SPEAKERS CONTENTS INSERTS
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46–734 CC
1998
IMPLEMENTATION OF THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
SEPTEMBER 25, 1997
Serial 105–29
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Printed for the use of the Committee on Ways and Means
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois
BILL THOMAS, California
E. CLAY SHAW, Jr., Florida
NANCY L. JOHNSON, Connecticut
JIM BUNNING, Kentucky
AMO HOUGHTON, New York
WALLY HERGER, California
JIM McCRERY, Louisiana
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
JIM NUSSLE, Iowa
SAM JOHNSON, Texas
JENNIFER DUNN, Washington
MAC COLLINS, Georgia
ROB PORTMAN, Ohio
PHILIP S. ENGLISH, Pennsylvania
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
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WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
ROBERT T. MATSUI, California
BARBARA B. KENNELLY, Connecticut
WILLIAM J. COYNE, Pennsylvania
SANDER M. LEVIN, Michigan
BENJAMIN L. CARDIN, Maryland
JIM McDERMOTT, Washington
GERALD D. KLECZKA, Wisconsin
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
MICHAEL R. McNULTY, New York
WILLIAM J. JEFFERSON, Louisiana
JOHN S. TANNER, Tennessee
XAVIER BECERRA, California
KAREN L. THURMAN, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
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Subcommittee on Health
BILL THOMAS, California, Chairman
NANCY L. JOHNSON, Connecticut
JIM McCRERY, Louisiana
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
PHILIP M. CRANE, Illinois
AMO HOUGHTON, New York
SAM JOHNSON, Texas
FORTNEY PETE STARK, California
BENJAMIN L. CARDIN, Maryland
GERALD D. KLECZKA, Wisconsin
JOHN LEWIS, Georgia
XAVIER BECERRA, California
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined. The electronic version of the hearing record does not include materials which were not submitted in an electronic format. These materials are kept on file in the official Committee records. The electronic version of the hearing record does not include materials which were not submitted in an electronic format. These materials are kept on file in the official Committee records.
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C O N T E N T S
Advisories announcing the hearing
WITNESSES
Health Care Financing Administration, Judy D. Moore, Deputy Director, Center for Medicare and State Operations
U.S. Department of Labor, Meredith Miller, Deputy Assistant Secretary for Policy, Pension and Welfare Benefits Administration
U.S. Department of the Treasury, J. Mark Iwry, Chief Benefits Tax Counsel
ERISA Industry Committee, Anthony J. Knettel
Health Insurance Association of America, Hon. Bill Gradison
Kansas, State of, Kathleen Sebelius
Missouri, State of, Department of Insurance, Jay Angoff
National Association of Health Underwriters, Diane L. Mahoney
National Association of Insurance Commissioners, and State of Wisconsin, Josephine W. Musser; as presented by Kathleen Sebelius
Women's Legal Defense Fund, Judith L. Lichtman; as presented by Joanne Hustead
SUBMISSIONS FOR THE RECORD
American Bankers Association, statement
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American Council of Life Insurance, Douglas P. Bates, letter and attachment
Association Healthcare Coalition, Irvine, Ca, Donald G. Dressler, statement
Council for Affordable Health Insurance, Alexandria, Va, statement
National Renal Administrators Association, statement and attachment
IMPLEMENTATION OF THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT
THURSDAY, SEPTEMBER 25, 1997
House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:41 a.m., in room 1310, Longworth House Office Building, Hon. Bill Thomas (Chairman of the Subcommittee) presiding.
[The advisories follow:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON HEALTH
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CONTACT: (202) 225–3943
FOR IMMEDIATE RELEASE
September 11, 1997
No. HL–15
Thomas Announces Hearing on
Implementation of the Health Insurance
Portability and Accountability Act
Congressman Bill Thomas (R–CA), Chairman, Subcommittee on Health of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearing on implementation of the Health Insurance Portability and Accountability Act of 1996, (Public Law 104–191). The hearing will take place on Thursday, September 25, 1997, in 1310 Longworth House Office Building, beginning at 11:00 a.m.
In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing.
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BACKGROUND:
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) contains several provisions designed to make health coverage more accessible, affordable, and portable. The key tax provisions of HIPAA, including medical savings accounts for small businesses and the self-employed, and increased health insurance deductions for the self-employed and deductions for the cost of long-term care coverage, became effective on January 1, 1997.
In July of this year, additional reforms became effective. Among other things, these provisions: (1) limit the use of preexisting condition exclusions; (2) guarantee access to health insurance for small employers; (3) guarantee renewability of health insurance coverage for groups and individuals; (4) prohibit health plans from discriminating against people based on their health status; (5) effectively end job lock by making health coverage portable; (6) improve COBRA continuation coverage for disabled individuals and newborns; and (7) help people who lose their job, or leave their job to start their own businesses, obtain health coverage in the individual insurance market.
Three Federal agencies—the Department of Health and Human Services, the Department of Labor, and the Department of the Treasury—are charged with overseeing the implementation and enforcement of HIPAA. While the States are given responsibility to enforce HIPAA's small group and individual market insurance reforms, the legislation provides them with considerable flexibility in meeting these requirements.
In announcing the hearing, Chairman Thomas stated: ''After years of wrangling, Congress finally delivered common-sense, market-based health insurance reform to the American people. As the Health Insurance Portability and Accountability Act should be fully phased-in by the end of this year, this is an excellent opportunity to examine how the law is working, how it is being implemented, and whether any modifications should be made.''
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FOCUS OF THE HEARING:
The hearing will focus on implementation of the access, portability, preexisting condition, and long-term care provisions of HIPAA. The Subcommittee will examine the response of the States and the private market to HIPAA, and performance of the three Federal agencies charged with drafting regulations and overseeing HIPAA.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement for the printed record of the hearing should submit at least six (6) single-space legal-size copies of their statement, along with an IBM compatible 3.5-inch diskette in ASCII DOS Text or WordPerfect 5.1 format only, with their name, address, and hearing date noted on a label, by the close of business, Thursday, October 9, 1997, to A.L. Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. If those filing written statements wish to have their statements distributed to the press and interested public at the hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on Health office, room 1136 Longworth House Office Building, at least one hour before the hearing begins.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request for written comments must conform to the guidelines listed below. Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.
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1. All statements and any accompanying exhibits for printing must be typed in single space on legal-size paper and may not exceed a total of 10 pages including attachments. At the same time written statements are submitted to the Committee, witnesses are now requested to submit their statements on an IBM compatible 3.5-inch diskette in ASCII DOS Text or WordPerfect 5.1 format. Witnesses are advised that the Committee will rely on electronic submissions for printing the official hearing record.
2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a statement for the record of a public hearing, or submitting written comments in response to a published request for comments by the Committee, must include on his statement or submission a list of all clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the name, full address, a telephone number where the witness or the designated representative may be reached and a topical outline or summary of the comments and recommendations in the full statement. This supplemental sheet will not be included in the printed record.
The above restrictions and limitations apply only to material being submitted for printing. Statements and exhibits or supplementary material submitted solely for distribution to the Members, the press and the public during the course of a public hearing may be submitted in other forms.
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Note: All Committee advisories and news releases are available on the World Wide Web at 'HTTP://WWW.HOUSE.GOV/WAYS_MEANS/'.
The Committee seeks to make its facilities accessible to persons with disabilities. If you are in need of special accommodations, please call 202–225–1721 or 202–226–3411 TTD/TTY in advance of the event (four business days notice is requested). Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.
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NOTICE—CHANGE IN TIME
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225–3943
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FOR IMMEDIATE RELEASE
September 19, 1997
No. HL–15-Revised
Time Change for Subcommittee Hearing on
Thursday, September 25, 1997, on
Implementation of the Health Insurance
Portability and Accountability Act
Congressman Bill Thomas (R–CA), Chairman of the Subcommittee on Health, Committee on Ways and Means, today announced that the Subcommittee hearing on implementation of the Health Insurance Portability and Accountability Act of 1996, previously scheduled for Thursday, September 25, 1997, at 11:00 a.m., in 1310 Longworth House Office Building, will begin instead at 10:00 a.m.
All other details for the hearing remain the same. (See Subcommittee press release No. HL–15, dated September 11, 1997.)
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—————
Chairman THOMAS. The Subcommittee will come to order.
I apologize if you don't have enough room. This is not the usual impressive Ways and Means Committee room, but apparently the power of the Committee is transportable. We have about 45 minutes before we have another vote and so I would like to, as expeditiously as possible, begin moving through the witnesses' testimony, but I want to make sure we have enough time for everyone.
I want to welcome everyone to today's Subcommittee hearing, the first one on the implementation of the HIPAA, Health Insurance Portability and Accountability Act of 1996. HIPAA does represent consensus health reform, which we have been debating and discussing for some time. Besides increasing the deductibility of health insurance for the self-employed, making medical savings accounts available to small employers, simplifying health claims and billing forms, clarifying the tax treatment of long-term care insurance, and providing significant new tools to combat health care fraud and abuse, HIPAA contains reforms which limit preexisting condition exclusions, guarantee the availability and renewability of health insurance, prohibit health plans from discriminating against people based on their health status, and help to make health coverage more portable.
Within the next few months, most of HIPAA's reforms will be fully implemented. It, therefore, seems appropriate to determine whether the new law is meeting its objectives, how it is being implemented and whether, already at this date, any modifications might be identified and suggested.
Today we are going to hear from consumers, health plans, employers, representatives of States, as well as the three Federal agencies charged with implementing and enforcing HIPAA to help us address these issues. Reforms as major as HIPAA are never perfect, and so during today's hearing, I will ask some of the witnesses to provide the Subcommittee with specific suggestions in terms of how and where they believe HIPAA requires modifications. However, I would like to request that all witnesses, and as a matter of fact, all interested parties who may not have been invited to testify, provide the Subcommittee with any formal set of proposed technical modifications no later than November 1. We do have to begin working with other Committees of jurisdiction so that we can make those adjustments where and if necessary.
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I hope today's hearing will mark the beginning of a continuing dialog, not just to harangue what is wrong but to focus on it and try to make the changes to make it better so that we can ensure that these bipartisan reforms are implemented in the most efficient and effective manner possible.
I want to thank all of you for being here, I look forward to your testimony, and I recognize the Ranking Member, the gentleman from California, Mr. Stark.
Mr. STARK. Thank you, Mr. Chairman, and thank you for holding this hearing.
There were two courageous, perspicacious Members of the House who voted against final passage of this bill; the other one is retired. This leaves me the lonely job of reminding some not to oversell this bill. It is a very tiny step forward in what should be our goal of getting health insurance coverage for all Americans. As the Congressional Budget Office said when we passed it, it will help about 400,000 people, but we have 40 million people who have no insurance, and that number is rising.
So, in this boom economy, employers have been cutting back on health insurance coverage and have been eliminating dependent coverage. Workers have been asked to pay more of their share of the bill, and this hearing really doesn't address those trends. I am not sure we can address it. But if this is happening in good economic times, what happens to us if we have a turndown?
I have been calling the various States to get the annual price of health insurance policies under HIPAA guaranteed issue after employment based COBRA are exhausted, and I have handed out a list to Members here, to see what this guaranteed issue individual product is selling for. It is coming in around $6 thousand or more a year. That is a cruel hoax when we could have extended COBRA at a lower cost and where the per capita income of many of these people is $16,000.
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For many others, there are abuses by insurers. Missouri Commissioner Angoff will tell us about abuses that make the policies unaffordable, and perhaps a quarter of all State and local governments are opting not to be covered.
I believe that is happening in our State. And with local governments not picking up the challenge that we provided, there are things, as the Chairman suggested, we might do.
I would suggest some small items we might do. I have introduced a bill to phase down the preexisting condition period from 1 year to 1 month, to guarantee issue to all businesses, not just those with under 51 workers. We might look again at COBRA, which costs the government virtually nothing and which has minimal costs, except an inconvenience to some of the businesses. So there are improvements we could make to expand the scope of this law as I know we would all like to.
Again, I look forward to hearing the witnesses and working with the Chair to see what we can do to make a dent in those 40 million who do not have adequate health care because of lack of insurance.
Thank you, Mr. Chairman.
[The opening statement and attachment follow:]
Opening Statement of Congressman Pete Stark
Mr. Chairman:
Thank you for holding this hearing. There were two Members of the House who voted against final passage of this law. One retired. That leaves me to remind people not to oversell this bill—that it is only the tiniest step forward in what should be our goal of getting health insurance for all Americans. As the Congressional Budget Office said when the bill passed, it will help about 400,000 people a year, while 40,000,000—and rising—remain uninsured.
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Yet even in this boom economy, employer provided health insurance has been declining, dependent coverage has been dropping, workers have been asked to pay more and more of the health bill. This law does nothing to address these trends. The health insurance situation is worsening in these good economic times ... imagine what they will look like when we have an economic downturn.
My office has been calling the various States to see what the guaranteed issue individual health insurance products are being priced at. As you can see, in many states these policies are coming in above $6,000—a cruel joke in a nation where the per capita median income of a single person household is about $16,000.Page 3 of Missouri Commissioner Angoff's testimony documents continuing abuses by insurers that will make policies unaffordable.
For many others, the law is a failure. Perhaps a quarter of all State and local governments will opt not to be covered. It is a disgrace that local American governments are not providing the kind of health care protection we have mandated on American business.
To repeat, this law is the smallest of down-payments on what we need to do. One new small step forward would be the bill I introduced Tuesday to phase down the pre-existing condition period from a year to a month and to guarantee issue to all businesses, not just those under 51 workers.
I look forward to hearing how we can build on this law.
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[The official Committee record contains additional material here.]
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Chairman THOMAS. I thank the gentleman.
Any other Members who wish to make statements can place written statements in the record.
I would just tell the gentleman, I looked at his list and it is difficult, on the basis of the sheet I have in front of me, to really determine what the different benefit packages are in terms of premium rates. Obviously, the way in which they are packaged and what they contain makes a significant difference, and we did try to make a number of changes that were opposed which we thought would be a greater outreach.
But overselling HIPAA and opposing it are two different things, and I am thankful there were only two Members and one retired. I don't assume that pretends anything. We are opposed.
I am concerned about overselling as well and what we need to do is find out how we can improve on the product, but I don't understand how you start if you don't start and to me HIPAA was a start.
And with that, we will turn to our first panel. Judy Moore is the Deputy Director, Center for Medicaid and State Operations at HCFA; Meredith Miller is the Deputy Assistant Secretary for Policy, Pension and Welfare Benefits Administration, U.S. Department of Labor; and Mark Iwry is Chief Benefits Tax Counsel, U.S. Department of the Treasury.
I assume we will start in that order. Ms. Moore, Ms. Miller, Mr. Iwry, you have written testimony to be made part of the record without objection, and you can inform us in a relatively efficient way your viewpoints from your perspective.
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STATEMENT OF JUDY D. MOORE, DEPUTY DIRECTOR, CENTER FOR MEDICAID AND STATE OPERATIONS, HEALTH CARE FINANCING ADMINISTRATION
Ms. MOORE. Thank you, Mr. Chairman. Good morning to you and Members of the Subcommittee. Thank you for inviting me and my colleagues to speak to you this morning about the Health Insurance Portability and Accountability Act which provides, among other things, improved portability and continuity of health insurance coverage in the group and the individual markets. These provisions allow millions of Americans to enjoy greater security in their health care coverage, and today I would like to talk about the Health Care Financing Administration's role in implementing the portability provisions and the current status of our implementation efforts.
Since HIPAA's portability provisions in the group market implement changes to the Public Health Service Act, ERISA, and the Internal Revenue Code, the law provides for shared responsibilities between the Secretaries of HHS, Health and Human Services, Labor and Treasury, represented by the group this morning. HHS, through HCFA, is working with the other departments in implementing the group market provisions, and the requirements generally become effective for plan years beginning on or after July 1 of this year.
Since HIPAA provisions governing insurance in the individual market are contained only in the Public Health Service Act, they are within the sole regulatory jurisdiction of HHS. Through HCFA, HHS is responsible for working with the States to implement these provisions which will improve access to the individual health insurance market for certain eligible individuals who lose group health insurance coverage.
These Federal statutory provisions became effective as of July 1, 1997, unless a State chose to implement an alternative mechanism. An alternative mechanism offers States more flexibility but eligible individuals still must have access to either health insurance or some comparable coverage. HIPAA required States to submit to HCFA by April 1 of this year a notice of their intention to implement an alternative mechanism or to use the Federal provisions. Forty States have submitted their notices of intent to implement an alternative and that alternative is to be functional by January 1998.
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Since HCFA assumed a new role in relation to State regulation of health insurance and health coverage, we have looked to the States and to State groups, such as the National Association of Insurance Commissioners, the National Governors' Association, and some others, for assistance and comments on all of the policy issues in the regulatory processes. We appreciate the time and effort that these groups have spent with us.
HCFA's new organizational structure also reflects the importance that we place on our relationships with the States and our commitments to the implementation of the HIPAA insurance standards requirements. These requirements are implemented through our new center for Medicaid and State operations where we have a special team that is responsible for HIPAA implementation and enforcement.
HCFA has been working closely with our Federal partners to issue the portability regulations. As required under the statute, the comment period for those regulations ended in July and now we are in the process of analyzing the comments that we received. We are also working together with the other departments on issuing regulations to implement the Mental Health Parity Act and the Newborns' and Mothers' Health Protection Act that the President signed into law last September. Both acts are effective for plan years beginning on or after January 1, 1998, and we expect these regulations will be published this fall.
Let me speak briefly about the Federal enforcement of the HIPAA provisions. HIPAA provides for the enforcement of small group and individual market provisions by States. However, if a State fails to enforce the Federal statutory provisions and does not choose to implement an acceptable alternative mechanism, then the statute provides for Federal enforcement of these provisions.
It was generally not anticipated by Congress or by the administration that Federal enforcement would be necessary, but in May and June, Missouri and Rhode Island State legislatures adjourned without enacting any legislation to conform existing law to HIPAA requirements. As a result, HCFA is now responsible for implementing and enforcing both the individual and some group market provisions in both of these States.
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In order to implement and enforce HIPAA provisions, HCFA, among other things, has to collect and review documentation regarding policy forums for compliance, regulate certificates of prior creditable coverage, and monitor marketing of individual policies. We are doing our best to implement Federal enforcement so that workers and families in these States can benefit from HIPAA as soon as possible.
Earlier this month, the California legislature also adjourned without enacting the necessary legislation to conform the existing law to HIPAA requirements. As a result, the Federal ''fallback'' enforcement will be triggered in California for these aspects of HIPAA's individual market provisions. Our activity in California will be especially challenging due to the size and structure of the California health insurance market.
We understand that it may be possible that the Federal ''fallback'' provisions may be triggered in yet other States in the coming months. If HCFA's activities in Missouri, Rhode Island, and California become more than a transitional role, and Federal enforcement is triggered in a large number of other States, we will need to assess the implications of HIPAA with respect to HCFA resources. In the interim, we will keep the Subcommittee fully informed as things develop.
Finally, let me mention some areas we think merit monitoring as we are going through the transition to full implementation of this law. The bipartisan intent of HIPAA was to ensure portability and access in the group and individual markets. As we move forward with implementation, we need to monitor the responses of insurers and other entities to the provisions so that the intent of the legislation is achieved.
I would like to mention just a couple of areas we are concerned about. There is a transitional problem resulting from the gap in the effective date for individual market requirements for States that are implementing alternative mechanisms. While individuals moving from a group health plan can receive a certificate of credible coverage, as of June 1, 1997, in some States that are implementing alternative mechanisms, the individual cannot use the certificate to gain access to the individual market until January 1, 1998. The gap in the effective date does put some individuals at risk.
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In States that are implementing high-risk pools, we are concerned some insurers who are currently offering coverage in the individual market may tighten their underwriting, making the risk pool the major or potentially exclusive source of coverage for eligible individuals in that State. Such a development would put tremendous pressure on the risk pool mechanism.
Another concern with risk pools is the general lack of reciprocity among States in regard to such coverage. While an eligible individual with a guaranteed issue insurance policy could be able to move out of the State and take that with them, an individual who is receiving coverage through a risk pool in the absence of reciprocity would be subject to a kind of ''State lock,'' that is, moving out of the State would result in their loss of coverage.
In States that don't use risk pools, we are concerned about how insurers will pool risk and rate policies for eligible individuals. There are no provisions in HIPAA that address these issues. The rating of HIPAA mandated, guaranteed issue policies based on a pool of only eligible individuals could result in a policy that is unaffordable.
One final area of concern relates to self-funded, non-Federal governmental plans. The statute does provide that these plans can ''opt out'' of HIPAA group market provisions, except for the certification requirements. To date, over 200 of these non-Federal governmental plans have notified us that they are exercising this option.
In conclusion, I would stress that the HIPAA provisions are not fully in place. It is really too early to assess effectiveness clearly, and many challenges lie ahead for both the States and for HCFA and the other departments. We will continue to consult with the staff of the Subcommittee and representatives from the States, employers, insurance companies, consumer groups, and everyone who is interested in this, as we move forward with enforcement activities.
I would be glad to answer any questions when my colleagues have completed their testimony.
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[The prepared statement follows:]
Statement of Judith D. Moore, Deputy Director, Center for Medicaid and State Operations, Health Care Financing Administration
Introduction
Good morning, Mr. Chairman, Members of the Subcommittee. Thank you for inviting me to speak with you this morning.
The Health Insurance Portability and Accountability Act (HIPAA), signed into law on August 21, 1996, provides for, among other things, improved portability and continuity of health insurance coverage in the group and individual insurance markets. These provisions, called the ''portability provisions'' of HIPAA, will allow millions of Americans to enjoy greater security in their health care coverage. Today, I will talk about the Health Care Financing Administration's (HCFA) role in implementing the portability provisions and the current status of our implementation efforts.
HIPAA Provisions
Group Market Provisions
Since HIPAA's portability provisions in the group market, referred to as ''group market'' provisions, implement changes to the Public Health Service Act (PHS Act), the Employee Retirement Income Security Act of 1974 (ERISA), and the Internal Revenue Code of 1986 (Code), the law provides for shared responsibilities for the Secretaries of Health and Human Services (HHS), Labor, and Treasury. HHS, through HCFA, is working with the other Departments in implementing these group market provisions.
