must be individually described in the notice).

(2) A statement that Federal law gives the plan sponsor of a non-Federal governmental plan the right to exempt the plan in whole or in part from the requirements described in paragraph (a) of this section, and that the plan sponsor has elected to do so.

(3) A statement identifying which parts of the plan are subject to the election, and each of the requirements of paragraph (a) of this section from which the plan sponsor has elected to be exempted.

(4) If the plan chooses to provide any of the protections of paragraph (a) of this section voluntarily, or is required to under State law, a statement identifying which protections apply.

(h) Certification and disclosure of creditable coverage. Notwithstanding an election under this section, a non-Federal governmental plan must provide for certification and disclosure of creditable coverage under the plan with respect to participants and their dependents in accordance with § 146.115.

(i) Effect of failure to comply with election requirements. (1) Subject to paragraph (i)(2) of this section, a plan's failure to comply with the requirements of paragraphs (f) through (h) of this section invalidates an election made under this section.

(2) Upon a finding by HCFA that a non-Federal governmental plan has failed to comply with the requirements of paragraphs (f) through (h) of this section, and has failed to correct the noncompliance within 30 days (as provided in § 146.184(d)(7)(iii)(B)), HCFA notifies the plan that its election has been invalidated and that it is subject to the requirements of this part.

(3) A non-Federal governmental plan described in paragraph (i)(2) of this section that fails to comply with the requirements of this part is subject to Federal enforcement by HCFA under $146.184, including appropriate civil money penalties.

(Approved by the Office of Management and Budget under control number 0938-0702.)

[62 FR 16958, Apr. 8, 1997; 62 FR 31694, June 10, 1997, as amended at 62 FR 35906, July 2, 1997]

§ 146.184 Enforcement.

(a) Enforcement with respect to group health plans-(1) Scope. In general, the requirements of the Health Insurance Portability and Accountability Act that apply to group health plans are contained in part 7 of subtitle B of title I of ERISA, and in subtitle K of the Internal Revenue Code. They are enforced by the Secretary of Labor under part 5 of subtitle B of title I of ERISA, and the Secretary of the Treasury under 26 U.S.C. 4980D. However, the provisions that apply to group health plans that are non-Federal governmental plans are contained in title XXVII of the PHS Act, and enforced by HCFA. The provisions of title XXVII that apply to health insurance issuers that offer coverage in connection with any group health plan are enforced in the first instance by the States. If HCFA determines under paragraph (b) of this section that a State is not substantially enforcing the provisions, HCFA enforces them under paragraph (d) of this section.

(2) Non-Federal governmental plans. Requirements of this part that apply to group health plans that are non-Federal governmental plans (sponsored by a State or local governmental entity) are enforced by HCFA, as provided in paragraph (d) of this section.

(b) Enforcement with respect to health insurance issuers-(1) General rule-enforcement by State. Except as provided in paragraph (b)(2) of this section, each State enforces the requirements of this part with respect to health insurance issuers that issue, sell, renew or offer health insurance coverage in the small or large group markets in the State.

(2) Enforcement by HCFA. HCFA enforces the provisions of this part with respect to health insurance issuers, using the procedures described in paragraph (d) of this section, only in the following circumstances:

(i) State election. If the State chooses not to enforce the Federal requirements.

(ii) State failure to enforce. If HCFA makes a determination under paragraph (c) of this section that a State has failed to substantially enforce one or more provisions of this part.

(c) Determination by Administrator. If HCFA receives information, through a

174-166 0-97--20

complaint or any other means, that raises a question whether a State is substantially enforcing one or more provisions of this part, HCFA follows the procedures set forth in this section.

(1) Verification of exhaustion. HCFA makes a threshold determination of whether the individuals affected by the alleged failure to enforce have made a reasonable effort to exhaust any State remedies. This may involve informal contact with State officials about the questions raised.

