[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.

-----------------------------------------------------------------------

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
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \5\ This requirement is derived from SSA section 1908(a)(2) and 
(3).
---------------------------------------------------------------------------

    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.

BILLING CODE 4510-29-P

[[Page 62064]]

[GRAPHIC] [TIFF OMITTED] TP15NO99.023



[[Page 62065]]

[GRAPHIC] [TIFF OMITTED] TP15NO99.024



[[Page 62066]]

[GRAPHIC] [TIFF OMITTED] TP15NO99.025



[[Page 62067]]

[GRAPHIC] [TIFF OMITTED] TP15NO99.026



[[Page 62068]]

[GRAPHIC] [TIFF OMITTED] TP15NO99.027



[[Page 62069]]

[GRAPHIC] [TIFF OMITTED] TP15NO99.028



[[Page 62070]]

[GRAPHIC] [TIFF OMITTED] TP15NO99.029



[[Page 62071]]

[GRAPHIC] [TIFF OMITTED] TP15NO99.030



[[Page 62072]]

[GRAPHIC] [TIFF OMITTED] TP15NO99.031



[[Page 62073]]

[GRAPHIC] [TIFF OMITTED] TP15NO99.032



[FR Doc. 99-29412 Filed 11-12-99; 8:45 am]
BILLING CODE 4510-29-C