July 29, 2003
BB 03—76

In this issue:

  • Council Submits Comments on COBRA Notice Regulations
  • Council Endorses FSA Rollover Legislation
  • Supreme Court Asked to Review Fourth Circuit HIPAA Privacy Regs Ruling
  • GAO Issues Report on Medical Malpractice Premiums

Council Submits Comments on COBRA Notice Regulations

In response to the Department of Labor's proposed regulations on COBRA notices, released May 28, the Council has submitted a formal comment letter outlining the employer community's concerns and suggestions.

Under COBRA (the Consolidated Omnibus Budget Reconciliation Act), group health plans are obligated to provide their employees (and employees' families) with the opportunity to continue their group health coverage temporarily after the individual's termination from employment, divorce, death and other similar qualifying events. The proposed regulations will cover the basic information on COBRA that employees and their families need to know before an event occurs that may trigger continued coverage and will specify the schedule and nature of all COBRA notices. A fact sheet on the proposed regulations has been provided by DOL.

The Council's comment letter commends the Department for clarifying numerous outstanding issues — particularly the development of model notices and the Department's position that a plan has 90 days from commencement of coverage to deliver the general notice to the employee and spouse. The Council found, however, that certain provisions of the proposed regulations would require costly and unnecessary changes in administrative processes and would increase the potential liability of group health plan sponsors. Specifically, the Council urged the Department to:

  • Eliminate the new notice requirements in the proposed regulations that are not mandated by statute, or clarify that these requirements are optional and not subject to penalty
  • Allow a plan to reject a notice from a qualified beneficiary as untimely if the plan does not receive a notice that satisfies the plan's "reasonable notification procedures" within the statutory time frame
  • Eliminate the rule in the proposed regulations which states that, in the absence of "reasonable procedures," an oral communication by a qualified beneficiary will be deemed to satisfy the qualified beneficiary's notice requirements
  • Give plans the flexibility to send an election notice and general notice that provide necessary information but are uniform for all qualified beneficiaries
  • Clarify how conflicts between these regulations and the Treasury regulations should be resolved
  • Provide a longer time frame for compliance by making the final regulations effective no earlier than the first day of the first plan year beginning on or after January 1, 2005

For more information, contact Paul Dennett, Council vice president, health policy, at (202) 289-6700.

Council Endorses FSA Rollover Legislation

The Council has again endorsed legislation sponsored by Senator John Ensign (R-NV) (S. 1450) to amend Section 125 of the tax code to allow up to $500 of funds in a Flexible Spending Account (FSA) to be carried forward to a subsequent year without violating the current "use it or lose it" rule. Representative Jim DeMint (R-SC) has introduced a companion bill (H.R. 1177) in the House of Representatives.

In addition to allowing the limited carry-forward of the FSA funds, the bills would allow up to $500 to be distributed to the employee or contributed to a 401(k) plan, 403(b) plan, governmental 457(b) plan, or medical savings account (MSA). Amounts distributed to an employee would be subject to income tax withholding and employment taxes. Amounts contributed to a 401(k) or other specified plan would be subject to the normal contribution limits and other rules applicable to these plans.

In a recent letter to the Medicare prescription drug conferees, the Employers' Coalition on Medicare (ECOM) expressed support for the FSA rollover provisions and reporting requirement changes that were in the House-passed Medicare prescription drug bill (H.R. 1). In addition to allowing $500 in unused FSA funds to either be rolled over or transferred to a tax-preferred retirement savings vehicle, ECOM also supported the House provisions which would reduce burdensome reporting requirements in order to make FSAs more compatible with debit cards, credit cards or other instruments that individuals could use to pay for eligible medical expenses. Council staff drafted the letter to the Medicare conferees from ECOM. For more information, contact Paul Dennett, Council vice president, health policy, at (202) 289-6700.

Supreme Court Asked to Review Fourth Circuit HIPAA Privacy Regs Ruling

The South Carolina Medical Association (SCMA) has filed a petition for a writ of certiorari — a request for the U.S. Supreme Court to review a case — asking the Court to review a Fourth Circuit decision that found Congress did not impermissibly delegate its legislative authority to the Department of Health and Human Services (HHS) to issue privacy regulations under the Health Insurance Portability and Accountability Act (HIPAA). (South Carolina Medical Association v. Thompson, U.S. No. 03-114, petition filed 7/21/03)).

In April 2003, the U.S. Court of Appeals for the Fourth Circuit rejected SCMA's arguments and concluded that "Congress laid out an intelligible principle in HIPAA to guide agency action," so therefore it did not delegate its legislative functions to HHS in violation of the Constitution. The Court also said the regulations are not vague. For more information, contact Maria Ghazal, Council director, health policy, at (202) 289-6700.

GAO Issues Report on Medical Malpractice Premiums

At the request of Democratic lawmakers, the General Accounting Office (GAO) studied recent increases in medical malpractice insurance and issued its report on July 28, 2003. While GAO concluded that multiple factors contributed to the surge in medical malpractice premiums, it suggests that insurers' "losses on medical malpractice claims — which make up the largest part of insurers' costs — appear to be the primary driver of rate increases in the long run." The report also concludes that other factors, such as loss of investment income, can affect premium rates in the short run. GAO did not recommend that Congress adopt any specific policy approach, instead suggesting that Congress ask state regulators to collect additional information that may be used to evaluate the problem.

The House of Representatives passed malpractice reform (H.R. 5) in March 2003 but Senate Republicans have been unsuccessful in their efforts to pass a reform bill (S. 11). The bills would would place a $250,000 cap on noneconomic damages in medical malpractice lawsuits — and similar lawsuits against health plans, third party administrators, medical device manufacturers and pharmaceutical companies — over allegations of medical harm. For more information, contact Maria Ghazal, Council director, health policy, at (202) 289-6700.


The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.