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The group market provisions of HIPAA affect group health plans (generally, plans sponsored by employers or employee organizations or both). These HIPAA provisions are designed to improve the availability and portability of health coverage by: limiting exclusions for pre-existing conditions; providing credit for prior health coverage; providing new rights that allow individuals to enroll for health coverage when they lose other coverage or have a dependent; prohibiting discrimination in enrollment and premiums; guaranteeing availability of health insurance coverage for small employers and renewability of coverage in both the small and large group markets. These requirements generally become effective for plan years beginning on or after July 1, 1997.
The effectiveness of portability of coverage hinges on the timely transfer of creditable coverage information. Group health plans and health insurance issuers were required to provide certificates of prior creditable coverage to individuals beginning June 1, 1997. The certification provisions are intended to enable an individual to establish prior creditable coverage for purposes of reducing or eliminating any pre-existing condition exclusion.
Individual Market Provisions
Some HIPAA provisions amend only one statute, and therefore are the responsibility of only one Department. This is the case for the HIPAA provisions governing insurance in the individual market. Since these provisions, referred to as the ''individual market'' provisions, are contained only in the PHS Act, they are within the sole regulatory jurisdiction of HHS. HHS, through HCFA, is responsible for working with the States to implement these provisions which will improve access to the individual health insurance market for certain ''eligible individuals'' who lose group health insurance coverage. Under the Federal requirements, these individuals are assured availability of coverage in the individual market. Health insurance issuers that offer health insurance coverage in the individual market are required to offer policies to eligible individuals on a guaranteed issue basis, without pre-existing condition exclusions. In addition, all such individual health insurance coverage must be guaranteed renewable. These Federal statutory provisions became effective as of July 1, 1997.
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State Alternative Mechanisms in the Individual Market
HIPAA gives a State two options to assure that '''eligible individuals'' have access to health insurance in the individual market. Under the first option, States may simply enforce the Federal statutory provisions, as described above. Under the second option, States may choose to implement an ''alternative mechanism.'' An alternative mechanism offers States more flexibility, however, eligible individuals must still have access to either health insurance or comparable coverage. HIPAA required States to submit to HCFA by April 1, 1997 a notice of their intention to implement an alternative mechanism. Forty States have submitted their notice of intent to implement an alternative, which must be functional by January 1, 1998. Approximately twenty of the forty States are implementing high risk pools or other risk spreading mechanisms. These States are mostly rural. The more populous States are adopting the Federal requirements that either the State or HCFA will enforce. Therefore, we believe that the majority of the ''eligible individuals'' will be protected under the Federal requirements.
Implementation of HIPAA
Working with the States
As a result of implementation activities in regard to both the group and individual market, HCFA has assumed a new role in relationship to State regulation of health insurance and health coverage. We have been working closely with the States and the National Association of Insurance Commissioners (NAIC) to get their views and comments on the policy issues and regulatory processes. Also, we have met with many other State groups, such as the National Governors' Association and the American Public Welfare Association's National Association of State Medicaid Directors. We are grateful for the time and effort that many State people have spent in educating us and providing their advice and assistance.
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HCFA's new organizational structure also reflects the importance we place on our relationship with States and our commitment to the implementation of HIPAA requirements. Under the new structure, one of the three operational centers, the ''Center for Medicaid and State Operations,'' will deal solely with State issues. Within this center, there is a special team that is responsible for HIPAA implementation and enforcement, called the Insurance Standards Team.
Solicitation of Comments
Since HIPAA amends three statutes, the law required the Secretaries of all three Departments to issue regulations to carry out the portability provisions. In preparation for these regulations, the Departments published in the Federal Register last December, a public solicitation of comments on the HIPAA portability provisions. The Departments carefully considered the public comments received on behalf of employees, dependents, and others seeking health coverage, as well as employers, plan administrators, and insurance issuers in developing the interim rules. The comments proved to be very helpful in developing the regulation and especially with regard to the Departments' decision to design a model certificate of coverage that reduces the potential burdens on employers and insurance carriers, while making the certification process more effective for employees and dependents.
Issuance of Notice
Last January, HCFA published in the Federal Register a notice to help States in developing alternative mechanisms for the individual market. This notice generally described the statutory provisions, provided procedural guidance for States implementing alternative mechanisms, and described the statutory provisions that apply in a State that does not implement an acceptable alternative mechanism.
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Issuance of Interim Final Portability Regulations
The statute required the three Departments to issue the portability regulations by April 1, 1997. We are pleased to say that the Departments met this time frame, and regulations were released and made available to the public on April 1, and published in the Federal Register on April 8. The comment period for the regulations ended July 8, and we are now in the process of analyzing the comments.
Implementation of Mental Health Parity Act and Newborns' and Mothers' Health Protection Act
On September 26, 1996, the President signed into law the Mental Health Parity Act and the Newborns' and Mothers' Health Protection Act. The Mental Health Parity Act requires that a group health plan's lifetime and annual dollar limits for mental and physical illness at least be equal if the plan provides any mental health benefits. However, the statute exempts plans from the Act's requirements if they result in a cost increase of at least one percent. The Newborns' and Mothers' Health Protection Act establishes standards that will apply to group health plans and health insurance issuers relating to minimum benefits for hospital stays following childbirth. Both acts are effective for plan years beginning on or after January 1, 1998.
On June 26, 1997, a Request for Information was published in the Federal Register so as to obtain specific information to help us in interpreting the above referenced statutes. We explicitly asked for guidance in interpreting the statute's exemption for a plan that could demonstrate that mental health parity provisions would result in an increase in cost under the plan or coverage of more than one percent. We also requested information to help us in interpreting the hospital lengths-of-stay provisions, and analyzing the potential impact of regulatory alternatives on the business community and the public. The comment period ended on July 28 and we received approximately 70 comments. We expect the regulations for these amendments to be published this Fall.
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Federal Enforcement of HIPAA Provisions
HIPAA provides for the enforcement of the small group and individual market provisions by States. However, if a State fails to enforce the Federal statutory provisions and does not choose to implement an acceptable alternative mechanism, then the statute provides for Federal enforcement of these provisions. It was generally not anticipated by Congress or by the Administration that Federal enforcement would be necessary. In May and June, Missouri and Rhode Island State legislatures adjourned without enacting any legislation to conform existing law to HIPAA requirements. As a result, HCFA is now responsible in these States for implementing and enforcing both the individual and some group market provisions.
In order to implement and enforce HIPAA provisions, HCFA, among other things, must collect and review documentation regarding policy forms for compliance, regulate certificates of prior creditable coverage, and monitor marketing of individual policies. Therefore, we have been working closely with State officials and have developed very positive working relationships. We have also apprised the Congressional delegations of the situation and have had several meetings with insurers. We are doing our best to implement Federal enforcement so that workers and their families in these States can benefit from this law as soon as possible.
Earlier this month, the California legislature adjourned without enacting all of the legislation necessary to conform existing law to HIPAA requirements. Early indications are that the legislature addressed the group market requirements and renewability in the individual market but did not address other individual market requirements. As a result, Federal fall back enforcement will be triggered in regard to these aspects of HIPAA's individual market provisions. HCFA's activities in California will be especially challenging due to the size and the structure of California's health insurance market.
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Through our informal work with States in reviewing their changes to law and regulations, we believe that it may be possible that the Federal fall back provisions may be triggered in other States in the months ahead. Some states may choose not to enforce specific aspects of the small group or individual market or the mental health parity provisions. If this becomes the case, then HCFA would be responsible for enforcing these provisions, creating a ''patchwork quilt'' of Federal and State enforcement within the State. If HCFA's activities in Missouri, Rhode Island and California becomes more than a transitional role and Federal enforcement is triggered in other States, we will need to assess the implication of the Federal enforcement of HIPAA with respect to HCFA resources. In the interim, we will keep the Committee fully informed of developments.
Areas That Merit Monitoring
The bipartisan intent of HIPAA was to assure portability and access in the group and individual markets. As we move forward with implementation, we will need to closely monitor the response of insurers and other entities to the provisions so as to assure that the intent of the legislation is achieved. I would like to touch on a number of areas that merit careful monitoring.
• You should be aware of a transitional problem resulting from the gap in the effective dates for individual market requirements for States that are implementing alternative mechanisms. While individuals moving from a group health plan can receive a certificate of creditable coverage as of June 1, 1997, the individual cannot use this certificate to gain access to the individual market in some States that are implementing alternative mechanisms until January 1, 1998. The gap in the effective dates puts individuals at risk of losing their creditable coverage if they have a break in coverage for more than 63 days because they cannot find coverage through the interim months. There is no comparable gap in States implementing the Federal fall back requirements since health insurance issuers in those States had to start accepting ''eligible individuals'' as of July 1, 1997. There is also no gap in States that provided for earlier effective dates or included bridge provisions with their alternative mechanisms.
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• In States that are implementing high risk pools, we are concerned that some insurers who are currently offering coverage in the individual market may tighten their underwriting with the result of making the risk pool the major or potentially exclusive source of coverage for ''eligible individuals'' in the state. Such a development would put tremendous pressure on the risk pool mechanism and could limit the State's ability to provide coverage to individuals other than ''eligible individuals'' through this mechanism.
• Another concern with regard to State high risk pools stems from the general lack of reciprocity among States in regard to such coverage. Thus, while a ''eligible individual'' with a guaranteed issue insurance policy generally would be able to move out of State and maintain insurance coverage, an individual receiving coverage through a risk pool in the absence of reciprocity would be subject to ''State lock''—that is, moving out of State would result in a loss of coverage.
• In States that do not use risk pools, we are concerned about how insurers will pool risk and rate policies for ''eligible individuals.'' There are no provisions in HIPAA that address these issues. The rating of HIPAA-mandated guaranteed-issue policies based on a pool of only ''eligible individuals'' could result in a policy that is unaffordable. The issue of affordablity is of special concern in States which do not have rate regulation authority.
• One final area of concern relates to self-funded, non-federal governmental plans. The statute provides these plans with the option to opt-out of all HIPAA group market provisions except for the certification requirements. For instance, if a teacher wants to move from one school district to another, the teacher may not have the portability of coverage if the school district that she is moving to has elected the HIPAA opt-out. Thus, this teacher could still be subject to ''job lock,'' which HIPAA generally was supposed to reduce. To date, 200 non-federal governmental plans have notified us that they are exercising this option. By the end of this year we will have a clearer picture of the extent to which this option will be exercised across the country.
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Conclusion
Since HIPAA provisions are not fully in place across the country, it is clearly too early to assess HIPAA's effectiveness. Many challenges lie ahead both for the states and for HCFA and the other Departments. HCFA and the other Departments will continue consult with staff from the Subcommittee and with representatives from States, employers, insurance companies and consumer groups as we complete implementation this landmark legislation and move forward with enforcement activities.
I would be happy to answer any questions you might have.
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Chairman THOMAS. Thank you, Ms. Moore.
Ms. Miller.
STATEMENT OF MEREDITH MILLER, DEPUTY ASSISTANT SECRETARY FOR POLICY, PENSION AND WELFARE BENEFITS ADMINISTRATION, U.S. DEPARTMENT OF LABOR
Ms. MILLER. Good morning, Mr. Chairman, Members of the Subcommittee. Thank you for inviting me to speak with you this morning about HIPAA.
I am especially pleased to be here with my colleagues from the other departments. As you know, HIPAA provided for shared responsibility for our departments in implementing and enforcing the portability access and renewability provisions of the law. This framework has required that we work closely to ensure consistency in the implementation and application of HIPAA, and I can report to you this morning that we are doing so.
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Thus far, the departments issued interim regulations last April on the portability access and renewability provisions. We have coordinated outreach efforts to educate the regulated community and workers about HIPAA. We have coordinated with HHS and the States with regard to State implementation and the group market, and we have been developing guidance on the Mental Health Parity Act and the Newborns' and Mothers' Health Protection Act, and we are keenly aware of the need to get this guidance out as soon as possible. We have also been working toward a Memorandum of Understanding relating to interpretation and enforcement of HIPAA by the departments.
I would like to clarify that at the time of this hearing, we are still in the early stages of implementation of HIPAA in the group market. This is because, although the major provisions of the law went into effect on July 1, 1997, only 25 percent of the private sector group health care plans will be subject to the provisions of the law before the end of this year, because the law is only effective when health plans begin their new year.
Accordingly, 75 percent of private sector group health plans will not be subject to HIPAA until after January 1, 1998. For this reason, the departments' efforts are now devoted in large part to education outreach and assistance in compliance.
As part of the Department of Labor's education initiative, we are conducting an extensive outreach program to educate plan administrators and employers on the new health care reforms under HIPAA. We have presented an indepth seminar in 10 different cities, covering every region of the country, and we have done that along with the International Foundation of Employee Benefit Plans. We have also done 20 extra seminars, and the Department of Labor has issued this book, ''Questions and Answers: Recent Changes in Health Care Law,'' to employees and employers, to help them understand their rights and obligations under HIPAA. We have distributed 120,000 of these booklets thus far and our web site has been accessed almost 13,000 times by members of the public seeking information on the HIPAA regulation.
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PWBA's technical assistance office in the department has handled upward of 6,000 phone calls on HIPAA in the last year. The public can also access the same information through the Department's publication hot line, and we are providing public service announcements for the media to alert individuals of the effects of the new law. In fact, Mr. Chairman, today we are releasing another public service announcement for the printed press to alert families and workers about these important protections and how they can get information about them.
Concurrent with these outreach activities has been the rulemaking process. I would like to spend a minute or two on addressing the coordination between the agencies and the implementation of the regulations.
HIPAA requires the departments to execute an MOU, Memorandum of Understanding, to coordinate the regulation and enforcement activities in the shared group market provisions. The most critical aspects of the MOU are those that lay down the road map for the future, for how the departments will interpret and enforce the law. The regulatory process and, frankly, our experiences now as we go through this transition period, will provide us with the insights as to the most appropriate roles for each agency in interpreting HIPAA. Coordinating our enforcement resources and these insights will be incorporated by the departments into the formal MOU.
For the shared group market provisions, HIPAA relies on the current enforcement authority of each department. One of the first initiatives that we took in terms of this shared responsibility was to solicit comments from the public on how best to implement HIPAA, and we frequently used the request for information mechanism.
We issued an RFI, request for information, on the portability access and renewability provisions last December 1996, and we received a significant number of comments and responses from the public. The most useful were those responses that helped us design the model certification and notices. The right to this certificate is one of the most important rights that workers have because it documents credit for previous health care coverage. Plan sponsors and employers have appreciated our efforts to produce these models, since it saved them time and money in creating their own certificates and they can comply with the statute by simply mailing out the notices.
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We issued a second RFI on the Mental Health Parity and Newborns' and Mothers' Health Protection Act on June 26, 1997, and again the departments have received close to 70 comments. In response to the comments on the portability access and renewability provisions, we sought to significantly reduce any possible administrative burdens on the plans and the issuers. Examples of our efforts in this area are the rules that reduce unnecessary duplication of certificates by allowing plans and issuers to decide, among themselves, which of them will issue the certificate. We also allowed plan sponsors to have flexibility in tracking dependents, and we allowed them to comply by providing information telephonically, if all parties agree. Most importantly, we extended the HIPAA good faith compliance period beyond the 1998 deadline for certain key provisions; we extended it for the nondiscrimination provisions until the agencies produce further guidance.
The interim rules also achieve the departments' equally important goal of preserving HIPAA's protections for individuals. Individuals may demonstrate their credible coverage in practical ways if plans or issuers don't provide certification when it is required.
We also sought ways in which we could provide special notices to individuals about the special enrollment period and about whether their plan sponsors were going to be imposing a preexisting exclusion, and my testimony documents many more of the protections for workers and the flexibility for plan sponsors.
In conclusion, Mr. Chairman, with the passage of HIPAA, Congress gave workers and their families important health care coverage protections that allow workers to change jobs without fear of losing coverage. We knew that Congress recognized that many individuals would want these protections as soon as possible and the departments have sought to meet that challenge and to give them those protective rights.
We appreciate having this opportunity to testify about the interim rules. You have made a valuable contribution to our efforts by providing a forum in which the views and comments of so many can be shared, and we intend to make the public record of this hearing a part of the record of our rulemaking process.
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Thank you.
[The prepared statement and attachments follow:]
Statement of Meredith Miller, Deputy Assistant Secretary for Policy, Pension and Welfare Benefits Administration, U.S. Department of Labor
Introduction
Good morning, Mr. Chairman, Members of the Committee. Thank you for inviting me to speak with you this morning about the Department's role in the implementation of the Health Insurance Portability and Accountability Act of 1996 (HIPAA).
I would like to thank this Committee for its efforts and commitment in overseeing the passage and implementation of this important legislation. Together, HIPAA and these interim rules provide America's workers and their families with important protections in their health coverage, and through the work of the members of this Committee and many others, millions of Americans will be able to enjoy greater security in their health care coverage.
The Departments of Labor, Treasury and Health and Humans Services (''the Departments'') have:
• issued interim regulations on HIPAA's health insurance portability, access and renewability provisions;
• coordinated outreach efforts to educate group health plans and plan administrators on their responsibilities under the HIPAA and the Departments' regulations;
• coordinated with HHS and the states with regard to state implementation in the group market; and
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• made progress and worked diligently to complete guidance on the Mental Health Parity Act of 1996 (Mental Health Parity Act) and the Newborns' and Mothers'Health Protection Act of 1996 (Newborns'and Mothers'Act) that should be issued this fall.
We are pleased to say that the DOL, HHS and the Treasury made public the portability, access and renewability regulations implementing HIPAA on April 1, 1997, in keeping with Congress's desire that these protections be put in place as soon as possible. These rules give workers and their families added security when they change jobs or otherwise lose their health coverage, and assist employers, plans and insurance companies in complying with HIPAA. Moreover, the guidance and transition relief we have provided in connection with the automatic provision of certificates were designed to make compliance easy. We requested comments from the public on the interim rules, and over 100 comments were received by the Departments by the close of the comment period on July 7, 1997. We are taking these comments into consideration as we develop our final guidance in the future.
The interim rules became effective for all plans with respect to the certification requirements of HIPAA on June 1, 1997. The remaining HIPAA provisions regarding crediting of prior coverage, nondiscrimination and renewability are generally effective for plan years beginning after June 30, 1997. By the end of 1997, nearly 25% of all plans will be obliged to comply with HIPAA's core provisions. After January 1, 1998, the remaining 75% of plans will be subject to HIPAA's provisions. As more plans come under the law's portability, access and renewability requirements, the Departments will glean more information on the impact of the law and our regulations on employees and their families, as well as plans and employers.
In addition, the Departments have been working in earnest towards completion this fall of guidance implementing the Mentalrtments are further obligated to provide additional guidance on HIPAA's nondiscrimination provisions, now codified in ERISA as Section 702 (2702 of the Public Health Service Act, and 9802 of the Internal Revenue Code).
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Summary on Outreach
The Department of Labor is conducting an extensive Educational Outreach Program to educate plan administrators and employers on the new health care reforms under HIPAA and the new interim rules. We presented in-depth seminars in 10 different cities covering every region of the country on the new HIPAA guidelines. These events are jointly sponsored with the International Foundation of Employee Benefit Plans. In addition, DOL conducted more than 20 other presentations to employer and health plan associations on the Department's efforts to implement HIPAA.
In December, 1996, the Department of Labor published a reference booklet, entitled ''Questions and Answers: Recent Changes in Health Care Law,'' to help employees and employers understand their rights and obligations under HIPAA. The booklet gives an overview of the new law and provides answers to the most commonly asked questions. When the interim rules were issued to the public on April 1, 1997, the Department of Labor released an addendum to this booklet, containing additional questions and answers that address the issues raised by the new rules. Since last fall, the Department has received thousands of calls from participants and plan administrators asking about the effect of the new laws. An updated version of this booklet was published on May 2, 1997. We have distributed nearly 120,000 booklets to the public, and roughly 13,000 members of the public have accessed our Website seeking information on the HIPAA regulations.
The Department's Q&A booklet, as well as a complete summary of HIPAA and a review of the interim rules, are all readily available to the public on PWBA's Website on the Internet at http://www.dol.gov/dol/pwba. The public also can access the same information through the Department's Publications Hotline at 1–800–998–7542. In addition, the Department has set up two additional telephone lines to field questions from the regulated community. Finally, we are providing public service announcements for the media to alert individuals of the effects of the new law.
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Overview of the ERISA Universe
Before I address the Department's role in implementing HIPAA, let me provide a brief overview of our role in regulating health benefits. Through its Pension and Welfare Benefits Administration, the Department enforces and administers the Employee Retirement Income Security Act of 1974 (ERISA). Under ERISA, the Department has regulatory authority over 2.5 million private sector, employment-based health benefit plans covering 125 million workers and their family members. Seventy-five percent of the entire workforce and 64 percent of the non-elderly population receive health coverage through employment-based plans. Payments by ERISA plans for benefits and other expenses constitute one dollar of every four spent on health care.
ERISA imposes federal standards concerning the disclosure of information to plan participants and beneficiaries, reporting of information to the federal government, fiduciary responsibilities concerning the management of health benefit plans, and guidelines for continuation of group health coverage requirements under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). HIPAA amended ERISA by modifying the disclosure provisions, revising the COBRA continuation of group health coverage requirements, and adding further federal requirements regarding portability, renewability, and nondiscrimination. Later in 1996, Congress added the Mental Health Parity and Newborns' and Mothers' provisions to ERISA, and to the Public Health Service Act, and in August 1997 added them to the Internal Revenue Code (the Code).
HIPAA's new portability provisions make it much easier for workers to change jobs and maintain health care coverage. The General Accounting Office estimated that about 25 million people will benefit from these protections. Nearly 21 million people, primarily those who change jobs and their dependents, will benefit from the provisions limiting preexisting condition exclusions. And millions more who have been unwilling to leave their job for a better one out of concern that they would lose their health coverage would also benefit. Additionally, we have estimated that over 100,000 individuals who have been turned down by their employer's plan due to their health will benefit from the nondiscrimination provisions in HIPAA and the Departments' regulations.
