sector employers. The Department then
factored in an estimate of the Notices issued to the private sector
that would be required as a result of employees changing jobs. This
estimate, which was derived from the 1998 March CPS data is 200,000.
Summing these values yields an estimated 1.2 million Notices to private
sector employers annually.
For the purpose of distinguishing between those Notices that are
QMCSOs and those that are not, either because there is no family group
health coverage available through the employer or the parent is no
longer employed by the employer receiving the Notice, the Department
estimated the percentage of employers that offer a group health plan
with family coverage in which a dependent child could be enrolled. This
analysis is based on the April 1993 Employee Benefits CPS Supplement,
the most recent source of complete data on employer offers of health
insurance. These data show that for plans with fewer than 100
participants, 55 percent of plans do not offer family coverage. For
plans with 100 or more participants, 15 percent do not offer family
coverage. In addition, the Department assumed that approximately 2
percent (regardless of plan size) of the Notices will not be deemed to
be qualified because the parent is no longer employed by the employer
receiving the Notice. Applying these percentages to the 1.2 million
Notices yields an expected number of Notices to be forwarded to plan
administrators of 770,000.
The Department then estimated the number of group health plans
potentially impacted by the proposed Notice by calculating the
probability of a plan receiving a Notice. Given that there are 2.5
million ERISA-covered group health plans and only 770,000 Notices being
sent to plans each year, not all health plans will receive a Notice
each year. Furthermore, because the likelihood of receiving a Notice is
a function of the number of participants, and plans vary widely in this
regard, there will be wide variations in the distribution of costs and
benefits based on plan size. Consequently, from year to year, not all
plans will incur the start-up cost to establish procedures to conform
with the Notice, and not all plans will reap the benefits of lower per
Notice processing costs.
The probability of a plan receiving a Notice each year depends on
the probability of any participant in the plan being subject to a
medical child support order. The probability of a participant being the
subject of a Notice is assumed to be independent of plan size or other
factors. The Department therefore estimated this probability for each
participant by dividing the number of participants in private employer
group health plans, 65 million, into the number of Notices issued
annually, 770,000. To translate the individual probabilities to a plan
level required an estimation that would account for the result that
some plans, due to the random distribution, would not receive a Notice.
The plan level probabilities at different size intervals were therefore
estimated as the difference between a 100 percent probability and the
probability that a plan of a given size would not receive a Notice.
Because outcomes are sensitive to plan size, the Department calculated
these probabilities by three plan size groupings--fewer than 10
participants, 10 to 99 participants, and 100 or more participants.
Segmentation of small plans by size is useful because due to the
distribution of participants in small plans, combining all plans with
fewer than 100 participants suggests that no small plans would be
affected by the regulation. Further analysis shows that in the
aggregate small plans with 10 to 99 participants will realize the net
benefits of standardization, while only plans with fewer than 10
participants are expected to be unaffected.
Once the number of Notices by plan size and the probability of a
plan receiving a Notice in any year by plan size were estimated, a
year-by-year
[[Page 62060]]
analysis of the impact of the proposed regulation on group health plans
was conducted. In the first year, plans with 100 or more participants
would be expected to receive an average of 17 Notices each, because
there are only 38,500 of these plans receiving nearly 650,000 Notices
annually. Currently, because notices are not standardized, the time
required to process each of these Notices per plan does not vary from
the first to subsequent Notices. However, with the standardization
benefits of the proposed regulation, the processing time for the second
and subsequent Notices received by each plan is expected to result in
significantly reduced processing time, from 1 hour and 45 minutes to 35
minutes. This reduction in processing time, using a $45 hourly
professional's rate, 2 minutes in photocopying time at a $15 clerical
rate, and $0.37 for materials and postage per required response,
generates a reduction in the cost to plans with 100 or more
participants of processing Notices from $52.4 million under the
baseline to $22.1 million under the regulation. The savings is larger
from the second year on because all of these plans incur the start-up
cost in the first year--the cost falls from $52.4 million to $18.3
million.