(2) Notice to the State. If HCFA is satisfied that there is a reasonable question whether there has been a failure to substantially enforce, HCFA provides notice as specified in paragraph (c)(3) of this section, to the following State officials:

(i) The Governor or chief executive officer of the State.

(ii) The insurance commissioner or chief insurance regulatory official.

(iii) The official responsible for regulating HMOs, if different than paragraph (c)(2)(ii) of this section, but only if the alleged failure involves HMOs.

(3) Form and content of notice. The notice described in paragraph (c)(2) is in writing, and does the following:

(i) Identifies the provision or provisions of the statute and regulations that have allegedly been violated.

(ii) Describes the facts of the specific violations.

(iii) Explains that the consequence of a failure to substantially enforce any provisions is that HCFA enforces the provision in accordance with paragraph (d) of this section.

(iv) Advises the State that it has 45 days to respond to the notice, unless the time is extended as described in paragraph (c)(3) of this section, and that the response should include any information that the State wishes HCFA to consider in making the preliminary determination described in paragraph (c)(5) of this section.

(4) Good cause. The time for responding can be extended for good cause. Examples of good cause include an agreement between HCFA and the State that there should be a public hearing on the State's enforcement, or evidence that the State is undertaking expedited enforcement activities.

(5) Preliminary determination. If at the end of the 45-day period, and any extension, the State has not established to HCFA's satisfaction that it is substantially enforcing the provision or provisions described in the notice, HCFA takes the following actions:

(i) Consults with the officials described in paragraph (c)(1) of this section.

(ii) Notifies the State of HCFA's preliminary determination that the State has failed to enforce the provisions, and that the failure is continuing.

(iii) Permits the State a reasonable opportunity to show evidence of substantial enforcement.

(6) Final determination. If, after providing notice and the opportunity to enforce under paragraph (c)(5) of this section, HCFA finds that the failure to enforce has not been corrected, HCFA sends the State a written notice of that final determination. The notice—

(i) Identifies the provisions with respect to which HCFA is taking over enforcement;

(ii) States the effective date of HCFA's enforcement;

(iii) Informs the State of the mechanism for establishing in the future that it has corrected the failure, and has begun enforcement. This mechanism will include transition procedures for ending HCFA's enforcement.

(d) Civil money penalties-(1) General rule. If any health insurance issuer that is subject to HCFA's enforcement authority under paragraph (b)(2) of this section, or any non-Federal governmental plan (or employer that sponsors a non-Federal governmental plan) that is subject to HCFA's enforcement authority under paragraph (a)(2) of this section, fails to comply with any applicable requirement of this part, it may be subject to a civil money penalty as described in this paragraph (d).

(2) Complaint. Any person who is entitled to any right under this part, and who believes that the right is being denied as a result of any failure described in paragraph (d)(1) of this section, may file a complaint with HCFA. Based on the complaint, HCFA identifies which entities are potentially responsible for the violation, in accordance with paragraph (d)(3) of this section.

(3) Determination of responsible entity. If a failure to comply is established under this section, the responsible entity, as determined under this paragraph, is liable for the penalty. If the violation is due to a failure by—

(i) A health insurance issuer, the issuer is the responsible entity;

(ii) A group health plan that is a nonFederal governmental plan sponsored by a single employer, the employer is the responsible entity;

(iii) A group health plan that is a non-Federal governmental plan sponsored by two or more employers, the plan is the responsible entity.

(4) Notice to responsible entities. HCFA provides notice to the appropriate entity or entities identified under paragraph (d)(3) of this section that a complaint or other information has been received alleging a violation of this part. The notice

(i) Describes the substance of any complaint or other allegation;

(ii) Provides 30 days for the responsible entity or entities to respond with additional information. This can include

(A) Information refuting that there has been a violation;

(B) Evidence that the entity did not know, and exercising due diligence could not have known, of the violation; (C) Evidence of a previous record of compliance.

(5) Notice to other regulators. HCFA notifies the State if the alleged violation involves a health insurance issuer under its jurisdiction.