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Rulemaking Process
Coordination between the agencies
HIPAA sets forth federal requirements relating to portability, access, and renewability of group health plan and group health insurance coverage. (These HIPAA provisions are generally reility provisions relating to group health plans are set forth in ERISA, the Internal Revenue Code, and the Public Health Service Act. (These portability provisions are referred to below as the ''group market'' provisions.) HIPAA also added provisions governing insurance in the individual market(see footnote 1) which are contained only in the Public Health Service Act, and thus are not within the regulatory jurisdiction of the Department of Labor or the Department of the Treasury.
In general, the group market provisions create shared jurisdiction for the Secretaries of Labor, the Treasury, and Health and Human Services. The statute provides for the three Departments to share regulatory responsibility for most of the group market provisions,(see footnote 2) and as described below in more detail, the Departments have worked together in developing regulations in this area.
The shared group market provisions under the three statutes are substantially similar. Under ERISA, the shared group market provisions generally apply to all group health plans (other than government plans, church plans, very small plans and certain other plans), and to health insurance issuers that offer health insurance in connection with group health plans.(see footnote 3)
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HIPAA also requires the Departments to execute a Memorandum of Understanding (MOU). We have been working towards a formal MOU. We are well aware of the job that faces us in the interpretation and enforcement of the regulations that we recently published. We found that the regulation process has been very valuable in familiarizing ourselves with the other agencies' practices and protocols. The Departments have maintained a close dialogue on implementation and enforcement issues that have come up through HHS' involvement in Rhode Island, Missouri and California in the wake of these states' choice not to enact legislation necessary to implement HIPAA's insurance standards. Moreover, the Departments have continued their collaboration on regulations by drafting guidance on the Mental Health Parity Act and the Newborns' and Mothers' Act. We expect to publish this guidance in the fall.
Many more issues are likely to arise as the majority of plans become subject to the portability, mental health, and newborns; and mothers' provisions on January 1, 1998 and thereafter. We have tried to anticipate and effectively address these in advance, and the Departments will likely rely on our existing cooperative and professional working relationship to manage these issues until we can identify the most critical ones and formalize a rational division of responsibilities under an MOU.
Implementation of HIPAA Portability Regulations
COBRA Guidance.
On October 15, 1996, the Department of Labor issued a technical bulletin in conjunction with the other Departments describing changes that HIPAA made to the continuation coverage requirements under COBRA, and provided a model notice which employers and plan administrators could use to comply with HIPAA's requirements. Plan sponsors and employers generally have been very appreciative of our efforts to produce this model notice since it saves them the expense of creating their own notice.
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Publication of Request for Information
Last December, the Departments published in the Federal Register a public solicitation of comments on the HIPAA portability provisions. The Departments carefully considered the public comments received on behalf of employees, dependents and others seeking health coverage, as well as employers, plan administrators, and insurance issuers in developing the interim rules. In particular, the comments received supporting preparation of a model certificate proved to be very helpful in encouraging us to design a model that significantly reduces the potential burdens on employers and insurance carriers, while making the certification process more effective for employees and dependents.
More recently, the Departments sought public input on the Mental Health Parity and the Newborns' and Mothers' provisions through a Request for Information published on June 26, 1997. We sought specific information to help us design guidance on the Mental Health Parity Act's exemption for any plan or health insurance issuer that could demonstrate that the mental health parity provisions would result in an increase in cost under the plan or coverage of more than one percent. We also sought input regarding the newborns' and mothers' provisions, and solicited estimates that would assist the Departments in assessing the economic impact of these regulations on the business community and the public. The Departments received over 100 comments by the close of the comment period on July 28, 1997, and will take these comments into account as we develop our guidance this fall.
Limiting burdens on business while ensuring adequate protections for individuals
The interim rules demonstrate DOL's continuing commitment to reduce HIPAA's burdens on the regulated community, while ensuring that workers and their families receive the protections Congress has given them.
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The rules help minimize the administrativl ways. The guidance and transition relief we have provided in connection with the automatic provision of certificates were designed to limit compliance burdens. The rules also reduce unnecessary duplication of certificates by allowing plans in certain cases to contract with issuers or third party administrators to provide the required certificates. The rules further allow flexibility in certification of dependents enrolled in the plan to reduce the potential burdens on plans and issuers who are not yet tracking the dependents enrolled under the plan. In addition, in certain circumstances, it is possible to comply by providing the information telephonically, if all parties agree. Each of these innovations serves to reduce the final cost of compliance, making it easier for regulated entities to implement HIPAA's requirements. Moreover, as reduced by the regulation, the notification requirements imposed on the plans in connection with their application of preexisting condition exclusions will cost less than $3 million annually, once fully implemented. The requirement that all plans notify new enrollees of special enrollment rights, once fully implemented, will cost less than $2 million annually. Other measures facilitating compliance are outlined in more detail in the interim rules.
The interim rules also achieve DOL's equally important goal of ensuring that the protections provided to individuals under HIPAA remain intact. The rules allow individuals to obtain certification of prior creditable coverage before they leave their job or up to 24 months after they depart. In addition, the rules enable individuals to demonstrate their creditable coverage in practical ways if their plan or issuer fails to provide certification when it is required. For individuals who decline plan coverage when they are first eligible to enroll in the plan, the rules require that the plan or issuer provide a description of special enrollment rights so that the individual will know that they can end pre-existing condition exclusion period) if they lose other coverage or become a dependent through marriage, birth, adoption or placement for adoption. The rules ensure that individuals are notified of the maximum length of any pre-existing exclusion clause imposed by a health plan. In addition, the rules ensure that an individual is notified of a pre-existing condition exclusion period that will apply to them after taking into account their prior creditable coverage. All of these provisions make it easier for regulated entities to put HIPAA's requirements into practice.
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Major Regulatory Provisions Relating to Portability
The interim rules provide the following guidance to enable health plans and issuers to prepare for compliance.
Limits on Pre-Existing Condition Exclusions: Pre-existing condition exclusions may only be imposed if they relate to a condition for which medical advice, diagnosis, care, or treatment was recommended or received during the 6 month ''look back'' period before the enrollment date. In addition, the maximum pre-existing condition exclusion period that can be imposed is 12 months after the enrollment date, or 18 months for late enrollees, and must be reduced by the number of days of the individual's creditable coverage, determined without regard to any creditable coverage that preceded a break in coverage of 63 days or more. Plans may not impose pre-existing condition exclusions for pregnancy and such exclusion periods generally can not be applied for newborns or adopted children.
Certificates of Creditable Coverage: ''Creditable coverage'' includes prior coverage under a group health plan, COBRA, Medicaid, Medicare, the Federal Employee Health Benefits Program, CHAMPUS, the Indian Health Service, state health benefits risk pool, a health benefit plan under the Peace Corp Act, a public health plan, or an individual health insurance policy. Certificates of creditable coverage must be provided automatically by the plan when an individual loses coverage under the plan, and when the individual exhausts COBRA continuation coverage. An automatic certification must also be provided on the request of the individual in certain other instances.
Special Enrollment Periods: Health plans and issuers must provide special enrollment periods during which individuals who had previously declined coverage can enroll without waiting until the plan's next regular enrollment period or being subject to the longer 18 month pre-existing condition exclusion period that can apply to a late enrollee. Individuals entitled to special enrollment under the rules include individuals who have lost other health insurance coverage and individuals who become dependants through marriage, birth, adoption, or placement for adoption.
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Nondiscrimination: HIPAA's nondiscrimination provisions provide that individuals must not be excluded from coverage or charged more for benefits offered by a plan or issuer based on health status-related factors. Although discrimination in premiums or contributions is prohibited, plans and issuers may give discounts or rebates to reward individuals who participate in bona fide wellness programs. The Departments received input from the public during the comment period following publication of the interim rules, and plan to issue additional guidance shortly. The plans have been given a good faith compliance period with respect to the nondiscrimination provisions until the Departments issue additional regulations.
Information Disclosure: The interim rules further outline new disclosure requirements under ERISA for private employer-sponsored health plans. Plans must provide summaries of any material reductions in plan benefits to covered workers within 60 days after the change has been adopted. Plans must also provide information about the role that an insurance company may play in plan operations, including the extent to which plan benefits are guaranteed under a contract or insurance policy. In addition, plans must inform covered workers about the new rules prohibiting certain limitations on maternity hospital stays and must provide information on the Labor Department office where individuals can obtain assistance or information about their rights under federal law in general or HIPAA in particular. The rules further permit plan administrators to use electronic media to satisfy the plan's disclosure obligations with respect to the delivery of summary plan descriptions, summaries of material reductions in covered services or benefits and other summaries of plan modifications.
State Flexibility: The States' traditional role in regulating health insurance is preserved by providing States flexibility to provide greater protections for individuals relating to portability of coverage.
Guaranteed Availability and Renewability: Finally, small employers are ensured the guaranteed availability of health insurance coverage, and the renewability of health insurance coverage is ensured for both the small and large group markets. Specifically, the rules cover guaranteed renewability for multi-employer plans and multiple employer welfare arrangements (MEWAs).
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In general, the interim rules have been well received by the regulated community. Public comments and press coverage on the rules acknowledge the substantial efforts made by the agencies to limit the potential burdens of the rules' certification and notice requirements, while maintaining adequate protections for health care consumers through greater access, portability and renewability of health care coverage.
Implementing the Mental Health Parity Act and the Newborns' and Mothers' Act
As noted earlier, the Departments are working to issue guidance on the Mental Health Parity Act and the Newborns' and Mothers' Act this fall. The Mental Health Parity Act provides that a group health plan or a health insurance issuer offering both mental health and medical and surgical benefits or coverage may not apply lower aggregate dollar lifetime limits and annual dollar limits to its mental health benefits than those which it applies to its medical and surgical benefits, if it applies such limits at all.
The Newborns' and Mothers' Act prohibits a group health plan or health insurance issuer from restricting benefits for hospital lengths of stay in connection with childbirth for the mother or her newborn, to less than 48 hours after a normal vaginal delivery, or 96 hours following a Caesarean section, unless the attending health care provider, in consultation with the mother, opts for a shorter hospital stay. In addition, the Newborns' and Mothers' Act prohibits group health plans and issuers from providing compensation arrangements for health care providers, or monetary incentives for mothers, which would encourage the attending provider to discharge the mother or her newborn early. These two health reform laws are generally effective for plan years beginning January 1, 1998. DOL and HHS sought public input on the Mental Health Parity and Newborns' and Mothers' provision through a Request for Information published on June 26, 1997.
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Conclusion
With the passage of HIPAA, Congress gave workers and their families important health coverage protections that allow workers to change jobs without fear of losing coverage.
Congress recognized that individuals would want these protections as soon as possible. The Departments have successfully implemented the portability provisions of the law in a manner that is fair, efficient and manageable. Our regulatory framework allows us to get additional public comments on the interim rules before issuing final rules. The framework also gives plan sponsors and others the protection of a good faith compliance period for their efforts to meet HIPAA's portability requirements. In addition, the framework protects individuals by allowing them to use their own records to establish prior health coverage if they are unable to obtain a certificate from their last employer or health plan.
We appreciate having this opportunity to testify about these rules. You have made a valuable contribution to our efforts by providing a forum in which the views and comments of so many can be shared, and we intend to make the public record of this hearing a part of the record of our rulemaking process.
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DISCLAIMER—This document does not represent the official position of the Department of Labor.
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Recent Changes in Health Care Law
Three major pieces of health care legislation were passed during the 104th Congress:
• The Health Insurance Portability and Accountability Act of 1996;
• The Newborns' and Mothers' Health Protection Act of 1996; and
• The Mental Health Parity Act of 1996.
The Departments of Labor, the Treasury, and Health and Human Services issued interim rules implementing many of these new statutory provisions. 62 Federal Register 16894, April 8, 1997 (HIPAA).
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I. Signed into law on August 21, 1996, the portability provisions of the law:
A. Provide new protections for approximately 25 million workers who:
1. Are currently employed and have health coverage;
2. Move from one job to another; and
3. Have preexisting medical conditions.
B. Include changes that:
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1. Limit exclusions for preexisting conditions;
2. Prohibit discrimination against employees and dependents based on their health status; and
3. Guarantee renewability and availability of health coverage to certain employers and individuals.
II. Preexisting condition exclusion periods under HIPAA.
A. Under HIPAA a preexisting condition exclusion period can only be applied to a condition if medical advice, diagnosis, care or treatment was recommended or received for the condition within the 6-month look-back period from the enrollment date.
Enrollment date is defined as the first day of coverage, or if there is a waiting period, the first day of the waiting period.
B. HIPAA imposes a 12-month (18-month for late enrollees) maximum preexisting condition exclusion period looking forward from the enrollment date.
C. If the plan has a waiting period, it runs concurrently with the maximum 12-or 18-month preexisting condition exclusion period.
D. Plans must reduce any preexisting condition exclusion period by the number of days of an individual's prior creditable coverage that is not succeeded by a significant break in coverage (generally, 63 days or more).
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E. In general, individuals demonstrate periods of creditable coverage through certifications that must be issued by plans and issuers upon cessation of an individual's coverage.
F. Preexisting condition exclusions cannot be applied to pregnancy.
G. Preexisting condition exclusions cannot be applied to newborns, adopted children under age 18, or children under age 18 placed for adoption as long as the child obtains creditable coverage within 30 days of birth, adoption or placement for adoption.
III. When do HIPAA's changes take effect?
A. There are two separate effective date time lines:
1. A general time line for the substantive provisions, which include:
• Limitations on preexisting condition exclusion periods;
• Special enrollment periods; and
• Prohibiting discrimination based on factors relating to health status.
2. A separate effective date time line for the certification provisions.
B. Substantive provisions
1. Are effective for plan years beginning on or after July 1, 1997.
2. Expected timetable for plans to come on board:
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• July 1, 1997–December 31, 1997 (approximately 25% of all plans).
• On January 1, 1998 (approximately 50% of all plans).
• After January 1, 1998 (approximately 25% of all plans).
Note: Once a plan is subject to HIPAA's substantive provisions, the provisions apply to all current employees in the plan as well as to individuals who change employment and enroll in the plan.
C. Collectively bargained plans.
1. These plans have a different effective date for the substantive provisions.
• For plans maintained pursuant to CBAs ratified before August 21, 1996, HIPAA's substantive provisions apply to plan years beginning on the later of July 1, 1997 or the date on which the last of the collective bargaining agreements relating to the plan terminates (determined without regard to any extension agreed to after August 21, 1996).
2. There is no special effective date for collectively bargained plans for the certification provisions under HIPAA. (See below.)
D. Certification provisions.
1. The certification provisions are linked to the effective date for the substantive provisions in order to give individuals evidence of 12 (or 18) months of creditable coverage prior to the July, 1, 1997 effective date for the substantive provisions.
2. No certificate is required to reflect periods of coverage before July 1, 1996. Starting on July 1, 1996 group health plans and health insurance issuers are required to maintain coverage information.
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3. For individuals who cease coverage from July 1, 1996 through September 30, 1996 plans and issuers are only required to provide certificates upon written request.
4. For individuals who cease coverage beginning October 1, 1996 the statute requires plans and issuers to provide certificates automatically as follows:
• From October 1, 1996 through May 31, 1997, the regulations give plans and issuers the flexibility to issue a certificate or to provide individuals with a ''notice in lieu'' of a certificate (see the attached model notice); and
• From June 1, 1997 onward plans and issuers must provide certificates for individuals within the time periods prescribed in the regulations (to be discussed).
IV. Demonstrating creditable coverage.
A. When must certificates be provided?
1. Plans and issuers must furnish a certificate automatically to:
• An individual who is entitled to elect COBRA, at a time no later than when a notice is required to be provided for a qualifying event under COBRA;
• An individual who loses coverage under the plan and who is not entitled to elect COBRA, within a reasonable time after coverage ceases; and
• An individual who ceases COBRA, within a reasonable time after the plan learns that COBRA has ceased.
2. Plans and issuers must also generally provide a certificate upon request, at the earliest time that a plan or issuer, acting in a reasonable and prompt fashion, can provide the certificate.
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• A certificate may be requested until 24 months after the time an individual's coverage ended. For example, a certificate can be requested by an individual before their coverage ends.
B. Certificates.
1. Key elements of the model certificate include:
• Indicating whether an individual has at least 18 months of creditable coverage;
• For individuals with less than 18 months of creditable coverage, indicating the date coverage began and ended and the date any waiting or affiliation period began; and
• Applicable dependent information.
2. HIPAA requires both group health plans and health insurance issuers to provide certificates to individuals. The regulation reduces duplication in the provision of certificates by providing that:
• If any entity (including a third-party administrator) provides a certificate to an individual, no other party is required to provide the certificate;
• If there is an agreement between the plan and an issuer under which the issuer agrees to provide certificates, the plan does not have to provide the certificates;
• An issuer is not required to provide any coverage information for coverage periods for which it was not responsible;
• If an individual switches from one issuer to another option under the plan, or an issuer is replaced by another before an individual's coverage under the plan ceases, the issuer is required to provide sufficient information to the plan (or party designated by the plan) to use later in providing a certificate to individual; and
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• Coverage information for an automatic certificate may be sent telephonically if all parties (including the individual) agree. Of course, an individual also can request a written certificate within 24 months of ceasing coverage under the plan (including requesting a certificate before coverage ends).
3. Rules relating to dependents.
• Each dependent is entitled to his or her own certificate;
• If a dependent has the same period of creditable coverage as the participant only one certificate is required to be issued;
• The regulation creates a transitional rule that runs through June 30, 1998. Under the transitional rule if a plan or issuer cannot provide names of dependents it can provide the name of the participant and the type of coverage in the certificate (e.g., family coverage, individual-plus-spouse coverage); and
• When a certificate for dependent coverage is requested, a plan or issuer must make reasonable efforts to obtain names of any dependents covered by the certificate.
C. Demonstrating creditable coverage through means other than a certificate.
1. A plan or issuer must treat an individual as providing a certificate demonstrating creditable coverage if:
• The individual attests to the period of creditable coverage;
• The individual presents corroborating evidence of some creditable coverage for the period (such as pay stubs that reflect a deduction for health insurance, explanations of benefits forms (EOBs), or verification by a doctor or former health care benefits provider that the individual had prior health coverage); and
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• The individual cooperates in verifying the information provided.
2. An individual is treated as having furnished a certificate showing dependent status if:
• The individual attests to such dependency and the period of such status as a dependent; and
• The individual cooperates with the verification of dependent status.
V. Crediting coverage for reducing preexisting condition exclusion periods.
A. What is creditable coverage?
• Almost all types of health coverage (e.g., group health plan coverage, COBRA, Medicare, Medicaid, government plans, church plans)
B. What is not creditable coverage?
• Solely excepted benefits such as dental or vision only coverage.
C. Why is creditable coverage important?
• It is used to reduce any preexisting condition exclusion period that a plan may impose under HIPAA. (Note: The maximum preexisting condition exclusion period is 12 months (18 months for late enrollees).)
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VI. Counting Creditable Coverage: Standard Method.
A. Under the standard method plans and issuers count days of creditable coverage regardless of classes or levels in benefits of the previous health coverage.
B. A plan or issuer is not required to count days of coverage that occur before a significant break in coverage (63 days, longer in certain States).
C. Waiting periods:
1. Generally do not count as creditable coverage, unless an individual has other coverage during a waiting period (e.g., COBRA continuation coverage, individual coverage);
2. Are not taken into account in determining whether a significant break in coverage has occurred; and
3. Run concurrently with any preexisting condition exclusion period.
VII. Counting Creditable Coverage: Alternative Method for Certain Categories of Benefits.
A. A plan or issuer may use the alternative method of crediting coverage for any or all of the following five categories of benefits:
1. Mental health;
2. Substance abuse treatment;
3. Prescription drugs;
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4. Dental care; and
5. Vision care.
B. A plan or issuer may use the alternative method for some or all of these categories but it must be uniformly applied to all individuals within the plan or policy and the plan or issuer must notify individuals if the alternative method is being used.
C. When using the alternative method, the plan or issuer looks to see if an individual has coverage within a category of benefits, regardless of the specific level of benefits provided within that category.
D. The standard method of counting creditable coverage is used to determine an individual's creditable coverage for any benefits where the alternative method is not used.
VIII. Special Enrollment Periods.
A. A special enrollment allows an individual who previously declined coverage to enroll (without having to wait until the plan's next regular enrollment period).
B. An individual may qualify for a special enrollment in two cases:
1. If the individual loses other coverage and requests enrollment within 30 days after the prior coverage ends.
• However, if the individual's other coverage is COBRA continuation coverage, the individual must exhaust the COBRA continuation coverage to qualify for a special enrollment.
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2. If the individual has or becomes a new dependent through marriage, birth, adoption, or placement for adoption.
C. An individual who enrolls during a special enrollment period (even if the period corresponds to a regular enrollment period) is not treated as a late enrollee. (Accordingly, the plan or issuer may not impose a preexisting condition exclusion period longer than 12 months with respect to the person.)
D. Plans must provide a description of special enrollment rights to anyone who declines coverage. The regulations provide a model of such description.
IX. Enforcement.
A. Agency jurisdiction:
1. The Secretary of Labor enforces the health portability requirements on group health plans under ERISA.
• The Secretary may require that plans comply with the health portability requirements through existing ERISA enforcement procedures.
• The Secretary may not enforce the requirements against issuers.
2. The Secretary of the Treasury enforces the health portability requirements on employers through excise taxes under the Internal Revenue Code.
3. States enforce the group and individual market requirements imposed on health insurance issuers.
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4. If States do not act in the areas of their responsibility, the Secretary of Health and Human Services may make a determination that the State has failed ''to substantially enforce'' the law against issuers, assert federal authority to enforce the requirements against issuers, and can impose sanctions on issuers, as specified in the statute, including civil monetary penalties.
5. Participants and beneficiaries may enforce their rights under State law or ERISA.
B. Under the statute, until January 1, 1998, no enforcement action may be taken by the Secretaries against a plan or issuer that has sought to comply with HIPAA's requirements in good faith.
X. Preemption.
A. In general, section 514 of ERISA is unaffected by the HIPAA portability provisions and ERISA continues to preempt State laws that relate to group health plans.
B. There are two new preemption provisions relating to issuers for purposes of Part 7 of ERISA:
1. Under the first preemption provision for Part 7, State laws relating to health insurance issuers generally continue to apply except to the extent that such State law ''prevents the application of'' Part 7 of Subtitle B of Title I of ERISA (and Part A of Title XXVII of the PHS Act). (There is no corresponding provision in the Code.)