In the aggregate, plans with 10 to 99 participants also show
positive net benefits from a reduction in costs under the standardized
Notice system. However, because there are 755,000 of these plans and
only 95,000 Notices being sent to them, as a group these plans do not
benefit from the reduction in cost until the third year in which the
standardized Notice is being used. During the first two years, the
aggregate investment to establish a processing system when the first
standardized Notice is received outweighs the cost reduction from
processing the second and subsequent Notices because more plans receive
a first Notice than receive a second Notice. By the third year, enough
plans have put their system in place to make the savings outweigh the
start-up cost. In year one, the cost of processing medical support
orders for plans with 10 to 99 participants is $7.6 million under the
baseline and $11.4 million under the regulation (the higher cost is due
to the start-up). These estimates assume the same processing hours and
fees outlined above for the 100 or more participant plans. Similarly,
in year two, the costs are $7.6 million and $10.3 million (slightly
lower because of the plans that incurred the start-up cost in year
one). By the third year, these plans face lower costs in processing
medical child support orders because of the standardized Notice--costs
drop from $7.6 million to $7.4 million, with the savings increasing in
subsequent years as the start-up investment is recouped.
Standardization of the Notices is not expected to have an economic
impact on plans with fewer than 10 participants. These plans receive
Notices so infrequently (there are 1.7 million of these plans receiving
only 28,000 Notices), that an investment in establishing a processing
system for the standardized Notice is not cost effective, and these
plans will choose to continue processing notices as they do at the
present time. For these plans, the cost of processing Notices is $2.3
million, assuming 1 hour and 45 minutes processing time at a $45 hourly
professional's rate, 2 minutes in photocopying time at a $15 clerical
rate, and $0.37 for materials and postage per required response.
Alternative Approaches Considered
A number of alternative approaches to this proposed regulation were
considered. Initially the Departments prepared a Notice which consisted
of two parts. This format provided a number of defaults which decreased
the discretion required in responding to the Notice and was
particularly streamlined. This Notice was presented to the Medical
Child Support Working Group at its first meeting in March of 1999.
Members of the Working Group responded unfavorably to this format,
noting that feedback to the Issuing Agency regarding the nature of
coverage available and its effective date was essential to the
effective enforcement of medical child support obligations. Based on
comments received by the Agencies at this meeting, the Notice was
redrafted. A second version of the Notice was developed which included
four parts and a number of feedback loops. Again the Working Group
provided commentary, responding that this version was too complicated
and cumbersome. A third version of the Notice was developed which is
being proposed in this rulemaking. This version provides a feedback
loop to the Issuing Agency, a feature which the State Agency
representatives on the Working Group desired, yet it retains a more
streamlined and comprehensible approach than the previous version.
Overall it represents a significant improvement over previous drafts.
Specifically, it enables the State Agency to select the coverage that
will ultimately be provided to the child(ren) from the options that are
available to the participant/noncustodial parent. Enabling State
Agencies to make this selection, rather than having the child
automatically placed in a default coverage option, ensures that the
child receives meaningful and accessible coverage from among the
particular options available under the plan.
The Department invites comments on its assumptions and estimates of
the potential benefits and costs of this proposal for plan
administrators.
Paperwork Reduction Act
The Department, as part of its continuing effort to reduce
paperwork and respondent burden, conducts a preclearance consultation
program to provide the general public and Federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995 (PRA
95), 44 U.S.C. 3506(c)(2)(A). This helps to ensure that requested data
can be provided in the desired format, reporting burden (time and
financial resources) is minimized, collection instruments are clearly
understood, and the impact of collection requirements on respondents
can be properly assessed.
Currently, the Pension and Welfare Benefits Administration (PWBA)
is soliciting comments concerning the proposed information collection
request (ICR) included in Part B, Medical Support Notice to Plan
Administrator of the National Medical Support Notice (Notice). A copy
of the ICR may be obtained by contacting the PWBA official identified
below in this Notice of Proposed Rulemaking.
The Department has submitted a copy of the proposed information
collection to the Office of Management and Budget (OMB) for its review
in accordance with 44 U.S.C. 3507(d) of PRA 95. The Department and OMB
are particularly interested in comments that:
Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology,
[[Page 62061]]
e.g., permitting electronic submission of the responses.
Comments on the collection of information should be sent to the
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Office Building, Washington, DC
20503; Attention: Desk Officer for the Pension and Welfare Benefit
Administration. Although comments may be submitted through January 14,
2000, OMB requests the comments be received within 30 days of the
publication of the Notice of Proposed Rulemaking to ensure their
consideration.
Requests for copies of the ICR may be addressed to: Gerald B.
Lindrew, Office of Policy and Research, U.S. Department of Labor,
Pension and Welfare Benefits Administration, 200 Constitution Avenue,
NW, Room N-5647, Washington, DC 20210. Telephone: (202) 219-4782 (this
is not a toll-free number); Fax: (202) 219-4745.