(6) Notice of assessment. If, based on the information provided in the complaint, as well as any information submitted by the entity or any other parties, HCFA proposes to assess a civil money penalty, HCFA sends written notice of assessment to the responsible entity or entities by certified mail, return receipt requested. The notice contains the following information:

(i) A reference to the provision that was violated.

(ii) The name or names of the individuals with respect to whom a violation occurred, with relevant identification numbers.

(iii) The facts that support the finding of a violation, and the initial date of the violation.

(iv) The amount of the proposed penalty as of the date of the notice.

(v) The basis for calculating the penalty, including consideration of prior compliance.

(vi) Instructions for responding to the notice, including—

(A) A specific statement of the respondent's right to a hearing; and

(B) A statement that failure to request a hearing within 30 days permits the imposition of the proposed penalty, without right of appeal.

(7) Amount of penalty-(i) Maximum daily penalty. The penalty cannot exceed $100 for each day, for each responsible entity, for each individual with respect to whom such a failure occurs.

(ii) Standard for calculating daily penalty. In calculating the amount of the penalty HCFA takes into account the responsible entity's previous record of compliance and the gravity of the violation.

(iii) Limitations on penalties. No civil money penalty is imposed:

(A) With respect to a period during which a failure existed, but none of the responsible entities knew, or exercising reasonable diligence would have known, that the failure existed.

(B) With respect to the period occurring immediately after the period described in paragraph (d)(7)(iii)(A) of this section, if the failure

(1) Was due to reasonable cause and was not due to willful neglect; and

(2) Was corrected within 30 days of the first day that any of the entities against whom the penalty would be imposed knew, or exercising reasonable diligence would have known, that the failure existed.

(C) The burden is on the responsible entity or entities to establish to the satisfaction of HCFA that none of the entities knew, or exercising reasonable diligence could have known, that the failure existed.

(8) Hearings—(i) Right to a hearing. Any entity against which a penalty is assessed may request a hearing by HCFA. The request must be in writing, and must be postmarked within 30 days after the date the notice of assessment is issued.

(ii) Failure to request a hearing. If no hearing is requested under this paragraph, the notice of assessment constitutes a final order that is not subject to appeal.

(iii) Parties to the hearing. Parties to the hearing include any responsible entities, as well as the party who filed the complaint. An informational notice is also sent to the State, or to the Secretaries of Labor and the Treasury, as appropriate.

(iv) Initial agency decision. The initial agency decision is made by an administrative law judge. The decision is made on the record according to section 554 of title 5, United States Code. The decision becomes a final, appealable order after 30 days, unless it is modified in accordance with paragraph (d)(8)(v) of this section.

(v) Review by HCFA. HCFA may modify or vacate the initial agency decision. Notice of intent to modify or vacate the decision is issued to the parties within 30 days after the date of the decision of the administrative law judge.

(9) Judicial review—(i) Filing of action for review. Any entity against whom a final order imposing a civil money penalty is entered in accordance with paragraph (d)(8) of this section may obtain review in the United States District Court for any district in which the entity is located or the United States District Court for the District of Columbia by

(A) Filing a notice of appeal in that court within 30 days from the date of a final order; and

(B) Simultaneously sending a copy of the notice of appeal by registered mail to HCFA.

(ii) Certification of administrative record. HCFA will promptly certify and file with the court the record upon which the penalty was imposed.

(iii) Standard of review. The findings of HCFA may not be set aside unless they are found to be unsupported by substantial evidence, as provided by Section 706(2) (E) of title 5, United States Code.

(iv) Appeal. Any final decision, order or judgment of the district court concerning the Administrator's review is subject to appeal as provided in Chapter 83 of Title 28, United States Code.

(10) Failure to pay assessment, maintenance of action—(i) Failure to pay assessment. If any entity fails to pay an assessment after it becomes a final order under paragraphs (d)(7)(i)(A) or (d)(7)(iii) of this section, or after the court has entered final judgment in favor of HCFA, HCFA refers the matter to the Attorney General, who brings an action in the appropriate United States district court to recover the amount assessed.