2. In addition, under the second and more specific preemption section, State laws with respect to issuers cannot ''differ'' from the statutory preexisting condition exclusion requirements of section 701, except as specifically permitted by the statute. These specific exceptions allow a State to:
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• Shorten the 6-month ''look-back'' period prior to the enrollment date to determine what is a preexisting condition;
• Shorten the 12-and 18-month maximum preexisting condition exclusion periods;
• Increase the 63-day significant break in coverage period;
• Increase the 30-day period for newborns, adopted children, and children placed for adoption to enroll in the plan so that no preexisting condition exclusion period may be applied;
• Expand the prohibitions on conditions and people to whom a preexisting condition exclusion period may be applied beyond the ''exceptions'' described in federal law. (The ''exceptions'' under federal law are for certain newborns, adopted children, children placed for adoption, and pregnancy);
• Require additional special enrollment periods; and
• Reduce the maximum HMO affiliation period to less than 2 months (3 months for late enrollees).
XI. Prohibiting discrimination against participants and beneficiaries based on any health status-related factor.
A. A plan and issuer may not establish rules for eligibility (including continued eligibility) of any individual to enroll under the terms of the plan based on any health status-related factor.
1. The health status-related factors are:
• Health status;
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• Medical condition;
• Claims experience;
• Receipt of health care;
• Medical history;
• Genetic information;
• Evidence of insurability; and
• Disability.
2. However, this provision does not require a plan or issuer to provide particular benefits other than those provided under terms of plan or coverage.
3. Neither does this provision prevent limitations or restrictions on the amount, level, extent, or nature of benefits or coverage for similarly situated individuals enrolled in the plan or coverage.
B. A plan and issuer may not require any individual to pay a premium or contributions which is greater than that for a similarly situated individual enrolled in the plan based on any health status-related factor.
1. This provision does not restrict the amount an employer may be charged by an issuer.
2. Neither does this provision prevent plans and issuers from establishing premium discounts or rebates or modifying copayments or deductibles in return for adherence to a bona fide wellness program.
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The Newborns' and Mothers' Health Protection Act of 1996
I. Signed into law on September 26, 1996, this law provides new protection for mothers and their newborn children with regard to the length of hospital stays following the birth of a child.
II. Minimum Hospital Stay.
A. General Rule.
1. A plan and issuer may not restrict benefits for any hospital length of stay for childbirth for the mother or the newborn child after a normal vaginal delivery to less than 48 hours, or after a caesarean section to less than 96 hours.
2. A plan or issuer also may not require that a provider obtain authorization from the plan or issuer for prescribing any length of stay for childbirth.
B. Exception. An attending provider, in consultation with the mother, may choose to shorten this required length of hospital stay.
III. Prohibitions.
A. A plan and issuer may not deny a mother or her newborn eligibility or continued eligibility to enroll or to renew coverage under the terms of the plan solely to avoid the requirements of this law.
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B. Plans and issuers may not offer payments or rebates to mothers to encourage mothers to accept less than the minimum hospital stay required by this law.
C. Plans and issuers may not penalize or otherwise reduce or limit the reimbursement of an attending provider for providing care to a participant or beneficiary in accordance with this law.
D. Plans and issuers may not provide monetary or other incentives to providers to induce them to provide care in a manner which is inconsistent with this law.
E. A plan may not restrict benefits for any portion of a period within a hospital length of stay required under this law in a manner which is less favorable than the benefits provided for any preceding portion of the stay.
IV. Construction.
A. This law does not require a mother to give birth in a hospital or to stay in a hospital for any fixed period of time following her childbirth.
B. This law does not apply to any plan or issuer which does not provide benefits for hospital lengths of stay in connection with childbirth for a mother or her newborn.
C. This law does not prevent a plan or issuer from imposing deductibles, coinsurance, or other cost-sharing for hospital stays in connection with childbirth for mothers or newborns except that such coinsurance or other cost-sharing for hospital stays required by this law may not exceed any coinsurance or cost-sharing provided by the plan before childbirth.
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V. Preemption.
• The requirements of the new law do not apply with respect to health insurance coverage if there is a State law that requires any of the following:
• At least 48-hour hospital stays for normal vaginal delivery and 96 hours for caesarean delivery;
• Maternity and pediatric care in accordance with guidelines established by the American College of Obstetricians and Gynecologists, the American Academy of Pediatrics, or other established professional medical associations; or
• In connection with coverage for maternity care, that the hospital length of stay is left to the decision of (or required to be made by) the attending provider in consultation with the mother.
VI. Effective date.
A. These provisions apply to group health plans for plan years beginning on or after January 1, 1998.
B. There is no separate effective date for collectively bargained plans.
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Mental Health Parity Act of 1996 (MHPA)
I. Signed into law on September 26, 1996, this law provides parity in the application of limits for certain mental health benefits.
II. Aggregate Lifetime Limits: Where a group health plan (or health insurance offered in connection with such a plan) provides both medical and surgical benefits, and mental health benefits:
A. No Lifetime Limits. Such plan or coverage may not impose any aggregate lifetime limits on mental health benefits if it does not include such an aggregate lifetime limit on substantially all of its medical and surgical benefits.
B. Lifetime Limits. If such a plan or coverage does include an aggregate lifetime limit on substantially all of its medical and surgical benefits, the plan or coverage shall either:
1. Apply its applicable lifetime limits both to medical and surgical benefits, and to mental health benefits without distinction in the application of the limits between these categories of benefits; or
2. Not include any aggregate lifetime limit on mental health benefits that is less than the plan's applicable lifetime limit for substantially all of its medical and surgical benefits.
C. Different Limits. In the case of a plan or coverage that is not described in paragraph (A) or (B) and that includes no or different aggregate lifetime limits for different categories of medical and surgical benefits, regulations shall establish rules that calculate an average aggregate lifetime limit for mental health benefits.
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III. Annual Limits:
A. No Limits. Similarly, in the case of a group health plan providing both medical and surgical benefits and mental health benefits, a plan which does not include annual limits on all of its medical and surgical benefits may not impose any annual limit on mental health benefits.
B. Annual Limits. A plan which imposes annual limits on its medical and surgical benefits may either:
1. Apply the applicable annual limit without distinction to both its medical and surgical benefits and its mental health benefits; or
2. Not include any annual limit on mental health benefits that is less than the applicable annual limit for any other benefits.
C. Different Limits. In the case of plans which have no or different annual limits on different categories of medical and surgical benefits, regulations shall establish rules that calculate an average annual limit for mental health benefits.
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Questions & Answers: Recent Changes in Health Care Law
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Contents
Introduction
The Health Insurance Portability and Accountability Act of 1996
Preexisting Condition Exclusions
Crediting Prior Health Coverage for Purposes of Reducing a Preexisting
Condition Exclusion Period
Certification of Creditable Coverage
Nondiscrimination Requirements
Special Enrollment
Coverage: Additional Information to Help Participants Make Informed Decisions Relating to Their Health Care Coverage
Additional Information for Group Health Plans and Health Insurance Issuers
Disclosure Requirements
Implementation Timetable
Enforcement
The Newborns' and Mothers' Health Protection Act of 1996
The Mental Health Parity Act of 1996
Appendix
Introduction
This pamphlet is designed to provide an overview of recent changes in the law that may affect your health benefits. The questions and answers address changes made by the Health Insurance Portability and Accountability Act of 1996, the Newborns' and Mothers' Health Protection Act of 1996 and the Mental Health Parity Act of 1996.
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On April 1, 1997, the Departments of Labor, Health and Human Services and the Treasury issued interim regulations that interpret many of the provisions of the new laws. The Department of Labor's regulations interpret amendments made to the Employee Retirement Income Security Act (ERISA).
This publication is intended to assist employers who sponsor group health plans in understanding their obligations under the law and to educate workers and their families about their rights under the law. It constitutes a small entity compliance guide for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996.
This pamphlet may not address your specific health care questions and is not intended to be relied upon as the official position of the Department of Labor. If you have additional questions, please contact the PWBA Regional Office nearest you or the PWBA Division of Technical Assistance & Inquiries located in our national office in Washington, DC.
If you are in an HMO or if the benefits under your plan are provided through an insurance policy issued by an insurance company, you may also contact your State Insurance Commissioner's Office. As discussed later in this pamphlet, certain of the new federal rules under HIPAA can be changed by state law for insurance companies and HMOs if that law is more protective of individuals.
Addresses and phone numbers for these contacts are located in the Appendix.
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The Health Insurance Portability and Accountability Act of 1996
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The Health Insurance Portability and Accountability Act of 1996 (HIPAA) was signed into law on August 21, 1996. This law includes important new protections for millions of working Americans and their families who have preexisting medical conditions or might suffer discrimination in health coverage based on a factor that relates to an individual's health. HIPAA's provisions amend Title I of the Employee Retirement Income Security Act of 1974 (ERISA) as well as the Internal Revenue Code and the Public Health Service Act and place requirements on employer-sponsored group health plans, insurance companies and health maintenance organizations (HMOs). HIPAA includes changes that:
• limit exclusions for preexisting conditions;
• prohibit discrimination against employees and dependents based on their health status;
• guarantee renewability and availability of health coverage to certain employers and individuals; and
• protect many workers who lose health coverage by providing better access to individual health insurance coverage.
The following information provides general guidance on frequently asked questions about HIPAA.
Preexisting Condition Exclusions
Under HIPAA, a group health plan or a health insurance issuer offering group health insurance coverage may impose a preexisting condition exclusion with respect to a participant or beneficiary only if the following requirements are satisfied:
• a preexisting condition exclusion must relate to a condition for which medical advice, diagnosis, care or treatment was recommended or received during the 6-month period prior to an individual's enrollment date;
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• a preexisting condition exclusion may not last for more than 12 months (18 months for late enrollees) after an individual's enrollment date; and
• this 12-(or 18-) month period must be reduced by the number of days of the individual's prior creditable coverage, excluding coverage before any break in coverage of 63 days or more.
How will the new law help people who currently have health coverage and who want to change jobs?
Currently some employer health plans do not cover preexisting medical conditions. HIPAA limits the time period of these restrictions so that most plans must cover an individual's preexisting condition after 12 months. Under HIPAA, your new employer's plan will be required to give you credit for the length of time that you had continuous health coverage that will reduce the 12-month exclusion period.
If, at the time you change jobs, you already have had 12 months of continuous health coverage (without a break in coverage of 63 days or more), you will not have to start over with a new 12-month exclusion for any preexisting conditions.
What is a ''preexisting condition''?
A ''preexisting condition'' is a condition present before your enrollment date in any new health plan.
Under HIPAA, the only preexisting conditions that may be excluded under a preexisting condition exclusion are those for which medical advice, diagnosis, care or treatment was recommended or received within the 6-month period ending on your enrollment date.
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If you had a medical condition in the past, but have not received any medical advice, diagnosis, care or treatment within the 6 months prior to your enrollment date in the plan, your old condition is not a ''preexisting condition'' for which an exclusion can be applied.
Are there ''preexisting conditions'' that cannot be excluded from coverage?
Yes. Preexisting condition exclusions cannot be applied to pregnancy, regardless of whether the woman had previous coverage. In addition, a preexisting condition exclusion cannot be applied to a newborn, adopted child under age 18 or a child under 18 placed for adoption as long as the child became covered under the health plan within 30 days of birth, adoption or placement for adoption, and provided the child does not incur a subsequent 63-day or longer break in coverage.
Can states modify HIPAA's portability requirements?
Yes, in certain circumstances. States may impose stricter obligations on health insurance issuers in the seven areas listed below. States may:
• shorten the 6-month ''look-back'' period prior to the enrollment date to determine what is a preexisting condition;
• shorten the 12-and 18-month maximum preexisting condition exclusion periods;
• increase the 63-day significant break in coverage period;
• increase the 30-day period for newborns, adopted children and children placed for adoption to enroll in the plan so that no preexisting condition exclusion period may be applied thereafter;
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• expand the prohibitions on conditions and people to whom a preexisting condition exclusion period may be applied beyond the ''exceptions'' described in federal law (the ''exceptions'' under federal law are for certain newborns, adopted children, children placed for adoption and pregnancy);
• require additional special enrollment periods; and
• reduce the maximum HMO affiliation period to less than 2 months (3 months for late enrollees).
Therefore, if your health coverage is offered through an HMO or an insurance policy issued by an insurance company, you should check with your State Insurance Commissioner's Office to find out the rules in your state. (See Appendix.)
I changed employment recently. How do I know if I am subject to any preexisting condition exclusion period?
Many plans do not exclude coverage for preexisting conditions. A plan must tell you if it has a preexisting condition exclusion period (and can only exclude coverage for a preexisting condition after you have been notified). The plan must also notify you of your right to show that you have prior creditable coverage to reduce the preexisting condition exclusion period.
If the plan does apply a preexisting condition exclusion period, the plan must make a determination regarding your creditable coverage and the length of any preexisting condition exclusion period that applies to you. Generally, within a reasonable time after you provide a certificate or other information relating to creditable coverage, a plan is required to make this determination.
You are required to be notified of this determination if, after considering all evidence of creditable coverage, the plan will still impose a preexisting condition exclusion period with respect to any preexisting condition you may have. The notice must also tell you the basis of the determination, including the source and substance of any information on which the plan relied and any appeals procedure that is available to you.
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The plan may modify its initial determination if it later determines that you do not have the creditable coverage you claimed. In this circumstance, the plan must notify you of its reconsideration, and until a final determination is made, the plan must act in accordance with its initial determination for purposes of approving medical services.
I changed employment and my new group health plan imposes a preexisting condition exclusion period. How does my new plan determine the length of my preexisting condition exclusion period?
A plan can exclude coverage for a preexisting condition only if it relates to a condition (whether physical or mental, and regardless of the cause of the condition) for which medical advice, diagnosis, care or treatment was recommended or received within the 6-month ''look-back'' period ending on an individual's ''enrollment date.'' Your ''enrollment date'' is your first day of coverage, or if there is a waiting period, the first day of your waiting period (typically, your date of hire).
The maximum length of a preexisting condition exclusion period is 12 months after the enrollment date (18 months in the case of a ''late enrollee''). A late enrollee is an individual who enrolls in a plan other than on either the earliest date on which coverage can become effective under the terms of the plan or on a special enrollment date.
A plan must reduce an individual's preexisting condition exclusion period by the number of days of an individual's creditable coverage. However, a plan is not required to take into account any days of creditable coverage that precede a break in coverage of 63 days or more (''significant break in coverage''). A plan generally receives information about an individual's creditable coverage from a certificate furnished by a prior plan or issuer (e.g., an insurance company or HMO).
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A certificate of creditable coverage must be provided automatically to you by the plan or issuer when you lose coverage under the plan or become entitled to elect COBRA continuation coverage and when your COBRA continuation coverage ceases. You also have a right to receive a certificate when you request one from your previous plan or insurance company within 24 months of when your coverage ceases.
If you do not have a certificate, you may present other evidence of creditable coverage.
I am not changing jobs. How do the HIPAA provisions apply to me?
On the date your plan becomes subject to the HIPAA provisions, the plan may not exclude coverage for any preexisting condition for more than 12 months after your enrollment date (18 months for a late enrollee). This period may have already passed.
If this period has not passed, your plan is required to use any creditable coverage that you had accumulated prior to your enrollment date to reduce your remaining preexisting condition exclusion period.
Finally, your plan must comply with the rules that prohibit discrimination in eligibility and continued eligibility to enroll and remain enrolled under the plan, and in setting premiums and contributions, based on a health status-related factor.
My employer has a waiting period for enrollment in the plan. How does this relate to the preexisting condition exclusion period?
HIPAA does not prohibit a plan or issuer from establishing a waiting period. However, if a plan has a waiting period and a preexisting condition exclusion period, the preexisting condition exclusion period begins when the waiting period begins.
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For group health plans, a waiting period is the period that must pass before an employee or a dependent is eligible to enroll under the terms of a group health plan. However, if the employee or dependent is a late enrollee or a special enrollee, any period before such late or special enrollment is not a waiting period.
If an individual seeks and obtains coverage by purchasing an individual insurance policy, the period between the date the individual files a substantially complete application for coverage and the first day of coverage is a waiting period.
I have an ongoing medical condition and have been subject to a preexisting condition exclusion period under my current employer's health plan. I have been continuously enrolled in the plan for more than 12 months. Will HIPAA help me obtain coverage for this condition?
Yes. As long as benefits for the condition are otherwise covered under the terms of the plan, a preexisting condition exclusion period may generally not last longer than 12 months. Because you have been covered by your current plan for at least 12 months without a 63-day break in coverage, your employer will no longer be able to impose the preexisting condition exclusion period when HIPAA becomes effective for your plan.
I recently changed jobs. Seven months ago I received my last treatment for carpal tunnel syndrome. I have not received any medical advice, diagnosis, care or treatment regarding this condition since that time. Can my employer impose a preexisting condition exclusion period for this illness?
No. Your employer may not impose a preexisting condition exclusion period with respect to any condition for which no medical advice, diagnosis, care or treatment was recommended or received more than 6 months prior to your enrollment date.
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I have had coverage under my new employer's health plan for 6 months, and I have no prior creditable coverage. My new plan has no waiting period but applies a 12-month exclusion period for preexisting conditions. I have asthma and received treatment for it several times during the 6-month period prior to my enrollment date in my new employer's health plan. I was recently hospitalized as a result of my asthma. Is my new plan required to cover this hospitalization?
No. You are subject to the remaining 6 months of the 12-month preexisting condition exclusion period applied by your plan because you did not have any previous creditable coverage and because you had received treatment for the condition within the 6-month period prior to your enrollment date in the new plan.
Crediting Prior Health Coverage For Purposes of Reducing A Preexisting Condition Exclusion Period
A preexisting condition exclusion period is not permitted to extend for more than 12 months (or 18 months for late enrollees) after an individual's enrollment date in the plan. The period of any preexisting condition exclusion that would apply under a group health plan is generally reduced by the number of days of creditable coverage.
What is ''creditable coverage''?
Most health coverage is creditable coverage, such as coverage under a group health plan (including COBRA continuation coverage), HMO, individual health insurance policy, Medicaid or Medicare.
Creditable coverage does not include coverage consisting solely of ''excepted benefits,'' such as coverage solely for dental or vision benefits.
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Days in a waiting period during which you have no other coverage are not creditable coverage under the plan, nor are these days taken into account when determining a significant break in coverage (a break of 63 days or more).
How does ''crediting'' for prior coverage work under HIPAA?
Most plans will use the ''standard method'' of crediting coverage.
Under the standard method, you will receive credit for your previous coverage that occurred without a break in coverage of 63 days or more. Any coverage occurring prior to a break in coverage of 63 days or more will not be credited against a preexisting condition exclusion period.
To illustrate, suppose an individual had coverage for 2 years followed by a break in coverage of 70 days and then resumed coverage for 8 months. That individual would only receive credit for 8 months of coverage; no credit would be given for the 2 years of coverage prior to the break in coverage of 70 days.
It is also important to remember that during any preexisting condition exclusion period under a new plan you may be entitled to COBRA continuation coverage under your former plan. ''COBRA'' is the name for a federal law that provides workers and their families the opportunity to purchase group health coverage through their employer's health plan for a limited period of time (generally 18, 29 or 36 months) if they lose coverage due to specified events including, termination of employment, divorce or death. Workers in companies with 20 or more employees generally qualify for COBRA. Some states have laws similar to COBRA that may apply to smaller companies.
Is there another way that a group health plan or issuer can ''credit'' coverage under HIPAA?
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Yes, a plan or issuer may elect the ''alternative method'' for crediting coverage for all employees.
Under the alternative method of counting creditable coverage, the plan or issuer determines the amount of an individual's creditable coverage for any of the five specified categories of benefits. Those categories are mental health, substance abuse treatment, prescription drugs, dental care and vision care. The standard method (described above) is used to determine an individual's creditable coverage for benefits that are not within any of the five categories that a plan or issuer may use. (The plan or issuer may use some or all of these categories.)
When using the alternative method, the plan or issuer looks to see if an individual has coverage within a category of benefits (regardless of the specific level of benefits provided within that category).
For example, if an individual has 12 months of creditable coverage, but coverage for only 6 of those months provided benefits for dental care, a preexisting condition exclusion period may be imposed with respect to that individual's dental care benefits for up to 6 months (irrespective of the level of dental care benefits).
If your new employer's plan requests information from your former plan regarding any of the five categories of benefits under the alternative method, your former plan must provide the information regarding coverage under the categories of benefits. One way to provide this information is to use the Model for Categories of Benefits included in the Appendix of this pamphlet.
Can I receive credit for previous COBRA continuation coverage?
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Yes. Under HIPAA any period of time that you are receiving COBRA continuation coverage is counted as previous health coverage as long as the coverage occurred without a break in coverage of 63 days or more.
For example, if you were covered continuously for 5 months by a previous health plan and then received 7 months of COBRA continuation coverage, you would be entitled to receive credit for 12 months of coverage by your new group health plan.
I began employment with my current employer 45 days after my previous group health plan coverage terminated. I had coverage under my previous employer's plan for 24 continuous months prior to the termination. I had no other coverage before my enrollment date in my new plan. Will I be subject to the 12-month preexisting condition exclusion period imposed by my new employer?
Not if you enroll when you are first eligible. The 45-day break in coverage does not count as a significant break in coverage under HIPAA. Under federal law, a significant break in coverage is a break in coverage of at least 63 days. Since you had over 12 months of creditable coverage from your previous group plan without a significant break, you would not be subject to the preexisting condition exclusion imposed by your new employer's plan if you enroll when you are first eligible.
As mentioned earlier, the length of time that passes before a significant break in coverage is reached may be longer under state law for HMOs and ''insured plans.'' An ''insured plan'' provides benefits through an insurance policy issued by an insurance company.
I began employment with my current employer 100 days after my previous group health plan coverage terminated. I had been covered by my previous employer's plan for 36 continuous months prior to termination. I had no other coverage before my enrollment date in my current employer's plan. Will I be subject to the 12-month preexisting condition exclusion period imposed by my current employer's plan?