Part B of the Notice would permit plan administrators to comply
with the requirements of section 609(a)(5) of ERISA for Qualified
Medical Child Support Orders (QMCSOs), as amended by section 401(d) of
the Child Support Performance and Incentive Act of 1998 (CSPIA) (Pub.
L. 105-200). Part B is comprised of the Medical Support Notice to the
Plan Administrator, Plan Administrator Response, and Instructions to
the Plan Administrator (hereinafter referred to as Part B). This
proposed rule would require the group health plan administrator, upon
receipt of Part B from the employer, to examine it and determine
whether or not the Notice constitutes a QMCSO. Part B includes a
checklist that makes this determination simple for the plan
administrator. If any of the identifying information for the alternate
recipient/child or non-custodial parent/participant is missing or the
alternate recipient is no longer eligible for coverage, the plan
administrator determines that the Notice is not a QMCSO. In this case,
the plan administrator, having identified that the Notice is not a
QMCSO, is required to check off the appropriate reason in Part B and
forward it to the Issuing Agency. The plan administrator must also
notify the non-custodial parent/participant and the custodial parent
and alternate recipient(s) of the specific reasons for this
determination. This requirement is met by mailing copies of Part B to
these parties.
If the plan administrator determines that Notice is a QMCSO, then
he or she must provide information regarding available coverage. Again,
this process has been simplified by the provision of checklists for
this purpose in Part B. Part B must then be forwarded by the plan
administrator to the Issuing Agency. The plan administrator must also
inform the non-custodial parent/participant, custodial parent, and
alternate recipient(s) of the specific reasons for this determination.
Notification of the custodial parent is deemed to be notification to
the alternate recipients if they reside at the same address. This
requirement may be met by mailing copies of the completed Part B to
these parties.
The plan administrator must also provide the custodial parent with
any forms, documents, or other information necessary to effectuate
coverage. The Department has not assessed the cost to the plan
administrator of providing forms, documents or other information
because this information would need to be provided regardless of the
requirements of the proposed regulation. If no other information or
action is necessary, the plan administrator must enroll the alternate
recipient in the available coverage, or notify the Issuing Agency and
custodial parent of any other action to be taken in order to effectuate
coverage.
Once the enrollment information is completed, the plan
administrator must forward Part B to the employer for the determination
that the necessary employee contributions may be made by the employee.
Again, a copy of the completed Part B serves this purpose.
The Department estimates the total annual burden to plan
administrators for preparation and distribution of Part B to be 785,000
hours and $1.1 million in the first year, or an average of $7 for each
of the 156,000 plans receiving orders each year. The total hours
includes 1 hour and 45 minutes of time for each first Notice, and 35
minutes for second and subsequent Notices, to determine whether the
Notice is qualified and to prepare a response to the required parties,
as well as one hour for start-up procedures for 128,000 plans. In
addition, 2 minutes for copying and mailing at a $15 hourly clerical
rate and $0.37 for materials and mailing costs for each of the 4
responses required per Notice were assumed for the distribution burden
of $1.1 million. Plans with 100 or more participants are expected to
bear most of this cost--485,000 hours and $960,000, or an average of
$25 per plan--due to their handling of a larger volume of Notices. The
annual burden for plans with 10 to 99 participants is estimated to be
250,000 hours and $140,000, or $2 per plan. The annual burden for plans
with fewer than 10 participants is 50,000 hours and $42,000, or $1.50
per plan. It is assumed that plan administrators will complete this
work themselves, rather than purchase services. Thus, all costs other
than distribution costs (materials and mailing) were attributed to
burden hours rather than dollars.
In the second and third years, the burden declines for two reasons.
First, all plans with 100 or more participants incurred the burden to
establish procedures to conform to the standardized Notice in year 1
and do not incur the burden in subsequent years. Second, plans with 10
to 99 participants incur the burden to establish procedures throughout
years one, two, and three. However, the burden decreases over time
because, of the 90,000 plans with 10 to 99 participants receiving
Notices each year, an increasing number of them over time have already
established the procedures for complying with the standardized Notice.
Specifically, in year two, the Department estimates the total annual
burden to plan administrators for preparation and distribution of Part
B to be 680,000 hours and $1.1 million (the dollar figures do not
change because mailing and distribution costs for the 770,000 Notices
do not change over time). In year three, the Department estimates the
total annual burden to plan administrators for preparation and
distribution of Part B to be 615,000 hours and $1.1 million. The year
two and three totals assume the same time, hourly rates, and fees as in
year one.
