SECTION 26.9. Exclusions, Limitations, Waiting Periods, Affiliation Periods, Preexisting Conditions, and Restrictive Riders

(a) All health benefit plans that provide coverage for small employers and their employees must comply with the following requirements.

(1) A small employer carrier may not exclude any eligible employee or dependent (including a late enrollee who would otherwise be covered under a small employer health benefit plan), except to the extent permitted under Insurance Code §1501.156 (concerning Employee Enrollment; Waiting Period).

(2) A small employer carrier may not limit or exclude (by use of rider, amendment, or other provision of the plan, applicable to a specific individual) coverage by type of illness, treatment, medical condition, or accident, except for preexisting conditions or diseases or an affiliation period, as permitted under Insurance Code Chapter 1501 (concerning Health Insurance Portability and Availability Act).

(3) A preexisting condition provision in a small employer health benefit plan may not apply to expenses incurred on or after the expiration of the 12 months following the effective date of coverage of the enrollee or late enrollee, except as authorized by paragraph (9)(B) of this subsection.

(4) A small employer health benefit plan may not limit or exclude initial coverage of a newborn child of a covered employee. Any coverage of a newborn child of an employee under this subsection terminates on the 32nd day after the date of the birth of the child unless notification of the birth and any required additional premium are received by the small employer carrier not later than the 31st day after the date of birth. A small employer carrier must not terminate coverage of a newborn child if the carrier's billing cycle does not coincide with this 31-day premium payment requirement, until the next billing cycle has occurred and there has been nonpayment of the additional required premium, within 30 days of the due date of the premium.

(5) A small employer health benefit plan may not limit or exclude initial coverage of an adopted child of an insured. An adopted child of an insured may be enrolled, at the option of the insured, within either:

(A) 31 days after the insured is a party in a suit for adoption; or

(B) 31 days of the date the adoption is final.

(6) Coverage of an adopted child of an insured under paragraph (5) of this subsection terminates unless notification of the adoption and any required additional premium are received by the small employer carrier not later than either:

(A) the 31st day after the insured becomes a party in a suit in which the adoption of the child by the insured is sought; or

(B) the 31st day after the date of the adoption. A small employer carrier may not terminate coverage of an adopted child if the carrier's billing cycle does not coincide with this 31-day premium payment requirement, until the next billing cycle has occurred and there has been nonpayment of the additional required premium, within 30 days of the due date of the premium.

(7) For purposes of paragraphs (4) and (6) of this subsection, "received by the small employer within a specified period" means that the item(s) must be either received or postmarked by the specified period.

(8) If a newborn or adopted child is enrolled in a health benefit plan or other creditable coverage within the periods specified in paragraph (4) or (5) of this subsection, and subsequently enrolls in another health benefit plan without a significant break in coverage, the other plan may not impose any preexisting condition exclusion or affiliation period with regard to the child. If a newborn or adopted child is not enrolled within the periods specified in paragraph (4) or (5) of this subsection, then in accordance with paragraph (9) of this subsection, the newborn or adopted child may be considered a late enrollee or excluded from coverage until the next open enrollment period.

(9) A small employer carrier must choose one of the methods set forth in subparagraph (A) or (B) of this paragraph for handling requests for enrollment as a late enrollee in any health benefit plan subject to this subchapter. The small employer carrier must use the same method for all small employer health benefit plans.

(A) The eligible employee or dependent may be excluded from coverage and any application for coverage rejected until the next annual open enrollment period and, once enrolled, may be subject to a 12-month preexisting condition provision or, in the case of an HMO, may be subject to a 60-day affiliation provision, as described by Insurance Code §§1501.102 - 1501.104 (concerning Preexisting Condition Provision; Treatment of Certain Conditions as Preexisting Prohibited; and Affiliation Period).

(B) The eligible employee or dependent's application may be accepted immediately and the employee or dependent enrolled as a late enrollee during the plan year. If so enrolled, the preexisting condition provision imposed for a late enrollee may not exceed 18 months or, in the case of an HMO, the affiliation period may not exceed 90 days from the date of the late enrollee's application for coverage.

(C) The provisions of subparagraphs (A) and (B) of this paragraph do not apply to eligible employees or dependents under the special circumstances listed as exceptions under the definition of late enrollee in §26.4 of this title (relating to Definitions).

(D) Examples for applying subparagraphs (A) and (B) of this paragraph, in the case of both insurers and HMOs: Individual A requests coverage on October 1, 2014, after the enrollment period of July 1, 2014, through July 31, 2014, has ended. The next annual open enrollment period is July 1, 2015, through July 31, 2015. The effective date of coverage for persons enrolling during an open enrollment period is the beginning of the plan year, which is September 1 of each year.

(i) If the carrier is an insurer and has elected to exclude all applicants requesting late enrollment until the next open enrollment period, Individual A must reapply for coverage in July 2015 and the carrier may apply up to a 12-month preexisting condition period from the effective date of coverage, and as with any other enrollee, the preexisting condition period would begin on September 1, 2015, and expire on September 1, 2016.