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Yes. Your break in coverage of 100 days is a significant break in coverage under federal law. Therefore, unless the plan is an insured plan subject to a state law that provides a longer break rule, you will not be able to count the 36 months of previous coverage as ''creditable'' coverage.
You may avoid a significant break in coverage if when your previous coverage is scheduled to terminate, you instead continue your coverage (for example, through COBRA) or if you purchase an individual health insurance policy when the coverage terminates.
Certification of Creditable Coverage
Group health plans and health insurance issuers are required to furnish a certificate of coverage to an individual to provide documentation of the individual's prior creditable coverage. A certificate of creditable coverage:
• must be provided automatically by the plan or issuer when an individual either loses coverage under the plan or becomes entitled to elect COBRA continuation coverage and when an individual's COBRA continuation coverage ceases;
• must also be provided, if requested, before the individual loses coverage or within 24 months of losing coverage; and
• may be provided through the use of the model certificate included in the Appendix of this pamphlet.
How will newly hired employees prove that they had prior health coverage that should be credited?
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Under HIPAA, providing information about an employee's prior health coverage is the responsibility of an employee's former group health plan and/or the insurance company providing such coverage.
HIPAA sets specific disclosure and certification requirements for group health plans, insurance companies and HMOs.
A certificate stating when you were covered under the plan must be provided automatically to you when you lose coverage under the plan or otherwise become entitled to elect COBRA continuation coverage as well as when COBRA continuation coverage ceases.
You may also request a certificate, free of charge, until 24 months after the time your coverage ended. For example, you may request a certificate even before your coverage ends.
I received a certificate from my former plan. What do I do now?
You should:
• ensure that the information is accurate. Contact the plan administrator of your former plan if any information is wrong.
• keep the certificate in case you need it. You will need the certificate if you leave your health plan and enroll in a subsequent plan that applies a preexisting condition exclusion period or if you purchase an individual insurance policy from an insurance company.
What if I have trouble getting a certificate from my former employer's plan?
Under HIPAA, group health plans and insurers are required to provide documentation that certifies the creditable coverage you have earned. Group health plans and insurers that fail or refuse to provide such certificate are subject to penalties under HIPAA.
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Under HIPAA, individuals can show they are entitled to creditable coverage in situations where they cannot obtain a certificate from a group health plan or insurer.
It is important, therefore, for individuals to keep accurate records (e.g., pay stubs, copies of premium payments or other evidence of health care coverage) that can be used to establish periods of creditable coverage in the event a certification cannot be obtained from a group health plan or insurer.
What steps should I take if I am not provided a certificate by my plan or issuer?
If you do not receive a certificate by the time you should have received it or by the time you need it, your first step should be to contact the plan administrator of the plan responsible for providing the certificate and request a copy. If any part of your creditable coverage was through an insurance company, you can also contact the insurance company for a certificate that reflects that part of your creditable coverage as long as you make the request within 24 months of your coverage ceasing under the insurance policy.
In any event, if you do not receive a certificate, you may demonstrate to your new plan that you have creditable coverage (as well as any waiting periods) by producing documentation or other evidence of creditable coverage (such as pay stubs that reflect a deduction for health insurance, explanation of benefits forms (EOBs) or verification by a doctor or your former health care benefits provider that you had prior health insurance coverage). Accordingly, you should keep these records and documentation in case you need them.
Do plans that do not impose a preexisting condition exclusion period (and the issuers that provide coverage under these plans) have to provide certificates?
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Yes.
Can plans contract with an issuer to provide the certificates for their employees?
Yes. To avoid duplication of certificates, a plan may contract with the issuer to provide the certificate. Furthermore, if any entity (including a third-party administrator) provides a certificate to an individual, no other party is required to provide the certificate.
When must group health plans and issuers provide the certificates?
Plans and issuers must furnish the certificate automatically to:
• an individual who is entitled to elect COBRA continuation coverage, at a time no later than when a notice is required to be provided for a qualifying event under COBRA;
• an individual who loses coverage under a group health plan and who is not entitled to elect COBRA continuation coverage, within a reasonable time after coverage ceases; and
• an individual who has elected COBRA continuation coverage, either within a reasonable time after the plan learns that COBRA continuation coverage ceased or, if applicable, within a reasonable time after the individual's grace period for the payment of COBRA premiums ends.
Plans and issuers must also generally provide a certificate to you if you request one, or someone requests one on your behalf (with your permission), at the earliest time that a plan or issuer, acting in a reasonable and prompt fashion, can provide the certificate.
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Is there a model certificate that group health plans and issuers can use?
Yes. See the attached model certificate in the Appendix of this pamphlet.
Can my old plan simply call my new plan to relay information about my creditable coverage?
Yes, if you, your new plan and your old plan all agree, the information may be transferred by telephone.
You may always request a written certificate for your records in addition to a telephonic transmission of information between plans.
What if the plan or issuer cannot identify employees' dependents or their coverage information?
A plan or issuer must make reasonable efforts to collect the necessary information for dependents and include it on the certificate. However, an automatic certificate for a dependent is not required to be issued until the plan or issuer knows (or, making reasonable efforts, should know) of the dependent's loss of coverage. This information can be collected annually, such as during an open enrollment period.
Through June 30, 1998, a plan or issuer may satisfy its obligation to provide a written certificate regarding the coverage of a dependent by providing the name of the participant covered by the plan and specifying the type of coverage provided (such as family coverage or employee-plus-spouse coverage). However, if requested to provide a certificate relating to a dependent, the plan must make reasonable efforts to obtain and provide the name of the dependent.
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What is the minimum period of time that should be covered by the certificate?
It depends on whether the certificate is issued automatically or upon request—
• for a certificate that is issued automatically, the certificate should reflect the most recent period of continuous coverage.
• for a certificate that is issued upon request, the certificate should reflect each period of continuous coverage ending within 24 months prior to the date of request.
At no time must the certificate reflect more than 18 months of creditable coverage that is not interrupted by a break in coverage of 63 days or more.
When do group health plans and issuers start providing certificates of creditable coverage?
Group health plans and issuers are not required to provide certificates before June 1, 1997. Generally, the certification requirements apply to periods of coverage that occur after June 30, 1996, and certificates must be provided when your coverage ceases under the plan.
In general, by June 1, 1997, plans or issuers must send certificates (or notices as discussed in the next question) to individuals who lost coverage or became eligible for COBRA between October 1, 1996 and May 31, 1997.
After June 1, 1997, plans or issuers must provide certificates to individuals as they lose coverage or begin COBRA in the manner set forth in the interim regulations (see section relating to ''Crediting Prior Health Coverage For Purposes of Reducing a Preexisting Condition Exclusion Period'').
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See the Timeline Relating to Effective Dates for Certifications in the Appendix of this pamphlet.
Are there any interim or transitional rules to help group health plans and issuers comply with the law while updating their systems?
Yes. There is a transitional rule for certifying dependent coverage through June 30, 1998 (See above).
In addition, there is a transitional model notice. For certification events occurring on or after October 1, 1996, but before June 1, 1997, a plan or issuer can satisfy its certification obligation by providing, no later than June 1, 1997, a written notice informing individuals of their rights to certification. A model notice is provided in the Appendix of this pamphlet.
Nondiscrimination Requirements
Individuals may not be excluded from coverage under the terms of the plan, or charged more for benefits offered by a plan or issuer, based on specified factors related to health status.
Can I lose coverage if my health status changes?
Group health plans and issuers may not establish rules for eligibility (including continued eligibility) of any individual to enroll under the terms of the plan based on ''health status-related factors.'' These factors are your health status, medical condition (physical or mental), claims experience, receipt of health care, medical history, genetic information, evidence of insurability or disability. For example, you cannot be excluded or dropped from coverage under your health plan just because you have a particular illness.
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Plans may establish limits or restrictions on benefits or coverage for similarly situated individuals.
In addition, plans may change covered services or benefits if they give participants notice of such ''material reductions'' within 60 days after the change is adopted.
Also, plans may not require an individual to pay a premium or contribution greater than that for a similarly situated individual based on a health status-related factor.
My employer sponsors a group health plan that is available only to employees who pass a physical examination. Is this requirement that I pass a physical examination permissible?
No. Plans or group health insurance issuers may not establish rules for eligibility to enroll under the terms of the plan that discriminate based on one or more ''health status-related factors.''
Special Enrollment
Group health plans and health insurance issuers are required to permit certain employees and dependents special enrollment rights. These rights are provided both to employees who were eligible but declined enrollment in the plan when first offered because they were covered under another plan and to individuals upon the marriage, birth, adoption or placement for adoption of a new dependent. These special enrollment rights permit these individuals to enroll without having to wait until the plan's next regular enrollment period.
What are a plan's obligations with respect to special enrollment?
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A group health plan is required to provide for special enrollment periods during which certain individuals are allowed to enroll in the plan (without having to wait until the plan's next regular enrollment season).
A special enrollment occurs if an individual with other health insurance coverage loses that coverage or if a person becomes a dependent through marriage, birth, adoption or placement for adoption.
A special enrollee is not treated as a late enrollee. Therefore, the maximum preexisting condition exclusion period that may be applied to a special enrollee is 12 months, and the 12 months are reduced by the special enrollee's creditable coverage. (And, remember, a newborn, adopted child or child placed for adoption cannot be subject to a preexisting condition exclusion period if the child is enrolled within 30 days of birth, adoption or placement for adoption.)
A plan must provide a description of the plan's special enrollment rights under HIPAA to anyone who declines coverage. See the model description in the Appendix.
Coverage: Additional Information To Help Participants Make Informed Decisions Relating to Their Health Care Coverage
If I change jobs am I guaranteed the same benefits that I have under my current plan?
No. When a person transfers from one plan to another, the benefits the person receives will be those provided under the new plan.
Coverage under the new plan can be different than the coverage under the former plan.
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Will I be covered immediately under my new employer's plan?
Not necessarily. Plans may set a waiting period before individuals become eligible for benefits. HMOs may have an ''affiliation period'' during which an individual does not receive benefits and is not charged premiums. Affiliation periods run concurrently with any waiting period under a plan, may not last for more than 2 months (3 months for late enrollees) and are only allowed for HMOs that do not impose preexisting condition exclusion periods.
Does HIPAA require employers to offer health coverage or require plans to provide specific benefits?
No. The provision of health coverage by an employer is voluntary. HIPAA does not require specific benefits nor does it prohibit a plan from restricting the amount or nature of benefits for similarly situated individuals.
What if my new employer does not provide health coverage?
There is no requirement for any employer to offer health insurance coverage. If your new employer does not offer health insurance, you may be able to continue coverage under your previous employer's plan under COBRA continuation coverage.
What if I am unable to obtain group coverage?
You may be able to obtain coverage under an individual insurance policy issued by an insurance company. HIPAA guarantees access to individual insurance to ''eligible individuals.'' Eligible individuals:
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• have had coverage for at least 18 months where the most recent period of coverage was under a group health plan;
• did not have their group coverage terminated because of fraud or nonpayment of premiums;
• are ineligible for COBRA continuation coverage or have exhausted their COBRA benefits (or continuation coverage under a similar state provision); and
• are not eligible for coverage under another group health plan, Medicare or Medicaid or any other health insurance coverage.
The opportunity to buy an individual insurance policy is the same whether the individual is laid off, is fired or quits his or her job. For information on individual insurance policies you should contact your State Insurance Commissioner's Office. (See Appendix).
What if I cannot afford the premiums for health coverage?
HIPAA does not set premium rates but it does prohibit plans and issuers from charging an individual more than similarly situated individuals in the same plan because of health status. Plans may offer premium discounts or rebates for participation in wellness programs.
In addition, many states limit insurance premiums and HIPAA does not preempt current or future state laws regulating the cost of insurance.
I terminated employment but I haven't found a new job yet. What can I do to retain my protections under HIPAA?
To retain HIPAA's protections, you should avoid a 63-day break in coverage. If you incur such a break, all previous creditable coverage may be disregarded for purposes of reducing any future preexisting condition exclusion period that may apply to you under any new plan.
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If you have 18 months of creditable coverage already, you may be an ''eligible individual'' entitled to buy an individual health insurance policy from a health insurance issuer without a preexisting condition exclusion period.
Whether or not you have 18 months of creditable coverage, you may consider electing COBRA continuation coverage or continuation coverage under a similar state provision.
You may need to elect COBRA continuation coverage (or continuation coverage under a similar state provision), if available, in order to avoid a 63-day break in coverage or to qualify as an eligible individual who may obtain coverage without a preexisting condition exclusion period if you buy health insurance other than through an employer group health plan.
However, if you elect COBRA continuation coverage it is important to remember that you may have to pay premiums for the entire maximum continuation period (referred to as ''exhausting COBRA'') to have a special enrollment right under any new group health plan or to be eligible to purchase an individual insurance policy.
Does HIPAA extend COBRA continuation coverage?
Generally no. However, HIPAA makes two changes to the length of the COBRA continuation coverage period.
Effective January 1, 1997, qualified beneficiaries who are determined to be disabled under the Social Security Act within the first 60 days of COBRA continuation coverage will be able to purchase an additional 11 months of coverage beyond the usual 18-month coverage period. This is a change from the old law which required that a qualified beneficiary be determined to be disabled at the time of the qualifying event to receive 29 months of COBRA continuation coverage.
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This extension of coverage is also available to nondisabled family members who are entitled to COBRA continuation coverage.
COBRA rules are also modified and clarified to ensure that children who are born or adopted during the continuation coverage period are treated as ''qualified beneficiaries.'' A model notice discussing these changes appears at the end of this publication. (See Appendix)
If coverage under my health plan is provided through an HMO or an insurance policy of an insurance company licensed in my state, are there any state offices that I can contact if I have questions about my plan's insurance policy?
Yes. The state Insurance Commissioner's office can assist you in matters involving a group or individual health insurance policy offered by an insurance company licensed in your state. In most states, this includes managed care coverage offered by HMOs.
Additional Information for Group Health Plans and Issuers
I am an employer who provides group health insurance coverage through an issuer. Is this policy renewable? Can it be terminated?
At your option (as the plan sponsor), the issuer offering your group health insurance coverage must renew or continue in force your current coverage.
However, the group health insurance coverage may not be renewed or may be discontinued because of nonpayment of premiums, fraud, violation of participation or contribution rules, the issuer ceasing to offer that particular coverage, or movement outside the service area or association membership cessation.
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I have a small business and I sponsor a group health plan. Does HIPAA apply to me?
The HIPAA health portability provisions apply to group health plans with two or more participants who are current employees. However, your state may elect to regulate smaller groups.
Does HIPAA apply to self-insured group health plans?
Yes.
Disclosure Requirements
What new kinds of information do group health plans have to give to participants and beneficiaries?
HIPAA and other recent legislation made important changes in ERISA's disclosure requirements for group health plans. The Department of Labor issued interim disclosure rules in April 1997 to implement those changes. Under the new interim disclosure rules, group health plans must improve their summary plan descriptions (SPDs) and summaries of material modifications (SMMs) in four major ways to make sure they:
• notify participants and beneficiaries of ''material reductions in covered services or benefits'' (for example, reductions in benefits and increases in deductibles and co-payments) generally within 60 days of adoption of the change. This compares to current requirements under which plan changes can be disclosed as late as 210 days after the end of the plan year in which a change was adopted.
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• disclose to participants and beneficiaries information about the role of issuers (e.g., insurance companies and HMOs) with respect to their group health plan. In particular, the name and address of the issuer, whether and to what extent benefits under the plan are guaranteed under a contract or policy of insurance issued by the issuer and the nature of any administrative services (e.g., payment of claims) provided by the issuer.
• tell participants and beneficiaries which Department of Labor office they can contact for assistance or information on their rights under ERISA and HIPAA.
• tell participants and beneficiaries that federal law generally prohibits the plan and health insurance issuers from limiting hospital stays for childbirth to less than 48 hours for normal deliveries and 96 hours for cesarean sections.
What is the definition of a ''material reduction in covered services or benefits'' that is subject to the new 60-day notice requirement?
Under the interim disclosure rules, a ''material reduction in covered services or benefits'' means any modification to a group health plan or change in the information required to be included in the summary plan description that, independently or in conjunction with other contemporaneous modifications or changes, would be considered by the average plan participant to be an important reduction in covered services or benefits under the group health plan.
The interim rules cite examples of ''reductions in covered services or benefits'' as generally including any plan modification or change that:
• eliminates benefits payable under the plan;
• reduces benefits payable under the plan, including a reduction that occurs as a result of a change in formulas, methodologies or schedules that serve as the basis for making benefit determinations;
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• increases deductibles, co-payments or other amounts to be paid by a participant or beneficiary;
• reduces the service area covered by a health maintenance organization; or
• establishes new conditions or requirements (e.g., preauthorization requirements) to obtain services or benefits under the plan.
Can employers use e-mail systems to communicate these new disclosures to employees, and if so, do employees have a right to get a paper copy of the information from their plan?
Yes. The interim disclosure rules provide a ''safe harbor'' for using electronic media (e.g., e-mail) to furnish group health plan SPDs, summaries of ''material reductions in covered services or benefits'' and other SMMs (summaries of plan modifications and SPD changes). To use the ''safe harbor,'' among other requirements, employees must be able to effectively access at their worksite documents furnished in electronic form. Participants also continue to have a right to receive the disclosures in paper form on request and free of charge.
Although the interim rule is not the exclusive means by which electronic media can be used to lawfully communicate plan information, the HIPAA ''safe harbor'' is limited to group health plans. The Department of Labor is considering extending the rule to other plans, including pension plans, and to other plan disclosures, but is exploring whether special precautions are necessary to ensure the confidentiality of electronically transmitted individual account or benefit-related information.
Implementation Timetable
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When will the changes in HIPAA affect my health plan?
Most of HIPAA's requirements will not take effect until after June 30, 1997. Group health plans must comply with all nondiscrimination, preexisting condition and crediting of prior health coverage requirements at the beginning of the first plan year starting after June 30, 1997. For example, if your employer's plan starts a new plan year on January 1, HIPAA's provisions will apply beginning on January 1, 1998.
There is a special rule for group health plans maintained pursuant to collective bargaining agreements, ratified before August 21, 1996, that delays the effective date of HIPAA. HIPAA's provisions apply to these plans on the first day of the plan year beginning on or after either the date on which the last collective bargaining agreement ends or July 1, 1997, whichever comes later.
See Table ''Effective Dates for HIPAA's Certification Provisions'' in the Appendix
Are there any provisions that apply immediately?
Health insurance coverage without a significant break that you have after July 1, 1996, should count as ''creditable coverage'' and thus help reduce any preexisting condition exclusions after HIPAA's effective date either in your current plan or any new plan you join if you change jobs. If you need to, you may also present documents showing that you had creditable coverage before July 1, 1996.
Enforcement
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Who will enforce HIPAA?
The Secretary of Labor enforces the health care portability requirements on group health plans under ERISA, including self-insured arrangements. In addition, participants and beneficiaries can file suit to enforce their rights under ERISA, as amended by HIPAA.
The Secretary of the Treasury enforces the health care portability requirements on group health plans, including self-insured arrangements. A taxpayer that fails to comply may be subject to an excise tax.
States also have enforcement responsibility for group and individual requirements imposed on health insurance issuers, including sanctions available under state law. If a state does not act in the areas of its responsibility, the Secretary of Health and Human Services may make a determination that the state has failed ''to substantially enforce'' the law, assert federal authority to enforce, and can impose sanctions on insurers as specified in the statute, including civil money penalties.
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The Newborns' and Mothers' Health Protection Act of 1996
Newborns' and Mothers' Health Protection Act of 1996 (NMHPA) was signed into law on September 26, 1996. The law includes important new protections for mothers and their newborn children with regard to the length of hospital stays following the birth of a child. The following information is intended to provide general guidance on frequently asked questions about NMHPA.
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How does the Newborns' and Mothers' Health Protection Act affect my health care benefits?
One of the most important changes provided under the Newborns' and Mothers' Health Protection Act (NMHPA) relates to the amount of time a mother and newborn child can spend in the hospital in connection with the birth of a child. Under NMHPA, group health plans, insurance companies and health maintenance organizations (HMOs) offering health coverage for hospital stays in connection with the birth of a child must provide health coverage for a minimum period of time.
For example, NMHPA provides that coverage for a hospital stay following a normal vaginal delivery may generally not be limited to less than 48 hours for both the mother and newborn child. Health coverage for a hospital stay in connection with childbirth following a cesarean section may generally not be limited to less than 96 hours for both the mother and newborn child.
Do all health plans have to provide minimum hospital stays in connection with childbirth?
No. NMHPA's requirements only apply to group health plans, insurance companies and HMOs that choose to provide insurance coverage for a hospital stay in connection with childbirth. NMHPA does not require group health plans, insurance companies or HMOs to provide coverage for hospital stays in connection with the birth of a child. It is important, therefore, to review the terms of your health care plan to understand if the changes in NMHPA affect you.
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May group health plans, insurance companies or HMOs impose deductibles or other cost-sharing provisions for hospital stays in connection with childbirth?
Yes. NMHPA does not prevent a group health plan, insurance company or HMO from imposing deductibles, coinsurance or other cost-sharing measures for health benefits relating to hospital stays in connection with childbirth as long as such cost-sharing measures are not greater than those imposed on any preceding portion of the hospital stay. For example, if you are required to pay a $50 co-payment for each day you spend in the hospital preceding childbirth you may not be charged a higher co-payment, or offered fewer benefits, for the time NMHPA allows you to spend in the hospital following childbirth (48 or 96 hours).
When will the changes in NMHPA affect my health plan?
The requirements under NMHPA apply to group health plans, insurance companies and HMOs for plan years beginning on or after January 1, 1998. It is important, therefore, for you to review the terms of your health plan to find out when the changes required by NMHPA will affect you. NMHPA does not have a separate effective date for collectively bargained plans.
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The Mental Health Parity Act of 1996
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The Mental Health Parity Act (MHPA) was signed into law on September 26, 1996. This law provides for parity in the application of limits to certain mental health benefits. The following information is intended to provide general guidance on frequently asked questions on MHPA.
How will the Mental Health Parity Act affect my benefits?