Type of Review: New.
Agency: Pension and Welfare Benefits Administration, Department of
Labor.
Title: National Medical Support Notice.
OMB Number: 1210-New.
Affected Public: Individuals or households; Business or other for-
profit institutions; Not-for-profit institutions.
Frequency of Response: On occasion.
Total Respondents: 156,000.
Total Responses: 770,000.
Estimated Burden Hours: 785,000 in 2000; 680,000 in 2001; and
615,000 in 2002.
Estimated Annual Costs (Operating and Maintenance): $1.1 million.
Comments submitted in response to this Notice of Proposed
Rulemaking will be summarized and/or included in the request for OMB
approval of the information collection request; they will also become a
matter of public record.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA),
imposes certain requirements with respect to Federal rules that are
subject to the notice and comment requirements of section 553(b) of the
Administrative
[[Page 62062]]
Procedure Act (5 U.S.C. 551 et seq.) and which are likely to have a
significant economic impact on a substantial number of small entities.
Unless an agency certifies that a proposed rule will not have a
significant economic impact on a substantial number of small entities,
section 603 of the RFA requires the agency to present an initial
regulatory flexibility analysis at the time of the publication of the
notice of proposed rulemaking describing the impact of the rule on
small entities, and seek public comment on such impact. Small entities
include small businesses, organizations, and governmental
jurisdictions.
For purposes of analysis under the RFA, the Pension and Welfare
Benefits Administration (PWBA) considers a small entity to be an
employee benefit plan with fewer than 100 participants. The basis for
this definition is found in section 104(a)(2) of ERISA, which permits
the Secretary of Labor to prescribe simplified annual reports for
pension plans which cover fewer than 100 participants. Under section
104(a)(3), the Secretary may also provide for simplified annual
reporting and disclosure if the statutory requirements of part 1 of
Title I of ERISA would otherwise be inappropriate for welfare benefit
plans. Pursuant to the authority of section 104(a)(3), the Department
has previously issued at 29 CFR 2520.104-20, 2520.104-21, 2520.104-41,
2520.104-46 and 2520.104b-10 certain simplified reporting provisions
and limited exemptions from reporting and disclosure requirements for
small plans, including unfunded or insured welfare plans covering fewer
than 100 participants and which satisfy certain other requirements.
Further, while some large employers may have small plans, in
general most small plans are maintained by small employers. Thus, PWBA
believes that assessing the impact of this proposed rule on small plans
is an appropriate substitute for evaluating the effect on small
entities. The definition of small entity considered appropriate for
this purpose differs, however, from a definition of small business
based on size standards promulgated by the Small Business
Administration (SBA) (13 CFR 121.201) pursuant to the Small Business
Act (5 U.S.C. 631 et seq.). PWBA therefore requests comments on the
appropriateness of the size standard used in evaluating the impact of
this proposed rule on small entities.
PWBA is promulgating this regulation because it is required to do
so under section 401(b) of the Child Support Performance and Incentive
Act of 1998 (CSPIA) (Pub. L. 105-200). CSPIA requires the Department of
Labor and the Department of Health and Human Services (HHS) to jointly
develop and promulgate by regulation a National Medical Support Notice
(Notice). The content of the Notice is prescribed by the statute. Thus,
as outlined in the economic analysis section of this preamble, the
benefits and costs attributable to the regulation are those associated
with the discretion exercised by the Department only in the format of
the Notice. The statute affords no regulatory discretion with respect
to application of the statutory requirements to entities of differing
sizes. Nevertheless, analysis of the impact of the regulation indicates
that in the aggregate, small plans with between 10 and 99 participants
will benefit from standardization of medical support Notices, and that
net benefits to these plans will grow progressively larger over time.
Very small plans, those with fewer than 10 participants, are not
expected to be affected by this rulemaking because it is assumed that
due to the infrequency of their receipt of Notices, these plans will
continue to handle medical child support notices as they do in the
existing environment.
The standardized format is expected to reduce costs to process the
Notices once an initial Notice is received and a procedure is
established to handle subsequent Notices. Because of the infrequency
with which very small plans are estimated to receive Notices, and the
fact that administrative savings to offset procedural start-up costs
can be achieved only on the receipt of second and subsequent Notices,
it is assumed that those small plans with fewer than 10 participants
will make an economically rational choice not to invest in establishing
a new procedure to handle the standardized Notice. As a consequence,
each standardized Notice will be handled by very small plans as a
unique event, resulting in no cost or benefit over their current
handling of these infrequent notices.