(ii) If the carrier is an insurer and has elected to accept applications for late enrollment immediately and enroll the applicant during the plan year, the carrier may apply up to an 18-month preexisting condition period from the date of application. If Individual A applied for coverage on October 1, 2014, the preexisting condition period would begin on that date and expire on April 1, 2016.

(iii) If the carrier is an HMO and has elected to exclude all applicants requesting late enrollment until the next open enrollment period, Individual A must reapply for coverage in July 2015, and the carrier may apply up to a 60-day affiliation period, as with any other enrollee.

(iv) If the carrier is an HMO and has elected to accept applications for late enrollment immediately and enroll the applicant during the plan year, the carrier may apply up to a 90-day affiliation period from the day Individual A applied for coverage.

(10) A preexisting condition provision in a small employer health benefit plan may not apply to coverage for a disease or condition other than a disease or condition for which medical advice, diagnosis, care, or treatment was recommended or received from an individual licensed to provide the services under state law and operating within the scope of practice authorized by state law during the six months before the effective date of coverage.

(11) A small employer carrier may not treat genetic information as a preexisting condition described by Insurance Code §1501.002 (concerning Definitions) in the absence of a diagnosis of the condition related to the information.

(12) A small employer carrier may not treat a pregnancy as a preexisting condition described in Insurance Code §1501.002.

(13) A preexisting condition provision in a small employer health benefit plan does not apply to an individual who was continuously covered for an aggregate period of 12 months under creditable coverage that was in effect up to a date not more than 63 days before the effective date of coverage under the small employer health benefit plan, excluding any waiting period under the previous coverage. For example, Individual A has coverage under an individual policy for six months beginning on May 1, 2014, through October 31, 2014, followed by a gap in coverage of 61 days until December 31, 2014. Individual A is covered under an individual health plan beginning on January 1, 2015, for six months through June 30, 2015, followed by a gap in coverage of 62 days until August 31, 2015. Individual A's effective date of coverage under a small employer health benefit plan is September 1, 2015. Individual A has 12 months of creditable coverage and would not be subject to a preexisting condition exclusion under the small employer health benefit plan.

(14) In determining whether a preexisting condition provision applies to an individual covered by a small employer health benefit plan, the small employer carrier must credit the time the individual was covered under creditable coverage if the previous coverage was in effect at any time during the 12 months preceding the effective date of coverage under a small employer health benefit plan. Any waiting period that applied before that coverage became effective also must be credited against the preexisting condition provision period. For instance, Individual B is covered under an individual health insurance policy for 18 months beginning May 1, 2014, through November 30, 2015, followed by a four-month gap in coverage from December 1, 2015, to March 31, 2016. On April 1, 2016, Individual B is covered under a group health plan for three months through June 30, 2016, followed by a two-month gap in coverage until August 31, 2016. Individual B's coverage became effective on September 1, 2016. Under this example, since there was a significant break in coverage, to determine the length of creditable coverage, the small employer carrier counts the creditable coverage the individual had for the 12-month period preceding the effective date of the individual's coverage under the small employer health benefit plan. Individual B has creditable coverage of six months and the issuer of the small employer health benefit plan may impose a preexisting condition limitation for six months on Individual B.

(15) A small employer may establish a waiting period in accordance with Insurance Code §1501.156. On completion of the waiting period and enrollment within the time frame allowed by §26.7(h) of this title (relating to Requirement to Insure Entire Groups), coverage must be effective no later than the next premium due date. Coverage may be effective at an earlier date as agreed between the small employer and the small employer carrier.

(16) An HMO may impose an affiliation period in accordance with Insurance Code §1501.104, if the period is applied uniformly without regard to any health-status-related factor. The affiliation period may not exceed two months for an enrollee, other than a late enrollee, and may not exceed 90 days for a late enrollee. An affiliation period under a plan must run concurrently with any applicable waiting period under the plan. An HMO may not impose any preexisting condition limitation, except for an affiliation period.

(17) The imposition of an affiliation period by an HMO does not preclude application of any applicable waiting period as determined by the employer for all new entrants under a health benefit plan.

(18) An affiliation period provision in a small employer health benefit plan does not apply to an individual who would not be subject to a preexisting condition limitation in accordance with paragraphs (12) and (13) of this subsection.

(b) To determine if preexisting conditions exist, a small employer carrier must ascertain the source of previous or existing coverage of each eligible employee or dependent at the time the employee or dependent initially enrolls into the health benefit plan provided by the small employer carrier. The small employer carrier has the responsibility to contact the source of the previous or existing coverage to resolve any questions about the benefits or limitations related to that coverage in the absence of a creditable coverage certification form.

Source Note: The provisions of this §26.9 adopted to be effective December 30, 1993, 18 TexReg 9375; amended to be effective April 9, 1996, 21 TexReg 2648; amended to be effective March 5, 1998, 23 TexReg 2297; amended to be effective April 6, 2005, 30 TexReg 1931; amended to be effective May 17, 2017, 42 TexReg 2539