Under MHPA, group health plans, insurance companies and HMOs offering mental health benefits will not be allowed to set annual or lifetime limits on mental health benefits that are lower than any such limits for medical and surgical benefits. A plan that does not impose an annual or lifetime limit on medical and surgical benefits may not impose such a limit on mental health benefits. MHPA's provisions, however, do not apply to benefits for substance abuse or chemical dependency.
Will MHPA require all health plans to provide mental health benefits?
No. Health plans are not required to include mental health coverage in their benefits package. The requirements under MHPA apply only to plans offering mental health benefits.
May a plan impose other restrictions on mental health benefits?
Plans may continue to set the terms and conditions (such as cost-sharing and limits on the number of visits or days of coverage) for the amount, duration and scope of mental health benefits.
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Do all plans offering mental health benefits have to meet the parity requirements?
No. There are two significant exceptions to these new rules. The mental health parity requirements do not apply to small employers who have between 2 and 50 employees or to any group health plan whose costs increase one percent or more due to the application of these requirements.
When do the Mental Health Parity Act requirements take effect? Are these changes permanent?
The mental health parity requirements apply to group health plans for plan years beginning on or after January 1, 1998. There is a so-called ''sunset'' provision in the law providing that these requirements will cease to apply to benefits for services furnished on or after September 31, 2001. The Mental Health Parity Act does not have a separate effective date for collectively bargained plans.
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Appendices
1. Technical Bulletin: ''Notice of Changes Under HIPAA to COBRA Continuation Coverage Under Group Health Plans''
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2. Model Certificate
3. Model Notice
4. Model Description
5. Model for Categories of Benefits (Alternative Method)
6. Timeline: ''Effective Date for HIPAA's Certification Provisions''
7. PWBA Field Offices
8. State Insurance Commissioner's Offices
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TECHNICAL BULLETIN
U.S. Department of Labor
Pension and Welfare Benefits Administration
Washington, D.C. 20210
PENSION AND WELFARE BENEFITS PROGRAMS ERISA TECHNICAL RELEASE NO. 96–1
CONTACT: Division of Technical Assistance and Inquiries
OFFICE: (202) 219–8776
OR RELEASE: Tuesday, Oct. 15, 1996
Notice of Changes Under HIPAA to COBRA Continuation Coverage Under Group Health Plans
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On Aug. 21, 1996, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) was signed into law (Pub. L. 104–191). HIPAA section 421 makes changes, described below, to three areas in the continuation coverage rules applicable to group health plans under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), as amended. These three areas relate to the disability extension, the definition of qualified beneficiary and the duration of COBRA continuation coverage. These changes are effective beginning Jan. 1, 1997, regardless of when the event occurs that entitles an individual to COBRA continuation coverage.
Section 421(e) of HIPAA requires group health plans that are subject to COBRA to notify, by Nov. 1, 1996, individuals who have elected COBRA continuation coverage of these changes. The Department is issuing this release to apprise employers and plan administrators of the changes in the continuation coverage rules made by HIPAA and to inform them of their obligation under HIPAA to notify qualified beneficiaries of such changes. Such notification must be given to qualified beneficiaries by Nov. 1, 1996. The following is a discussion of the specific changes in the continuation coverage rules made by HIPAA.
Disability Extension. Under current law, if an individual is entitled to COBRA continuation coverage because of a termination of employment or reduction in hours of employment, the plan generally is only required to make COBRA continuation coverage available to that individual for 18 months. However, if the individual entitled to the COBRA continuation coverage is disabled (as determined under the Social Security Act) and satisfies the applicable notice requirements, the plan must provide COBRA continuation coverage for 29 months, rather than 18 months. Under current law, the individual must be disabled at the time of the termination of employment or reduction in hours of employment. HIPAA makes changes to the current law to provide that, beginning Jan. 1, 1997, the disability extension will also apply if the individual becomes disabled at any time during the first 60 days of COBRA continuation coverage. HIPAA also makes it clear that, if the individual entitled to the disability extension has nondisabled family members who are entitled to COBRA continuation coverage, those nondisabled family members are also entitled to the 29 month disability extension.
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Definition of Qualified Beneficiary. Individuals entitled to COBRA continuation coverage are called qualified beneficiaries. Individuals who may be qualified beneficiaries are the spouse and dependent children of a covered employee and, in certain cases, the covered employee. Under current law, in order to be a qualified beneficiary an individual must generally be covered under a group health plan on the day before the event that causes a loss of coverage (such as a termination of employment, or a divorce from or death of the covered employee). HIPAA changes this requirement so that a child who is born to the covered employee, or who is placed for adoption with the covered employee, during a period of COBRA continuation coverage is also a qualified beneficiary.
Duration of COBRA Continuation Coverage. Under the COBRA rules there are situations in which a group health plan may stop making COBRA continuation coverage available earlier than usually permitted. One of those situations is where the qualified beneficiary obtains coverage under another group health plan. Under current law, if the other group health plan limits or excludes coverage for any preexisting condition of the qualified beneficiary, the plan providing the COBRA continuation coverage cannot stop making the COBRA continuation coverage available merely because of the coverage under the other group health plan. HIPAA limits the circumstances in which plans can apply exclusions for preexisting conditions. HIPAA makes a coordinating change to the COBRA rules so that if a group health plan limits or excludes benefits for preexisting conditions but because of the new HIPAA rules those limits or exclusions would not apply to (or would be satisfied by) an individual receiving COBRA continuation coverage, then the plan providing the COBRA continuation coverage can stop making the COBRA continuation coverage available. The HIPAA rules limiting the applicability of exclusions for preexisting conditions become effective in plan years beginning on or after July 1, 1997 (or later for certain plans maintained pursuant to one or more collective bargaining agreements).
Effect of this Release. As noted above, the Department is issuing this release to advise employers and plan administrators of their obligation to notify, by Nov. 1, 1996, qualified beneficiaries of these statutory changes. The Department, as a matter of enforcement policy, will deem that supplying qualified beneficiaries with a written copy of the information described above (or with a copy of this release) constitutes compliance with the notice requirement in section 421(e) of HIPAA if this information is sent to each qualified beneficiary by first class mail at the last known address of the qualified beneficiary by Nov. 1, 1996.
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[The official Committee record contains additional material here.]
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U.S. Department of Labor Educational Outreach Programs
• New Guidelines for Health Insurance Portability and Accountability Act of 1996
• Detailed Form 5500 Workshop
Boston, Massachusetts—September 9, 1997
Chicago, Illinois—July 22, 1997
Cincinnati, Ohio—August 4 & 5, 1997
Houston, Texas—May 20, 1997
Philadelphia, Pennsylvania—June 18, 1997
St. Louis, Missouri—July 15, 1997
San Diego, California—July 8, 1997
San Francisco, California—July 9 & 10, 1997
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Tampa, Florida—May 19, 1997
Tarrytown, New York—July 29 & 30, 1997
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[The official Committee record contains additional material here.]
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State Insurance Commissioners
Alaska Division of Insurance
Department of Commerce & Economic
P.O. Box 110805
Juneau, AK 99811–0805
Phone: 907/465–2515
Alabama Department of Insurance
135 South Union St.
Montgomery, AL 36130
Phone: 334/269–3550
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Arkansas Department of Insurance
1200 West 3rd St.
Little Rock, AK 72201–1904
Phone: 501/371–2600
Office of the Governor
American Samoa Government
Pago Pago, AS 96799
Phone: 011/684–633–4116
Arizona Department of Insurance
2910 North 44th St.
Suite 210
Phoenix, AZ 85018–7256
Phone: 602/912–8400
California Department of Insurance
300 Capitol Mall
Suite 1500
Sacramento, CA 95814
Phone: 916/492–3500
Colorado Division of Insurance
1560 Broadway
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Suite 850
Denver, CO 89292
Phone: 303/894–7499
Connecticut Department of Insurance
P.O. Box 816
Hartford, CT 06142–0816
Phone: 860/297–3802
Insurance Administration District of Columbia Government
441 Fourth St., N.W.
8th Fl., North
Washington, DC 20001
Phone: 202/727–8000 x3018
Delaware Department of Insurance
Rodney Building
841 Silver Lake Blvd.
P.O. Box 7007
Dover, DE 19903
Phone: 302/739–4251
Florida Department of Insurance
State Capitol
Plaza Level Eleven
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Tallahassee, FL 32399–0300
Phone: 904/922–3101
Georgia Department of Insurance
2 Martin L. King, Jr.
Dr. Floyd Memorial Bldg.
704 West Tower
Atlanta, GA 30334
Phone: 404/656–2056
Department of Revenue & Taxation Government of Guam
Mariner Ave.
Building 13–1, 2nd Fl.
Tiyan, Barrigada, Guam 96913
Phone: 011/671–475–1817
Hawaii Insurance Division
Department of Commerce & Consumer Affairs
250 S. King St.
5th Fl.
Honolulu, HI 96813
Phone: 808/586–2790
Iowa Division of Insurance
Lucas State Office Building
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6th Fl.
Des Moines, IA 50319
Phone: 515/281–5705
Idaho Department of Insurance
700 West State St.
3rd Fl.
Boise, ID 83720–0043
Phone: 208/334–4250
Illinois Department of Insurance
320 West Washington St.
4th Fl.
Springfield, IL 62767
Phone: 217/785–0116
Indiana Department of Insurance
311 W. Washington St.
Suite 300
Indianapolis, IN 46204–2787
Phone: 317/232–2385
Kansas Department of Insurance
420 S.W. 9th St.
Topeka, KS 66612–1678
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Phone: 913/296–7801
Kentucky Department of Insurance
P.O. Box 517
215 West Main St.
Frankfort, KY 40602–0517
Phone: 502/564–6027
Louisiana Department of Insurance
950 North 5th St.
Baton Rouge, LA 70804–9214
Phone: 504/342–5423
Commonwealth of Massachusetts
Division of Insurance
470 Atlantic Ave.
6th Fl.Boston, MA 02210–2223
Phone: 617/521–7794
Maryland Insurance Administration
501 St. Paul Pl.
Stanbalt Building
7th Fl. South
Baltimore, MD 21202–2272
Phone: 410/333–2521
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Maine Bureau of Insurance
Dept. of Professional & Financial Reg.
State Office Building
Station 34
Augusta, ME 04333–0034
Phone: 207/624–8475
Michigan Insurance Bureau
Department of Commerce
611 W. Ottawa St.
2nd Fl.,
North Lansing, MI 48933–1020
Phone: 517/373–9273
Minnesota Department of Commerce
133 East 7th St.
St. Paul, MN 55101
Phone: 612/296–6848
Missouri Department of Insurance
301 West High St.
6 North
Jefferson City, MO 65102–0690
573/751–4126
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Mississippi Department of Insurance
1804 Walter Sillers Building
Jackson, MS 39205
Phone: 601/359–3569
Montana Department of Insurance
126 North Sanders
270 Mitchell Building
Helena, MT 59601
Phone: 406/444–2040
North Carolina Dept. of Insurance
4140 Dobbs Building
P.O. Box 26387
Raleigh, NC 27611
Phone: 919/733–7349
North Dakota Department of Insurance
600 E. Blvd.
Bismarck, ND 58505–0320
Phone: 701/328–2440
Nebraska Department of Insurance
Terminal Building
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941 O St.
Suite 400
Lincoln, NE 68508
Phone: 402/471–2201
New Hampshire Department of Insurance
169 Manchester St.
Concord, NH 03301
Phone: 603/271–2261
New Jersey Department of Insurance
20 West State St.
CN325
Trenton, NJ 08625
Phone: 609/292–5363
New Mexico Department of Insurance
P.O. Drawer 1269
Santa Fe, NM 87504–1269
Phone: 505/827–4601
Nevada Division of Insurance
1665 Hot Springs Rd.
Suite 152
Carson City, NV 89710
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Phone: 702/687–4270
New York Department of Insurance
160 West Broadway
New York, NY 10013
Phone: 212/602–0429
Ohio Department of Insurance
2100 Stella Ct.
Columbus, OH 43215
Phone: 614/644–2658
Oklahoma Department of Insurance
3814 N. Santa Fe
Oklahoma City, OK 73118
Phone: 405/521–2686
Oregon Division of Insurance
Department of Consumer & Business Services
350 Winter St., N.E.
Room 200
Salem, OR 97310–0700
Phone: 503/378–4271
Pennsylvania Insurance Department
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1326 Strawberry Sq.
13th Fl.
Harrisburg, PA 17120
Phone: 717/783–0442
Puerto Rico Department of Insurance
Cobian's Plaza Building
1607 Ponce de Leon Ave.
Santurce, PR 00909
Phone: 787/722–8686
Rhode Island Insurance Division
Department of Business Regulation
233 Richmond St.
Suite 233
Providence, RI 02903–4233
Phone: 401/277–2223
South Carolina Department of Insurance
1612 Marion St.
P.O. Box 100105
Columbia, SC 29202–3105
Phone: 803/737–6160
South Dakota Division of Insurance
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Department of Commerce & Regulation
500 E. Capitol
Pierre, SD 57501–3940
Phone: 605/773–3563
Tennessee Department of Commerce & Insurance
Volunteer Plaza
500 James Robertson Pkwy.
Nashville, TN 37243–0565
Phone: 615/741–2241
Texas Department of Insurance
333 Guadalupe St.
P.O. Box 149104
Austin, TX 78714–9104
Phone: 512/463–6464
Utah Department of Insurance
3110 State Office Building
Salt Lake City, UT 84114–1201
Phone: 801/538–3800
Virginia Bureau of Insurance
State Corporation Commission
1300 East Main St.
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Richmond, VA 23219
Phone: 804/371–9694
United States Virgin Islands
Division of Banking & Insurance
1131 King St.Christiansted
St. Croix, VI 00820
Phone: 809/773–6449
Vermont Division of Insurance
Department of Banking, Insurance & Securities
89 Main St.Drawer 20
Montpelier, VT 05620–3101
Phone: 802/828–3301
Washington Office of the Insurance
14th Ave. & Water Sts.
P.O. Box 40255
Olympia, WA 98504–0255
Phone: 360/753–7301
Office of the Commissioner of Insurance
State of Wisconsin
121 E. Wilson
Madison, WI 53707–7873
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Phone: 608/266–0102
West Virginia Department of Insurance
P.O. Box 50540
Charleston, WV 25305–0540
Phone: 304/558–3354
Wyoming Department of Insurance
Herschler Building
122 West 25th St.
3rd East
Cheyenne, WY 82002–0440
Phone: 307/777–7401
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Chairman THOMAS. Thank you very much, Ms. Miller.
Mr. Iwry.
STATEMENT OF J. MARK IWRY, CHIEF BENEFITS TAX COUNSEL, U.S. DEPARTMENT OF THE TREASURY
Mr. IWRY. Thank you, Mr. Chairman, Members of the Subcommittee. I am pleased to present the views of the Department of the Treasury on the implementation of the access, portability, preexisting condition, and long-term care provisions of HIPAA.
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The legislation, enacted on a bipartisan basis with the strong support of the administration, provides insurance reform that enhances health care coverage for American families. We commend this Subcommittee and the Committee for its critical efforts in achieving passage of this law.
HIPAA's requirements relating to portability, access, and renewability of group health plans create overlapping jurisdiction for the Departments of HHS, Labor, and Treasury. Under HIPAA, the three departments were instructed to ''first issue, by not later than April 1, 1997, such regulations as may be necessary to carry out'' the group market portability provisions. The departments met the statutory deadline, working together to implement this law in ways that protect the ability of workers and their families to maintain their health insurance when they change jobs, while seeking to avoid imposing undue burdens on employers, plans, insurance carriers, and others providing coverage.
Comments on the shared group market regulations have included favorable comments on the timeliness of the guidance, the thoroughness with which the issues were addressed by the regulations, and the effort made to implement the protections for participants and beneficiaries while minimizing costs and burdens to the system. The regulations benefited considerably from the fact the departments actively sought and took into account information and views from the public. Close consideration of public comments will continue to be an essential component of our implementation efforts.
In our work to implement and interpret HIPAA, the Treasury Department also has been giving high priority to the long-term care provisions. These include requirements under which a long-term care insurance contract can have assurance that it will qualify for favorable tax treatment as an accident or health plan under Federal tax laws, and eligible premiums—as well as expenses for long-term care services that are paid without the purchase of insurance—can similarly have assurance they will qualify for favorable tax treatment as expenses for medical care. For these favorable tax provisions to apply, HIPAA requires the individual be unable to perform certain daily activities essential to living independently without substantial assistance or that the individual needs substantial supervision due to severe cognitive impairment.
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We began the process of issuing guidance on the new long-term care provisions by considering the many helpful written comments that were submitted and together with personnel from the Internal Revenue Service and HHS, engaging in extensive discussions with health professionals expert in the care and rehabilitation of chronic illness, with those involved in providing long-term care insurance, with groups representing persons with chronic disabilities, State insurance regulators, including the NAIC, academics, researchers, and others.
Our plan has been to issue long-term care guidance in two stages. First, last May, Treasury and the IRS released a notice that addressed issues that were identified as matters for which interim guidance would be particularly helpful. Next, we intend to provide additional and more permanent guidance, again taking into account comments made by the public.
In general, the May 1997 notice provides interim standards relating to the key definitions for determining whether a person is a ''chronically ill individual'' within the meaning of the statute, and guidance concerning the scope of HIPAA's grandfather provision for long-term care contracts issued before 1997, and concerning the consumer protection requirements imposed on qualified contracts. The notice includes interim safe harbor definitions of a number of key terms, and, also, includes a safe harbor permitting insurance companies on an interim basis to interpret their post-1996 contracts by continuing to use the same standards they applied to the benefit triggers in their pre-1997 contracts where those triggers were basically similar to HIPAA's eligibility conditions—in other words, where they are based on inability to perform activities of daily living and on cognitive impairment.
The safe harbors are designed to provide clearer guidelines for individuals and insurance companies to use in interpreting the new standards set forth in HIPAA, without requiring interim amendment of long-term care insurance contracts that might impede the development of the insurance market. The notice also provides guidance on the scope of changes that can be made to a grandfathered contract issued before January 1, 1997, to ensure the contract will be treated as a qualified long-term care contract under HIPAA.
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Included in the guidance are two important clarifications: First, that the addition of a new certificate holder under a pre-1997 group insurance contract will not cause previous certificate holders to lose grandfathered status for their certificates. Second, that the new certificate holder under the group contract will also be covered by the grandfather provision.
Comments have expressed concern that the interim provisions of the notice interpreting the grandfather rule are drafted in a way that may not accommodate a number of common types of changes to policies that commentators believe are not of a kind that should deprive the contract of grandfathered status.
One example is a change in the mode or timing of premium payments, from annual to monthly payments, for instance, where both of those options were available at the time the policy was issued. A number of these comments have been very informative and can be expected to help shape the upcoming additional guidance.
With respect to consumer protections, the interim notice provides that where a State has adopted a consumer protection requirement in the NAIC models that is incorporated in HIPAA, compliance with that State requirement satisfies the parallel HIPAA requirement, and failure to comply with the State requirement constitutes failure to comply with the parallel HIPAA requirement.
In interpreting the statutory provisions relating to qualified long-term care insurance and services, the Treasury Department has given careful consideration to the potential effects on individuals and on issuers.
Now that initial guidance in both the portability access, preexisting condition areas, and in the long-term care area has been issued, we will continue to listen closely to the views of affected parties as we consider possible changes to the initial guidance and develop additional guidance.
The Treasury Department appreciates the opportunity to testify before the Subcommittee concerning the implementation of these provisions. Mr. Chairman, I will be pleased, and my colleagues will, to answer any questions you or other Members may wish to ask.
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[The prepared statement follows:]
Statement of J. Mark Iwry, Chief Benefits Tax Counsel, U.S. Department of the Treasury
I am pleased to present the views of the Department of the Treasury on the implementation of the access, portability, preexisting condition, and long-term care provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). These provisions are designed to improve portability and continuity of group health plan coverage provided in connection with employment, and to clarify the tax treatment of long-term care insurance contracts and the tax deductibility of expenses associated with long-term care services. This legislation, enacted on a bipartisan basis with the strong support of the Administration, provides important insurance reform that enhances health care coverage for American families. We commend this Subcommittee and the Committee for its critical efforts in achieving passage of this law.
My testimony will focus on the HIPAA guidance that the Treasury Department has provided to date. On April 1, 1997, the Department of the Treasury issued proposed and temporary regulations on the HIPAA group market portability provisions, together with substantially similar interim final rules issued by the Department of Health and Human Services and the Department of Labor.(see footnote 4) On May 6, 1997, the Treasury Department provided interim guidance on long-term care issues.
HIPAA Group Market Portability Provisions
Coordinated Structure of Rules. HIPAA sets forth federal requirements relating to portability, access, and renewability of group health plan and group health insurance coverage (the ''portability'' provisions.) The HIPAA portability provisions relating to group health plans (the ''group market'' provisions) are set forth in the Internal Revenue Code, ERISA, and the Public Health Service Act (PHSA). HIPAA also added provisions governing insurance in the individual market(see footnote 5) (the ''individual market'' provisions) which are contained only in the Public Health Service Act, and thus are not within the regulatory jurisdiction of the Department of the Treasury (or the Department of Labor).
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In general, the group market provisions create overlapping jurisdiction for the Secretaries of the Treasury, Labor, and Health and Human Services. The statute provides for the three Departments to share regulatory responsibility for most of the group market provisions (the ''shared group market'' provisions)(see footnote 6) and the Departments have worked together in developing regulations in this area.
The shared group market provisions under the three statutes are substantially similar. Under the Code, these provisions generally apply to all group health plans, other than governmental plans and plans with fewer than two participants who are current employees, but, unlike the corresponding provisions in the PHSA and ERISA, do not apply to insurance issuers.(see footnote 7) In general, a plan sponsor that fails to comply with these provisions may be subject to an excise tax under the Code.
Key Portability Provisions. HIPAA's shared group market provisions include four key elements. First, HIPAA imposes limitations on preexisting condition exclusions. Second, it requires that group health plans and health insurance issuers provide certifications of creditable coverage. Third, HIPAA creates certain special enrollment rights for employees and dependents. Fourth, HIPAA prohibits group health plans or issuers from discriminating against individuals on the basis of health status.
