November 23, 2004
BB 04—119

In this issue:

  • Definition of Dependent Technical Corrections Bill Introduced
  • Senate Approves Bill to Prohibit Use of "Source of Injury" Clauses in Health Plans
  • Funding for State High-Risk Health Insurance Pools Not Included in Final Omnibus Appropriations Measure

Definition of Dependent Technical Corrections Bill Introduced

On November 19, 2004, the the Tax Technical Correction Act of 2004 was filed by Senator Charles Grassley (R-IA), Chairman of the Senate Finance Committee and Senator Max Baucus (D-MT), committee ranking member, in coordination with Representative Bill Thomas (R-CA), Chairman of the House Ways and Means Committee. The bill includes an amendment to the Working Families Tax Relief Act of 2004 (the Act) that would exempt the income limitation from the definition of dependent for Health Savings Accounts and Dependent Care Spending Arrangements. The changes to the definition of dependent included in the Act were intended to make the definition more uniform. However, because many other Code sections and regulations reference Code Section 152, the change in definition has broad implications for health, dependent care spending arrangements, hardship distributions from 401(k) plans, and unforeseeable emergency distributions from 457 plans and non-qualified deferred compensation plans. (See the Council's comprehensive analysis of the unintended effects of the change on employee benefit plans.) Last week the U.S. Treasury Department issued Notice 2004-79 stating the intent of the Internal Revenue Service to amend the regulations for health plans that were affected by the change in definition of "dependent". Additional guidance is expected from Treasury by the end of the year to make similar changes to 401(k) and 457 plans.

The Council has sent a letter to Chairmen Grassley and Thomas urging passage of the technical corrections bill. The Council has also drafted a group letter signed by other employer and health plan organizations joining us in supporting this effort. We expect the bill to be reintroduced, along with any modifications or additions, in the 109th Congress for legislative action.

For more information, please contact Susan Relland, Council health policy legal counsel, or Jan Jacobson, Council director, retirement policy, at (202) 289-6700.

Senate Approves Bill to Prohibit Use of "Source of Injury" Clauses in Health Plans

On November 20, the Senate approved by unanimous consent the Health Care Parity for Legal Transportation and Recreational Activities Act (S. 423), which bars insurers and self-insured health plans from including "source of injury" exclusion provisions and denying payment for injuries suffered while engaging in any legal recreational or transportation activity. These activities typically include skiing, horseback riding, snowmobiling or motorcycling. The bill was sponsored by Senator Susan Collins (R-ME) but the Senate Health, Education, Labor and Pensions (HELP) Committee actually approved a substitute bill in October 2003, which was sponsored by Committee Chairman Judd Gregg (R-NH).

Collins introduced the bill because she felt the Health Insurance Portability and Accountability (HIPAA) regulations on nondiscrimination did not reflect Congressional intent during consideration of HIPAA in 1996. The regulations say a plan may not exclude individuals from being eligible for a plan based on participation in certain activities but may exclude payment for injuries resulting from participation in certain activities. The regulations followed the actual legislative language in HIPAA.

The Council did not take a position on the bill but did work extensively with HELP Committee staff to provide guidance on the measure. A companion bill (H.R. 1749) was introduced in the House of Representatives, but it is very unlikely the bill will be considered by the House this year. For more information, contact Maria Ghazal, Council director, health policy, at (202) 289-6700.

Funding for State High-Risk Health Insurance Pools Not Included in Final Omnibus Appropriations Measure

Federal funding for state high-risk health insurance pools was not included in the final omnibus appropriations bill (H.R. 4818) approved by Congress over the weekend. Last week, the Senate approved by unanimous consent the State High Risk Pool Funding Extension Act (S. 2283), which would amend the Public Health Service Act to reauthorize federal funding for state high-risk health insurance pools and extend a high-risk pool grant program established by the Trade Adjustment Assistance Act of 2002. The insurance programs had expired on September 30, 2004. Under the bill, $15 million would be reauthorized to help states establish new high-risk health insurance pools and $75 million would be authorized to increase and extend funding for states that have already established high-risk pools.

House Republicans had hoped to include $16 million in funding for the high-risk pools in the final omnibus appropriations bill but the provision was ultimately omitted. Reauthorization of federal funding for state high-risk health insurance pools will likely be considered again during the 109th Congress. For more information, contact Maria Ghazal, Council director, health policy, at (202) 289-6700.

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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.