The objective of the proposed regulation is to introduce Part B--
Medical Support Notice to Plan Administrator (Part B), which implements
section 609(a)(5)(C) of Title I of ERISA, which was added by section
401(d) of CSPIA. Section 609(a)(5)(C) of ERISA provides that a Notice
is deemed to be a Qualified Medical Child Support Order (QMCSO) if the
plan administrator of a group health plan which is maintained by the
employer of a non-custodial parent or to which the employer
contributes, receives an appropriately completed Notice which meets the
requirements for a qualified medical child support order under section
609(a) (3) and (4) of ERISA (which provides the informational
requirements for a qualified order and restrictions on new types of
benefits). New ERISA section 609(a)(5)(C) also establishes the
requirements for plan administrators to enroll alternate recipient(s)
in a group health plan and to notify the appropriate state agency, non-
custodial parent, custodial parent and alternate recipient(s). Thus,
the legal basis for the regulation is found in ERISA section 609(a)(5);
an extensive list of authorities may be found in the Statutory
Authority section, below.
The direct cost of compliance with Part B will be borne by ERISA-
covered group health plans. Plans with 10 to 99 participants will
benefit from a net aggregate reduction in costs under the standardized
Notice system. However, because there are 755,000 of these plans and
only 95,000 Notices being sent to them, these plans will first benefit
from the net reduction in cost in the third year in which the
standardized Notice is being used. During the first two years, the
start-up cost to establish a processing system when the first
standardized Notice is received is expected to outweigh the benefit of
the cost reduction from processing the second and subsequent Notices.
By the third year, enough plans will have put their systems in place to
make the savings outweigh the start-up cost.
In year one, the cost of processing medical support order for plans
with 10 to 99 participants is estimated at $7.6 million, or $85 per
plan, under the baseline and $11.4 million, or $127 per plan, under the
regulation (the higher cost is due to the start-up). These estimates
assume the same processing hours and fees outlined in the economic
analysis section of this preamble for large plans (those with at least
100 participants). Similarly, in year two, the costs are $7.6 million,
or $85 per plan, and $10.3 million, or $116 per plan (slightly lower
because of the plans that incurred the start-up cost in year one). By
the third year, these plans face lower costs in processing medical
child support orders because of the standardized Notice--costs drop
from $7.6 million, or $85 per plan, to $7.4 million, or $83 per plan.
Thus, the savings increases in subsequent years as the start-up
investment is recouped by more plans.
Plans with fewer than 10 participants receive Notices so
infrequently (there are 1.7 million of these plans receiving only
28,000 Notices), that an investment in establishing a new processing
system for the standardized Notice would in most cases not be cost
effective--they
[[Page 62063]]
would be unlikely to recoup the start-up costs from future savings
resulting from processing second and subsequent Notices. For these
plans, under the baseline and the regulation, the cost of processing
Notices is $2.3 million, or $81 per plan, assuming 1 hour and 45
minutes processing time at a $45 hourly professional's rate, 2 minutes
in photocopying time at a $15 clerical rate, and $0.37 for materials
and postage per required response.
The data and assumptions underlying these aggregate costs and
benefits are presented in detail above in the economic impact
discussion. As noted, an estimated 770,000 Notices will be received and
processed by plan administrators annually. The Department estimates
that 16 percent, or 123,000, will be received by small plans with fewer
than 100 participants: 95,000 going to plans with 10 to 99 participants
and 28,000 to plans with fewer than 10 participants. This estimate is
based on the 1993 Current Population Survey data on distribution of
workers by firm size and family health insurance sponsorship by firm
size. The Department examined subgroups within the small group health
plan (those with fewer than 100 participants) universe. Most of the
plans within this universe have fewer than 10 participants, yet most of
the participants are found in plans with 10 to 99 participants.
Consequently, most of the Notices are sent to plans with 10 to 99
participants.
For plans with 10 to 99 participants, 90,000 plans are projected to
receive 95,000 Notices in year one. This means that in the first year,
5,000 of these plans will receive more than one Notice, allowing them
to benefit from the cost reduction introduced by the standardized
Notice. For each subsequent year, a growing number of these plans will
receive two or more Notices, making the benefits of the regulation
outweigh the start-up cost for plans with 10 to 99 participants within
3 years.