Most plans are not yet subject to the group market provisions of HIPAA, except for the certification provisions. Moreover, a statutory good faith enforcement standard applies to all of the group market provisions, including the certification requirements, through the end of this year. The substantive requirements of the group market rules, such as the limitations on preexisting condition exclusions and the prohibitions on discrimination based on health status-related factors, are generally effective for plan years beginning after June 30, 1997. (e.g., for a calendar year plan January 1, 1998.) At the same time, HIPAA provides that no enforcement action may be taken, pursuant to the group market portability provisions, against a group health plan or health insurance issuer with respect to a violation of a requirement imposed by those provisions before January 1, 1998 if the plan or issuer has sought to comply in good faith with those requirements. The requirement that a group health plan and a health insurance issuer in the group market deliver to individuals certifications of their creditable coverage upon certain events (e.g., loss of coverage) applies to events occurring after June 30, 1996. However, no certification was required to be provided before June 1, 1997. Certifications are not required to reflect coverage before July 1, 1996, and certifications for events before October 1, 1996 need be provided only upon written request.
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Implementation. Under HIPAA, the Departments were instructed to ''first issue by not later than April 1, 1997, such regulations as may be necessary to carry out'' the group market portability provisions.(see footnote 8) The Departments met this goal through the issuance of interim regulations on the key aspects of the shared HIPAA group market portability provisions.(see footnote 9)
The regulations were developed on a coordinated basis by the three Departments. Except to the extent needed to reflect the statutory differences described earlier, the shared group market provisions in the regulations of each Department are substantively identical. The development of the regulations on a collaborative basis proved to be neither an easy nor a simple task, but the Departments made special efforts to overcome the problems inherent in this type of overlapping responsibility.
In developing the interim regulations, the Departments were committed to working to implement the law in ways that protect the ability of workers and their families to maintain their health insurance when they change jobs, without imposing undue burdens on employers, plans, insurance carriers, and others providing coverage.
The regulations seek to ensure that the statutory provisions designed to protect and assist participants and their dependents are implemented effectively. For example, implementation of the limitations on preexisting condition exclusions will be facilitated through the delivery of coverage information using certificates provided to individuals and transmitted to a new employer when an employee changes jobs. In accordance with authorization in HIPAA, the regulations include several features that are intended to facilitate this essential process of transferring information.
Demonstrating creditable coverage. HIPAA's portability provisions limit the ability of group health plans and group health insurance issuers to impose a preexisting condition exclusion, which is a limitation or exclusion of benefits relating to a condition that is based on the fact that the condition was present before the date of enrollment. Under HIPAA, a preexisting condition exclusion may be imposed only if it relates to a condition for which medical advice, diagnosis, care, or treatment was received or recommended within six months prior to the individual's ''enrollment date.'' In addition, a preexisting condition exclusion may not be applied for more than 12 months (or 18 months in the case of late enrollment) after the enrollment date.
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If the individual has previous ''creditable coverage,'' including coverage under another group health plan, the maximum preexisting condition exclusion period must be reduced by the aggregate of the individual's periods of creditable coverage. Coverage generally may be disregarded if it precedes a 63-day break in coverage or if the coverage consists solely of certain ''excepted'' benefits. In addition, special protections apply for pregnancy, and for newborn children, adopted children, and children placed for adoption.
To enable individuals to provide evidence of, and thus receive credit for, previous coverage, HIPAA generally requires that group health plans and health insurance issuers provide certifications of the periods of creditable coverage. Certifications must be provided when an individual ceases plan coverage or otherwise becomes covered under COBRA, when an individual ceases COBRA coverage, and in certain cases where a request is made. HIPAA also provides that periods of creditable coverage are established through presentation of certifications or in such other manner as may be specified in regulations. Moreover, HIPAA directs the Departments to establish rules to prevent an entity's failure to provide information concerning creditable coverage from adversely affecting any subsequent coverage of the individual under another group health plan or health insurance coverage.
To prevent an individual from being adversely affected if the individual does not receive a certificate, the regulations identify practical ways for individuals to demonstrate creditable coverage to a new plan through the presentation of documentation or other means. For example, an individual may not have a certificate because an entity failed to provide a certificate within the required time period, an entity was not required to provide a certificate, the coverage of the individual was for a period before July 1, 1996, or the individual has an urgent medical condition that necessitates an immediate determination of creditable coverage by a plan or issuer before the prior plan or issuer is required to provide a certificate. Under these circumstances, the regulations permit an individual to present evidence of creditable coverage through documents, records, third party statements, or other means, including telephone calls by the plan or issuer to a third party provider. If an individual needs to demonstrate that he or she is a dependent of a participant, the individual can simply attest to his or her status as a dependent (including the period of the status). Of course, the individual must cooperate with efforts by the plan or issuer to verify the prior creditable coverage or dependent status.
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Notice of possible exclusion period. A plan that imposes a preexisting condition exclusion must notify participants that it has a preexisting condition exclusion and that the individual has a right to demonstrate creditable coverage. If the plan receives a certificate, other evidence of coverage, or information relating to the alternative method,(see footnote 10) it must notify the individual of the length of time that a preexisting condition exclusion may apply to the individual after taking into account their prior creditable coverage. A plan or issuer is expressly permitted under the regulations to reconsider and modify its initial determination of the length of the preexisting condition exclusion if it determines that the individual did not have the claimed creditable coverage, assuming the individual is notified of such reconsideration and, until a final determination is made, the plan or issuer acts in accordance with its initial determination for purposes of approving medical services.
Receipt of certificate before coverage ceases. The regulations clarify the statutory rules by expressly permitting individuals to obtain a certificate, upon request, before coverage under a plan ceases. This enables an individual to confirm in advance that he or she has at least 12 months of creditable coverage, information that may be important in deciding whether to change jobs.
Description of special enrollment rights. The special enrollment rules allow individuals to enroll in a plan in certain circumstances in which they have lost other coverage, have gotten married, or have a new dependent child by birth, adoption, or placement for adoption. The special enrollment rules apply to individuals who are unlikely to have received a summary plan description (because they are not enrolled as participants). To ensure that these individuals know about their enrollment rights, the regulations provide for individuals to be furnished a description of their rights to special enrollment under a plan if they decline coverage. To assist plan sponsors, the regulations include a simple model of such a description.
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Many provisions of the regulations are designed to reduce costs and burdens, including those described below.
Model certificate. The solicitation of comments published last December specifically reoverage, that could be used by plans and issuers, would be useful. In response to favorable comments received by the Departments, a simple model has been provided. The Departments believe that the model certification will significantly reduce the potential burdens on employers and insurance carriers, while also making the certification process more effective for employees and dependents. The model should facilitate the transmission of coverage information by standardizing the information that employees and dependents receive and deliver to their next group health plan or use to evidence their eligibility for coverage in the individual market.
Transition rule allowing optional notice in lieu of certificate, plus model notice. As indicated above, HIPAA required that no later than June 1, 1997, a plan or issuer provide an automatic certificate for events occurring on and after October 1, 1996. In light of the fact that the limitations on preexisting condition exclusions do not go into effect until plan years beginning after June 30, 1997, the regulations provide an optional transition rule that could be used by plans and issuers to satisfy this obligation. Under the regulations, the plan or issuer is deemed to satisfy this obligation if a special notice explaining an individual's right to receive a certificate was provided by June 1, 1997. This enables plans and issuers to provide the same notice to all individuals instead of certificates containing information tailored to each individual. A model notice that could be used to satisfy this rule was included with the regulations. The transition rule and model notice are designed to address the concerns that were repeatedly expressed to the Departments concerning the automatic certificates relating to this transition period, while remaining faithful to the statutory protections for workers and their families.
Model notice for categories of benefits. HIPAA permits a plan or issuer to reduce a period og either a standard method of counting coverage (which is determined without regard to the specific benefits included in the coverage), or an alternative method under which the plan or issuer can elect to determine the amount of prior coverage within particular categories of benefits specified in regulations. The interim regulations identify the categories of benefits that can be used—mental health, substance abuse treatment, prescription drugs, dental care, and vision care. The regulations also provide a model notice that a plan or issuer may use for information about the prior coverage within the categories of benefits.
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Coverage information by telephone. The regulations allow coverage information to be provided by telephone if all parties—the individual, the sending plan or issuer, and the receiving plan or issuer—agree. In addition, the regulations request comments as to whether, and under what conditions, other methods of transmitting certification information (including electronic communication) should be permitted.
Reducing unnecessary duplication in issuance of certificate. The statutory obligation to furnish a written certificate of information regarding creditable coverage is imposed on both the group health plan and the health insurance issuer offering group health insurance coverage. This dual obligation was the subject of many of the comments received by the Departments. Concerns were raised about superfluous, duplicate certificates being issued and the potential responsibility of issuers for reporting on an individual's coverage under the plan after one issuer has been replaced by another.
The regulations address these concerns in various ways. For example, the regulations provide that an entity is deemed to satisfy the requirement to provide a certificate to the extent that any other party provides a certificate that discloses the creditable coverage (including the waiting period information) that was to be provided by the entity. Also, the regulations amplify the statutory rule that a plan is deemed to have satisfied its obligation if the issuer agrees to provide certificates for individuals covered under the plan. In addition, an issuer is not required to provide any coverage information regarding coverage periods for which it was not responsible. The framework provided by the regulations gives plans and issuers the flexibility to arrange the most efficient certification process for each situation, while at the same time ensuring that individuals will receive the information they need.
Only essential information required in certificate. The regulations specify that a certificate must provide information identifying the parties involved, whether the individual had at least 18 months of creditable coverage under the plan without a 63-day break, and, if not, the date any waiting period began, and the beginning and ending dates of coverage. Thus, plans and issuers are relieved of the need to report detailed information regarding the starting date of coverage and waiting period information if a certificate shows that an individual has at least 18 months of creditable coverage. Further, information concerning the particular benefits provided under the plan need not be provided; this information would be required to be furnished only if another plan or issuer that uses the ''alternative method,'' after receiving the certification, requested additional information in accordance with the statute.
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Special rules for dependents. Family members receiving health coverage through an employer are also entitled to a written certificate of creditable coverage. Comments from the public raised concerns because plans and issuers often do not know the existence of dependents or their coverage periods until claims are filed. To address these concerns, the regulations include two special rules to provide dependents with the coverage information they need. First, under a transition rule that lasts through June 30, 1998, a plan or issuer may satisfy its obligation to provide a written certificate regarding a dependent's coverage by including in the certificate the name of the participant and the type of coverage provided (such as family coverage or employee-plus-spouse coverage). However, if asked to provide a certificate relating to a specific dependent, the plan must make reasonable efforts to obtain and provide the name of the dependent. This rule will provide plans and issuers with a transition period to update their data systems to include information on dependents, yet ensure that dependents get the documentation they may need. Second, the regulations include a special rule that is not limited to the transition period, under which a plan or issuer must make a reasonable effort to collect information on dependents and include it on the certificate. However, an automatic certificate for dependents is not required to be issued until the plan or issuer knows (or, making reasonable efforts, should know) of the dependent's cessation of coverage. This information can be collected annually, such as during open enrollment, as part of the normal collection of health information from participants.
Prohibition of discrimination based on health status. The HIPAA group market rules prohibit a group health plan or health insurance issuer in the group market from establishing rules for an individual's eligibility to enroll in a plan that are based on an individual's medical history, evidence of insurability, or other health status-related factors. The legislative history indicates that evidence of insurability is intended to include personal activities, such as skiing or riding horses. Similarly, a group health plan or health insurance issuer in the group market cannot require an individual to pay greater premiums or contributions based on any health status-related factor. An exception is provided for discounts, rebates, or modifications to copayments or deductibles in return for adherence to ''programs of health promotion and disease prevention'' (sometimes referred to as ''wellness'' programs).
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The regulations include examples illustrating how the group market rules operate to ensure that an individual who seeks to enroll in a plan cannot be denied eligibility based on a condition identified in a pre-enrollment physical and how a plan can include a bona fide wellness program that encourages participants to adhere to the program in order to obtain a discount on their health premiums. While these examples do not answer all of the important issues arising under the new nondiscrimination provisions, they provide guidance concerning commonly asked questions and the guidance extends the application of the good faith enforcement standard until further regulations are promulgated. Since the regulations were issued last April, we have sought and received comments on a number of other issues which the Departments are taking into account as we work closely together in considering future guidance.
Reactions to the shared group market regulations from the public have generally been positive. They have commented favorably on the timeliness of the guidance, the thoroughness with which issues are addressed by the regulations, and the effort made in the regulations to implement the protections afforded to participants and beneficiaries while minimizing costs and burdens on issuers and employers.
We believe that the successful completion of the HIPAA shared group market portability regulations issued on April 1, 1997 is attributable in part to the fact that the Departments actively sought and took into account information and views from the public while developing the regulations. The Departments engaged in extensive discussions with representatives of insurance companies, State insurance regulators, employers, plan administrators, and consumer groups, both to educate others about HIPAA and to be educated about concerns and issues raised by those affected by the new requirements. In addition, last December, the Departments published in the Federal Register a public solicitation of further comments on the HIPAA portability provisions in order that comments could be taken into account, to the extent practicable, for purposes of developing the regulations. We believe that consideration of of employees, dependents, and others seeking health care coverage, and on behalf of employers, plan administrators, and insurance issuers, provided the Departments with valuable information to consider during the process of drafting the regulations. This will continue to be an essential component of our implementation efforts.
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Long-Term Care
Summary of Statutory Provisions. Prior to the enactment of HIPAA, the Code did not contain explicit rules concerning the tax treatment of long-term care insurance or unreimbursed expenses relating to long-term care services. The tax law generally excluded from income amounts received under accident or health insurance and employer-provided coverage under an accident or health plan, and also permitted certain unreimbursed expenses for medical care to be deducted from income.
The new HIPAA provisions establish requirements under which a long-term care insurance contract can qualify for treatment as an accident or health plan under federal tax laws and eligible premiums for such insurance and expenses for long-term care services (that are paid without the purchase of insurance) can qualify for treatment as expenses for medical care for federal tax purposes. For these tax advantages to apply, HIPAA requires that the individual be unable to perform certain daily activities that are essential to living independently without substantial assistance, or need substantial supervision due to severe cognitive impairment. Eligibility for special tax treatment does not depend on whether the care is provided in a nursing home, in the individual's community, or at the individual's home. In addition, in the case of insurance policies, certain consumer protection requirements must be satisfied.
The statute defines ''qualified long-term care services'' as necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services and maintenance or personal care services that are required by a ''chronically ill individual'' and are provided pursuant to a plan of care prescribed by a licensed health care practitioner. A ''chronically ill individual'' is defined as any individual who has been certified by a licensed health care practitioner as—
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(i) being unable to perform without substantial assistance from another individual at least 2 out of 6 activities of daily living (ADLs) listed in § 7702B(c)(2)(B) for a period of at least 90 days due to a loss of functional capacity (the ''ADL Trigger'');
(ii) having a level of disability similar to the level of disability described in the ADL Trigger as determined under regulations prescribed by the Secretary of the Treasury in consultation with the Secretary of Health and Human Services (the ''Similar Level Trigger''); or
(iii) requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment (the ''Cognitive Impairment Trigger'').
The 6 ADLs listed in the tax law are eating, toileting, transferring, bathing, dressing, and continence. A contract is not a qualified long-term care insurance contract unless it takes into account at least 5 of these 6 activities in determining whether an individual is a chronically ill individual.
In addition, HIPAA amended the tax law to provide that, for purposes of determining a taxpayer's eligibility to deduct amounts paid for medical care expenses, the term ''medical care'' includes (1) eligible premiums paid for any qualified long-term care insurance contract and (2) amounts paid for qualified long-term care services.
HIPAA provides that, except for policies issued before January 1, 1997, the only insurance protection that can be provided under a qualified long-term care insurance contract is coverage for qualified long-term care services. Thus, an insurance policy issued after December 31, 1996 is qualified only if the policy provides coverage solely for maintenance, personal care, or other identified medical care services that are required by a ''chronically ill individual,'' and only if such services are provided pursuant to a plan of care prescribed by a licensed health care practitioner. This standard applies both to individuals who have purchased insurance and to individuals whose long-term care expenses are paid for without insurance.
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A qualified policy must also satisfy certain consumer protection standards. These standards reflect many of the provisions that are in the NAIC's model long-term care act and regulations. These model provisions are incorporated into the tax law by reference to the model act and regulations. A qualified policy must also satisfy certain other requirements, including that the policy must state that it is intended to be tax-qualified, the purchaser must have been offered the opportunity to purchase a nonforfeiture feature that will provide benefits in the event the purchaser is unable to continue to pay premiums, and any claim denial must be explained to the policyholder in writing within 60 days. Certain of these requirements are conditions that must be satisfied in order for the policy to be tax-qualified, and others are enforced by an excise tax that may be imposed on the insurance company that issued the qualified policy.
Implementation. We began the process of issuing guidance on the new long-term care provisions by considering the many helpful written comments that were submitted. In addition, Treasury and IRS personnel, together with personnel from the Department of Health and Human Services, engaged in extensive discussions with numerous parties. These include health professionals expert in the care and rehabilitation of chronic illnesses, insurance companies offering long-term care insurance, groups representing persons with chronic disabilities, State insurance regulators (including the NAIC), academics, and researchers.
Based largely on these discussions, our goal has been to issue guidance in two stages. First, Notice 97–31, which the Treasury Department and the IRS released on May 6, 1997, addressed issues identified as matters for which interim guidance would be particularly helpful. Second, we intend to provide additional and more permanent guidance under the new long-term care provisions, taking into account comments made by the public.
In general, Notice 97–31 provides interim standards concerning the key definitions for determining whether a person is a ''chronically ill individual,'' as well as guidance concerning the scope of HIPAA's grandfather provision for long-term care insurance contracts issued before 1997 and the consumer protection requirements imposed on qualified long-term care insurance contracts under HIPAA.
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Safe harbor definitions. The notice provides interim safe harbor definitions of several key terms relating to determinations of whether a person is ''chronically ill'', specifically:
• substantial assistance;
• hands-on assistance and standby assistance;
• severe cognitive impairment; and
• substantial supervision.
The notice also includes a safe harbor that permits an insurance company to interpret its post-1996 contracts using the same standards that it applies to the benefit triggers in its pre-1997 contracts that are based on the inability to perform activities of daily living and cognitive impairment. These safe harbors may be used without the need to amend insurance contracts.
The safe harbors are designed to provide clearer standards for individuals and insurance companies to use in interpreting the new standards set forth in the HIPAA long-term care provisions, without requiring interim amendment of insurance contracts that might impede the development of the insurance market.
Grandfather provisions. The notice provides guidance on the scope of changes that may be made to an insurance contract issued before January 1, 1997 to ensure that such contracts will be treated as qualified long-term care insurance contracts under HIPAA. One important clarification in the notice is that the addition of a new certificate holder under a pre-1997 group contract will neither cause the previous certificate holders to lose grandfathered status for their certificates, nor prevent the new certificate holder under the contract from being covered by the grandfather provision.
Consumer protections. HIPAA incorporates certain provisions of the NAIC model insurance law and model regulations. Notice 97–31 provides that where a State has adopted the consumer protection requirements in the NAIC models that are incorporated in HIPAA, compliance with that State requirement satisfies the parallel HIPAA requirement and failure to comply with that State requirement is failure to comply with the parallel HIPAA requirement. The notice also recognizes the primacy of State insurance departments in the regulation of insurance contracts by treating an insurance contract as having received approval from the Secretary of the Treasury if the contract has been approved by the State insurance department for purposes of certain nonforfeiture requirements in the long-term care provisions. At sections 1602(b) and (e) of the Taxpayer Relief Act of 1997.(see footnote 11)
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Conclusion
In implementing the important HIPAA group market portability reforms, the Departments have developed interim regulations that effectuate the statutory protections for individuals while seeking to minimize the costs and burdens on entities that offer health care coverage. In addition, in developing guidance relating to qualified long-term care insurance and services, the Treasury Department has given careful consideration to the impact of new rules on both insurance issuers and individuals. Now that initial guidance in each of these areas has been issued, we will continue to be responsive to views expressed by affected parties as we consider possible changes to the initial guidance and as we develop additional guidance.
The Treasury Department appreciates the opportunity to testify before the Subcommittee concerning the implementation of these HIPAA provisions.
Mr. Chairman, this concludes my formal statement. I will be pleased to answer any questions you or other Members may wish to ask.
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Chairman THOMAS. Thank you very much. I thank all of you.
Mr. Iwry, you mentioned in your oral testimony, implement and interpret HIPAA, and you then talk more about it in your testimony. Before you list a number of areas that you are monitoring, you used the phrase, ''to assure that the intent of the legislation is achieved.''
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Now the concern I have is that some of those areas you are monitoring, I believe, are clearly beyond the scope of HIPAA, and my belief, and I think the majority who voted for HIPAA, believe the intent was not to guarantee unlimited portability, nor do I think we intended to have the Federal Government second guess State decisions about rate regulation. It is difficult, but I thought we tried to balance the roles of the Federal and the State Governments to increase access for consumers with preexisting conditions, but not expose those with insurance to excessive rates.
So I guess the question I would start with is, Do you or your colleagues believe HIPAA, and here specifically, you, provide HCFA with the authority to regulate areas involving, for example, guaranteed issue for individuals who are leaving an individual insurance plan, not a group plan, and do you interpret HIPAA to provide HCFA with the authority to regulate insurance rates in the group or individual market?
Ms. MOORE. I think our basic approach is to work through the States and the State mechanisms that are in effect. We will be working with the States and their choices as to whether they are going to use—which one of the HIPAA choices they are going to make—an alternative mechanism or the Federal role.
We are very much in transition. We are listening, watching, learning, and gathering data impressions. I do not think that we feel a strong regulatory Federal role was intended by this law, and we all have a great deal to learn.
Chairman THOMAS. My concern will be when you are monitoring, and you talk about monitoring areas outside the scope. There is nothing wrong with an informational approach, but I guess I didn't get that feeling from the way it was written, and we will obviously develop a relationship as we go forward. You then go ahead and list a number of areas, and as a matter of fact, Ms. Miller does as well, but it is just a listing, and I guess I would like to have a favor, and if you are not able to do it now, we need to begin to focus as we look at potential legislation, not just a listing of the items, but a ranking, either in terms of the number of items most often mentioned, quantity of information received, individual, or the intensity, where there clearly is a problem that we weren't aware of. Is there any way for you to indicate to the Subcommittee now where there is an obvious area, both in terms of quantity and intensity of concern?