(ii) Final order not subject to review. In an action brought under paragraph (d)(10)(i) of this section, the validity and appropriateness of the final order described in paragraphs (d)(7)(i)(A) or (d)(7)(iii) of this section is not subject to review.

(11) Use of penalty funds. (i) Any funds collected under this section will be paid to HCFA or other office imposing the penalty.

(ii) The funds will be available without appropriation and until expended.

(iii) The funds may only be used for the purpose of enforcing the provisions with respect to which the penalty was imposed.

PART 147 [RESERVED]

PART 148-REQUIREMENTS FOR THE INDIVIDUAL HEALTH INSURANCE MARKET

Subpart A-General Provisions

Sec.

148.101 Basis and purpose.

148.102 Scope, applicability, and effective dates.

148.103 Definitions.

Subpart B-Requirements Relating to Access and Renewability of Coverage 148.120 Guaranteed availability of individual health insurance coverage to certain individuals with prior group coverage. 148.122 Guaranteed renewability of individual health insurance coverage. 148.124 Certification and disclosure of cov

erage.

148.126 Determination of an eligible individual.

148.128 State flexibility in individual market reforms-alternative mechanisms.

§ 148.101 Basis and purpose.

This part implements sections 2741 through 2763 and 2791 and 2792 of the PHS Act. Its purpose is to improve access to individual health insurance coverage for certain eligible individuals who previously had group coverage, and to guarantee the renewability of all coverage in the individual market.

§ 148.102 Scope, applicability, and effective dates.

(a) Scope. (1) Individual health insurance coverage includes all health insurance coverage (as defined in §144.103) that is neither health insurance coverage sold in connection with an employment-related group health plán, nor short-term, limited-duration coverage as defined in §144.103 of this subchapter. In some cases, coverage that may be considered group coverage under State law (such as coverage sold through certain associations) is considered individual coverage.

(2) Applicability. The requirements of this part that pertain to guaranteed availability of individual health insurance coverage for certain eligible individuals apply to all issuers of individual health insurance coverage in a State, unless the State implements an acceptable alternative mechanism as described in §148.128. The requirements that pertain to guaranteed renewability for all individuals apply to all issuers of individual health insurance coverage in the State, regardless of whether a State implements an alternative mechanism.

(b) Effective dates-(1) General effective date. Except as provided in paragraph (b)(2) of this section and §148.128 (State flexibility in individual market reforms-alternative mechanisms), the requirements of this part apply to health insurance coverage offered, sold, issued, renewed, in effect, or operated in the individual market after June 30, 1997, regardless of when a period of creditable coverage occurs.

(2) Effective date for certification requirements—(i) General rule. Subject to the transitional rule in §(b)(4)(iii), the certification requirements of § of this subchapter apply to events occurring after June 30, 1996.

(ii) Period covered by certificate. A certificate is not required to reflect coverage before July 1, 1996.

(iii) No certificate before June 1, 1997. No certificate must be provided before June 1, 1997.

[62 FR 16995, Apr. 8, 1997; 62 FR 31695, June 10, 1997]

Unless otherwise provided, the following definition applies:

Eligible individual means an individual who meets the following conditions:

(1) The individual has at least 18 months of creditable coverage (as determined under §146.113 of this subchapter) as of the date on which the individual seeks coverage under this part.

(2) The individual's most recent prior creditable coverage was under a group health plan, governmental plan, or church plan (or health insurance coverage offered in connection with any of these plans).

(3) The individual is not eligible for coverage under any of the following: (i) A group health plan.

(ii) Part A or Part B of Title XVIII (Medicare) of the Social Security Act. (iii) A State plan under Title XIX (Medicaid) of the Social Security Act (or any successor program).

(4) The individual does not have other health insurance coverage.

(5) The individual's most recent coverage was not terminated because of nonpayment of premiums or fraud. (For more information about nonpayment of premiums or fraud, see