No federal rules have been identified that duplicate, overlap, or
conflict with this proposed regulation. As discussed previously in the
economic analysis under the Executive Order, a number of alternatives
to this proposed regulation were considered. At least two distinct
versions of the Notice were developed prior to arriving at this
proposal. Prior drafts were critiqued by the Medical Child Support
Working Group, which includes representatives from the small business
community. Based on commentary received from the Working Group, the
Agencies feel that this version of the Notice provides the minimum
information necessary to comply with section 609(a)(5)(C) of ERISA and
imposes the least economic impact on small entities. The establishment
of different compliance requirements or an exemption from compliance
for small entities was not considered in light of the goal of this
rulemaking. Differing compliance schemes for small entities would
frustrate the objective of providing a nationally uniform medical child
support notice to be used by all State Agencies and to be easily
identified by employers, plan administrators and parents.
The Department requests comments from small entities regarding
what, if any, special problems they might encounter if this regulation
were implemented as proposed, and what changes, if any, could be made
to minimize these problems.
Small Business Regulatory Enforcement Fairness Act
The rule proposed in this action is subject to the provisions of
the Small Business Regulatory Enforcement Act of 1996 (5 U.S.C. 801 et
seq.) (SBREFA). The rule, if finalized, will be transmitted to Congress
and the Comptroller General for review.
Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), as well as Executive Order 12875, this proposed rule does not
include any Federal mandate that may result in the expenditure by
state, local and tribal governments in the aggregate, or by the private
sector, of $100,000,000 or more in any one year.
Statutory Authority
Sections 505 and 609(e) of ERISA (Pub. L. 93-406, 88 Stat. 894, 29
U.S.C. 1135 & 1169(e)). Section 401(b) of CSPIA (Pub. L. 105-200, 112
Stat. 645).
List of Subjects in 29 CFR Part 2590
Employee benefit plans, Health care, Health insurance, Pensions,
Reporting and recordkeeping requirements.
For the reasons set forth above, Part 2590 of Title 29 of the Code
of Federal Regulations is proposed to be amended as follows:
PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLAN REQUIREMENTS
1. The part heading is revised to read as shown above.
2. The authority citation for part 2590 is revised to read as
follows:
Authority: 29 U.S.C. 1027, 1059, 1135, 1171, 1194; Sec. 4301,
Pub. L. 103-66, 107 Stat. 372 (29 U.S.C. 1169); Sec. 101, Pub. L.
104-191, 101 Stat. 1936 (29 U.S.C. 1181); Secretary of Labor's Order
No. 1-87, 52 FR 13129, April 21, 1987.
3. Part 2590 is amended by redesignating subparts A, B, and C as
subparts B, C, and D, respectively and a new subpart A is added to read
as follows:
Subpart A--Continuation Coverage, Qualified Medical Child Support
Orders, Coverage for Adopted Children
Sec.
2590.609-1--(Reserved)
Sec. 2590.609-2 National Medical Support Notice.
(a) This section promulgates the National Medical Support Notice
(the Notice), as mandated by section 401(b) of the Child Support
Performance and Incentive Act of 1988 (Pub L. 105-200). If the Notice
is appropriately completed and satisfies paragraphs (3) and (4) of
section 609(a) of the Employee Retirement Income Security Act (ERISA),
the Notice is deemed to be a qualified medical child support order
(QMCSO) pursuant to section 609(a)(5)(C). Section 609(a) of ERISA
delineates the rights and obligations of the alternate recipient, the
participant, and the plan under a QMCSO.
(b) For purposes of this section, a Notice is appropriately
completed if it contains the name of an issuing agency, the name and
mailing address of an employee who is a participant under the plan, the
name and mailing address of one or more alternate recipient(s) (or the
name and address of a substituted official or agency which has been
substituted for the mailing address of the alternate recipient(s)), and
if the family group health care coverage required by the child support
order is identified and available.
(c) For the purposes of this section, an ``Issuing Agency'' is a
State agency that administers the child support enforcement program
under Part D of Title IV of the Social Security Act.
Signed at Washington, DC, this 4th day of November, 1999.
Richard M. McGahey,
Assistant Secretary, Pension and Welfare Benefits Administration,
Department of Labor.
Note: The following appendix will not appear in the Code of
Federal Regulations.
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[FR Doc. 99-29412 Filed 11-12-99; 8:45 am]
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