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Ms. MOORE. I wouldn't want to right now.
Chairman THOMAS. And if you can't, I understand.
Ms. MOORE. We feel we are just starting with this, and we want to give you an idea of the kinds of concerns we are hearing rather than to say there is an egregious problem that has to be fixed immediately.
Chairman THOMAS. And of course my immediate reaction is, Thank you for the map, and what is the topography, where are the hills, where are the valleys, where are the lakes, where are the streams, so we can begin anticipating. So if in your preparation of materials you will think about that so we have the ability to discern, not just a list of items, but intensity and quantity of concerns, so we can address those problems that are most in need of addressing, rather than just dealing with it wholesale.
And one question I would ask all of you is that obviously this is our first attempt, and while we were trying to provide some direction, there are obviously a number of insurance areas out there that weren't explicitly included in the act. I am wondering if at this stage you believe you have sufficient flexibility to address some of the areas that have been brought to my attention that weren't explicitly included in the act, for example, the type of blanket insurance college students have or the fact that employees of the Federal Reserve bank are not protected by COBRA, and any other islands that might be out there?
Do you believe that the act provides you with sufficient regulatory flexibility to deal with these areas or have you had enough experience yet to determine whether or not we might have to look at statute guidance to cover areas that weren't explicitly listed?
Ms. MOORE. I think we are feeling fairly comfortable right now, but we do know there are a couple of holes. One that I would point to specifically was mentioned in the testimony, concerning people who are left out in the cold for a 6-month period in some States. I don't know if others have comments.
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Ms. MILLER. Mr. Chairman, with respect to the group market and the portability provisions, there are no significant issues at this point. We again are still at the beginning of the process and we will be mindful of the parameters you have given us as we go through the process.
I would like to say that this group, the three agencies, will be working with your staff, the staff of the Subcommittee, to provide technicals that are not policy oriented for the bill in the next few days, but at this point, there are no significant issues in the group market, from the departments' perspective.
Mr. IWRY. I would just add, Mr. Chairman, I think in fact staffs of the three agencies have been in touch already with Subcommittee staff to set up meetings on technicals.
Chairman THOMAS. We have, and my concern is that as we begin to issue guidance, we also want to monitor the responses back and whether people think it is appropriate or not. I don't want to go through a period in which we have gone down a trail that either isn't communicating what we thought it was supposed to be communicating, because, after all, if people can't understand what we are doing, we are not accomplishing anything, or that you get too far down a road that we don't think was an appropriate one, so I want to make sure we stay fairly close as we move through this adjustment period.
Ms. MILLER. I wanted to mention because the portability access and renewability regulations were interim regulations, we did receive comments in July, so we are going to go through those and continue as we do outreach with these educational seminars. We are receiving it. We are looking at thousands of calls we are getting to do triage and figure out what are the top issues from the workers' perspective and from the plan sponsor community to identify those areas in which we need to address. Furthermore, the reason why we have done the RFIs is to try to get some input in advance from the plan sponsor community on the outstanding regulation projects that we have coming up, which is mental health parity, newborns, and nondiscrimination.
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Chairman THOMAS. I know it is difficult enough to coordinate between three agencies and the executive branch, but we also want to make sure we work together so we can make any corrections when they are appropriate. Our goal is not to provide fodder for those who want to say, ''I told you so.'' Our job is to take what we intended to do and make it work.
Thank you.
The gentleman from California.
Mr. STARK. Thank you, Mr. Chairman.
Ms. Moore, about how many State and local government entities have notified you that they are not going to provide protection?
Ms. MOORE. If memory serves me correctly, it is somewhere around 250.
Mr. STARK. I am going to guess that there are roughly 10,000 units of government in the country. Are you or your staff predicting how many of those 10,000 you think will opt out of this program?
Ms. MOORE. No predictions.
Mr. STARK. No guesses?
Ms. MOORE. No, not really any guesses.
Mr. STARK. Could we receive a list of those who are opting out?
Ms. MOORE. Absolutely.
Mr. STARK. Would you update it from time to time?
For many of us, in our own districts, we will begin to be hearing from local employees in our areas about this and it would be helpful to be forewarned. It is a comment that it was estimated by CBO that this would require a one-tenth of 1-percent increase in cost, and it seems to me, I noticed yesterday in the Washington Post, or some such newspaper, that State governments are awash in cash, not a problem that we face here, and I would hope that States might do the right thing.
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[The following questions were subsequently submitted by Mr. Stark to Judy Moore:]
Question. Can you give us a list of the State and local entities which are ''opting out'' of the HIPAA programs?
Answer. We do not have a list of non-Federal Governmental entities. We can only conjecture that, nationwide, there are around 10,000 of these kind of entities. If these kind of entities choose to ''opt out'' of the HIPAA requirements, they must notify HCFA. As of October 31, 309 of these entities notified HCFA of their election to ''opt out.'' The most recent (as of October 31) list is attached and will be updated periodically.
Question. HIPAA requires people to exhaust their group health insurance COBRA benefits before they are eligible for a guaranteed issue, no pre-existing condition individual policy. In general, are HIPAA policies more expensive than COBRA policies because they are not grouped?
Answer. In general, group health insurance policies tend to be less expensive than individual health insurance policies. However, it is too early to have established a ''track record'' from which any generalization could be made that individual health insurance policies under HIPAA are more expensive than COBRA policies. We would note, that in particular cases, COBRA coverage with generous benefit packages and/or low out-of-pocket costs may be more expensive than HIPAA individual policies with a less generous benefit package and/or higher out-of-pocket costs. Moreover, in the absence of benchmarks of comparison, cost differentials which may ultimately exist between COBRA and HIPAA policies are difficult to quantify. This is because it is difficult to make cost comparisons between policies that have different benefit packages, deductibles, copayments and premiums. The cost of coverage is also affected by the extent of each individual State's regulation for mandated benefit packages or rates which may be charged.
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Question. Yet, less than 20 percent of people eligible for COBRA elect coverage, because the costs are so high. Why?
Answer. Frequently, employers pick up 40–50 percent of group health plan premium costs. Larger employers may pay an even greater share of these costs. Under COBRA, an individual is responsible for 102 percent of his full group premium (150 percent in the case of a disabled individual). While cost may be a major factor influencing whether individuals elect COBRA continuation coverage, there may be other factors, as well. For instance, alternative sources of private coverage may be available, such as through unions, associations or a spouse, or if unemployed, an individual may qualify for governmental means-tested assistance programs, such as Medicaid.
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Sponsors of Self-Funded Nonfederal Governmental Plans That Have Opted-Out of HIPAA
Includes Elections Received Through October 31, 1997
Total States—26; Total Elections—309
* Number in parentheses after name of State denotes number of elections received from that State.
** This is a raw list of elections received by HCFA. Some require clarification or followup with plan sponsors.
Alaska (1)
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City of Fairbanks
Arkansas (2)
Arkansas Municipal League (represents 233 political subdivisions)
City of Camden
California (3)
Santa Cruz County Schools
Shasta Public Employees Trust
Monterey County Schools
Colorado (3)
Douglas County School District
City of La Junta
Grand County
Delaware (1)
City of Dover
Florida (2)
Highlands County
City of Port St. Lucie
Georgia (1)
Atlanta Regional Commission
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Illinois (41)
City of Canton
County of Henry
City of Washington
County of Tazewell
Village of Schaumburg
City of DeKalb
Town of Normal
Cedar County
City of Princeton
Central Illinois Educators
Kinnikinnick Community Consolidated School District No. 131
Community Unit School District #205
East Peoria Community High School District #309
East Peoria Elementary School District 86
Rockton School District #140
Collingsville Community Unit School District No. 10
Community Consolidated School District 15
Lyons Township Elementary School District
Glenbard Township High School District No. 87
Olympia Community Unit School District No. 16
Morton Community Unit School District 709
Illinois Valley Central Unit School District No. 321
Canton Union School District No. 66
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Community High School District #218
Tremont Community School District #702
Midwest Central Community Unit
Township High School District 214
Rock Island School District No. 41
Community College District #514
Illini Bluffs Unit School District #327
Lincolnwood School District 74
Granite City Community Unit School District #9
Rosemont Elementary School
Bloomington Public Schools, School District 87
Valley View Community Unit School District No. 365U
Columbiana Village Schools
Fenton Community High School District 100
Rockford Public Schools
Homewood, Illinois School District #153
City of Kewanee
Lansing Elementary School District #158
Indiana (16)
City of Portland
Wawasee Community School Corporation
Middlebury Community Schools
Knox Community School Corporation
Southern Wells Community Schools
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Whitley County Consolidated Schools
Southeastern School Corporation
Adams Central School District
Adams-Wells Special Services
Eastbrook Community Schools Corporation
Mississinewa School District
North Adams Community Schools
Northern Wells Community Schools
Oak Hill United School CorporationSmith-Green Community Schools
South Adams School District
Indiana State University
Iowa (4)
Cedar County
City of Boone
Marion County
Spencer Memorial Hospital
Kansas (1)
Pratt Community College
Louisiana (2)
Lafayette Parish Sheriff Department
Housing Authority of the City of Lake Charles
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Maryland (1)
Cecil County
Michigan (6)
Michigan State University
City of East Lansing (4 plans)
City of Sturgis
Mississippi (1)
Rankin County
Missouri (6)
Department of Transportation and State Highway Patrol
City Utilities of Springfield
Webb City R–VII School District
Mid-America Regional Council Insurance Trust, Inc.
School District of Joplin R–VIII
School District of Springfield R–12
Montana (5)
Big Horn County
Cascade County
Billings Public Schools
Columbia Falls School District #6
Powell County High School
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Nevada (1)
City of Sparks
New Jersey (2)
Borough of Clayton
County of Bergen
New Mexico (3)
San Juan County
City of Carlsbad
New Mexico Self Insurers' Fund
North Carolina (3)
Rowan County
Alamance County
Craven County
Ohio (83)
Village of Valley View
Village of Cuyahoga Heights
Township of Brookfield
Lorain County
City of North Olmsted
Seneca County Board of Mental Retardation/Developmental Disabilities (MR/DD)
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Hardin County Board of MR/DD
Meigs County Board of MR/DD
Ashtabula County Board of MR/DD
Preble County Board of MR/DD
Champaign County Board of MR/DD
Delaware/Union Educational Service Center
Olentangy Local School District
Pleasant School District
Triad Local School District
Bluffton-Harrison School District
Southeastern Local School District
West Holmes Local School District
Clay Local School District
Bloom-Vernon Local School District
Spencerville Local School District
Shawnee Local School District
Perry Local School District
Lima City School District
Elida Local School District
Delphos City School District
Bluffton Village School District
Bath Local School District
Apollo Joint Vocational School District
Allen East Local School District
Allen County Educational Service Center
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Westerville City School District
Howland Local School District
Carey Village School District
Galion City School District
Ashtabula Area City School District
City of Wadsworth
St. Marys City School District
St. Henry Consolidated Local School District
New Knoxville Local School District
New Bremen Local School District
Minster Local School District
Auglaize County Education Service Center
Celinda City School District
Mercer County Education Service Center
Coldwater Village School District
Fort Recovery Local School District
Waynesfield-Goshen Local School District
Parkway Local School District
Marion Local School District
Buckeye Central Local School District
Buckeye Valley Local School District
North Union Local Schools
Fairbanks Local Schools
West Liberty Salem Local School District
Colonel Crawford Local School District
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Upper Sandusky Village School District
Champaign County Educational Service Center
Upper Valley Joint Vocational School District
Big Walnut Local School District
Wheelersburg Local School District
Washington-Nile Local School District
Valley Local School District
Valley Industrial Trucks, Inc., Auto Mechanics Local 1363
Scioto County Joint Vocational School District
Scioto County Educational Service Center
Northwest Local School District
New Boston Local School District
Minford Local School District
Green Local School District (Franklin Furnace, OH)
Green Local Schools (Green, OH)
Twinsburg City Schools
Portage Area School Consortium
Ashland City Schools
Sebring Local Schools
Maysville Local Schools
Lisbon Schools
Mt. Vernon City Schools
West Muskingum Schools
Whitehall City Schools
Cuyahoga Falls City School District
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Franklin County Board of MR/DD
Oklahoma (4)
Union Public School District
Jackson County Memorial Hospital
Oklahoma County
Metropolitan Library System (serves Oklahoma County)
Pennsylvania (2)
Reading School District
Pennsylvania Faculty Health and Welfare Fund
Tennesee (2)
City of Memphis
Shelby County
Texas (113)
Heart of Texas Memorial Hospital
City of Tulia
City of Lufkin
City of Laredo
City of Port Lavaca
Texas Municipal League Group Benefits Risk Pool (represents 537 political subdivisions)
City of Marshall
City of Waco
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City of El Campo
City of Abilene
City of Greenville
City of North Richland Hills
Burnet County
Pecos County
City of Gardland
City of McAllen
City of Midland
Gaines County
Reeves County Hospital District
Winkler County
Fort Bend County
Ward County
City of Dumas
Webb County
State of Texas (for 2 self-funded plans: HealthSelect and HealthSelect Plus)
City of Lewisville
City of Brenham
Brazoria County
Ector County
Woodville Independent School District (ISD)
Gardland ISD
Gunter ISD
Uvalde Consolidated ISD
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Kingsville ISD
Allen ISD
Spring ISD
Wall ISD
Bowie County Schools
Rice Consolidated ISD
Willis ISD
Columbia-Brazoria ISD
Alvin ISD
Regional III Medical Co-op (represents 6 school districts)
Texas Schools Health Benefits Program
Channelview ISD
Seguin ISD
Alvin ISD
University of Texas
Brazosport ISD
Los Fresnos Consolidated ISD
Point Isabel ISD
Education Service Centers of Texas
La Joya ISD
North East ISD
Dickinson ISD
Duncanville ISD
Livingston ISD
Willis ISD
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Hardin-Jefferson ISD
Hempstead ISD
McAllen ISD
Clear Creek ISD
Greenwood ISD
Houston-Trinity County Co-op (represents 5 school districts)
Pearland ISD
Mexia ISD
Woden ISD
East Chambers County Consolidated ISD
Anahuac ISD
Andrews ISD
Haskell ISD
La Marque ISD
Sulphur Springs ISD
Dumas ISD
Muleshoe ISD
Angleton ISD
Crane ISD
Weatherford ISD
Stanton ISD
Texas City ISD
Lumberton ISD
Wink-Loving County ISD
Tomball ISD
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West Texas School Co-op
Nacogdoches ISD
McCamey ISD
Stamford County Line ISD
Boerne ISD
Ranger ISD
New Deal ISD
Hereford ISD
Winters ISD
Eula ISD
Childress ISD
Farwell ISD
Shallowater ISD
Denver City ISD
Springlake-Earth ISD
Midland County
City of Mesquite
County of Taylor
Brazos County
Mitchell County
Deer Park ISD
Montgomery County
Waskom ISD
Bryan ISD
Hardin County
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Tyler County
Wilbarger County
Kilgore ISD
Williamson County
—————
Sponsors of Self-Funded Nonfederal Governmental Plans That Have Opted-Out of HIPAA
Includes Elections Received Through March 9, 1998
Total States—32; Total Elections—519
* Number in parentheses after name of State denotes number of elections received from that State.
** This is a raw list of elections received by HCFA. Some require clarification or followup with plan sponsors.
Alabama (3)
City of Mobile
Mobile County
University of South Alabama
Alaska (1)
City of Fairbanks
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Arkansas (2)
Arkansas Municipal League (represents 233 political subdivisions)
City of Camden
California (6)
Santa Cruz County Schools
Shasta Public Employees Trust
Monterey County Schools
City of Long Beach
El Dorado County
School Employee Benefits Association
Colorado (12)
Douglas County School District
City of La Junta
Grand County
Weld County School District
Saguache County government
Denver Fire and Police Health Fund
West Metro Fire Protection District (Lakewood)
Tri-County Health Department
City of Lafayette
City of Montrose
Northern Colorado Water Conservancy District
Rio Blanco County
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Connecticut (1)
Newtown Public Schools
Delaware (1)
City of Dover
Florida (4)
Highlands County
City of Port St. Lucie
Orlando Utilities Commission
City of Lakeland
Georgia (3)
Atlanta Regional Commission
Cobb County
City of Savannah
Idaho (2)
City of Weiser
Bannock County
Illinois (75)
City of Canton
County of Henry
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City of Washington
County of Tazewell
Village of Schaumburg
City of DeKalb
Town of Normal
Cedar County
City of Princeton
Central Illinois Educators
Kinnikinnick Community Consolidated School District No. 131
Community Unit School District #205
East Peoria Community High School District #309
East Peoria Elementary School District 86
Rockton School District #140
Collingsville Community Unit School District No. 10
Community Consolidated School District 15
Lyons Township Elementary School District
Glenbard Township High School District No. 87
Olympia Community Unit School District No. 16
Morton Community Unit School District 709
Illinois Valley Central Unit School District No. 321
Canton Union School District No. 66
Community High School District #218
Tremont Community School District #702
Midwest Central Community Unit
Township High School District 214
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Rock Island School District No. 41
Community College District #514
Illini Bluffs Unit School District #327
Lincolnwood School District 74
Granite City Community Unit School District #9
Rosemont Elementary School
Bloomington Public Schools, School District 87
Valley View Community Unit School District No. 365U
Columbiana Village Schools
Fenton Community High School District 100
Rockford Public Schools
Homewood, Illinois School District #153
City of Kewanee
Lansing Elementary School District #158
Boone County
Fulton County
Pecatonica Community School District #321
City of Loves Park
Community Consolidated School District No. 54
Illinois Park Employees (55 park districts)
Mercer County
Geneseo Community Unit School District No. 228
Jasper County
Hinsdale Township High School District No. 86
City of Clinton
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Monmouth Unit School District No. 38
Maine Township High School District No. 207
South Beloit Community Unit School District No. 320
Peoria County
Peoria Park District
Thornton Fractional Township High School District No. 215
Will County
Pekin Community High School
City of Newton
City of Chicago
Lee County
Suburban Bus Division of the Regional Transportation Authority
City of St. Charles
McLean County
Joliet Park District
St. Clair County
Perry Memorial Hospital
City of Bloomington
Chicago Public Schools
Village of Forest View
Bradford Community School District #1
Village of Downers Grove
Belvidere Community Unit School District #100
Indiana (29)
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City of Portland
Wawasee Community School Corp.
Middlebury Community Schools
Knox Community School Corp.
Southern Wells Community Schools
Whitley County Consolidated Schools
Southeastern School Corp.
Adams Central School District
Adams-Wells Special Services
Eastbrook Community Schools Corp.
Mississinewa School District
North Adams Community Schools
Northern Wells Community Schools
Oak Hill United School Corp.Smith-Green Community Schools
South Adams School District
Indiana State University
LaGrange County
Citizens Gas & Coke Utility
Hamilton County
Howard Community Hospital
City of Evansville
Kokomo-Center Township Consolidated School Corp.
City of Martinsville
The County School Corp. of Brown County
City of Muncie (4 plans)
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DeKalb County Central United School District
Iowa (6)
Cedar County
City of Boone
Marion County
Spencer Municipal Hospital
City of Newton
Wayne County Hospital
Kansas (4)
Pratt Community College
City of Emporia
Lyon County
Unified Covernment of Wyandotte County/Kansas City
Louisiana (8)
Lafayette Parish Sheriff's Department
Housing Authority of the City of Lake Charles
Lafayette City-Parish Consolidated government
St. Tammany Parish Police Jury
St. Tammany Parish Sheriff's Office
Lasalle General Hospital
Calcasieu Parish Police Jury
Terrebone Parish Consolidated government
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Maryland (1)
Cecil County
Michigan (10)
Michigan State University
City of East Lansing (4 plans)
City of Sturgis
Clinton County Board of Commissioners
Grand Valley State University
City of Mt. Pleasant
City of Roseville
Mississippi (4)
Rankin County
State Employees/Public School Employees (2 plans)
Singing River Hospital System
Missouri (10)
Department of Transportation and State Highway Patrol
City Utilities of Springfield
Webb City R–VII School District
Mid-America Regional Council Insurance Trust, Inc.
Joplin R–VIII School District
School District of Springfield R–12
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Parkway School District
City of Rolla
City of Springfield
Chillicothe Municipal Utilities
Montana (9)
Big Horn County
Cascade County
Billings Public Schools
Columbia Falls School District #6
Powell County High School
Liberty County
Barrett Memorial Hospital
Fergus County
Big Horn County School District No. 1
Nebraska (1)
Oakland Memorial Hospital
Nevada (3)
City of Sparks
Washoe County School District (2 plans)
New Jersey (11)
Borough of Clayton
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County of Bergen
Atlantic County Utilities Authority
State of New Jersey
Village of Ridgefield Park
Borough of Princeton
Middlesex County Joint Health Insurance Fund
Borough of Montvale
Township of East Brunswick
Township of Hillsborough
City of Hackensack
New Mexico (4)
San Juan County
City of Carlsbad
New Mexico Self Insurers' Fund
City of Farmington
North Carolina (3)
Rowan County
Alamance County
Craven County
Ohio (102)
Village of Valley View
Village of Cuyahoga Heights
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Township of Brookfield
Lorain County
City of North Olmsted
Seneca County Board of Mental Retardation/Developmental Disabilities (MR/DD)
Hardin County Board of MR/DD
Meigs County Board of MR/DD
Ashtabula County Board of MR/DD
Preble County Board of MR/DD
Champaign County Board of MR/DD
Buckeye Valley Local School District
Delaware/Union Educational Service Center
Olentangy Local School District
Pleasant School District
Triad Local School District
Bluffton-Harrison School District
Southeastern Local School District
West Holmes Local School District
Clay Local School District
Bloom-Vernon Local School District
Spencerville Local School District
Shawnee Local School District
Perry Local School District
Lima City School District
Elida Local School District
Delphos City School District
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Bluffton Village School District
Bath Local School District
Apollo Joint Vocational School District
Allen East Local School District
Allen County Educational Service Center
Westerville City School District
Howland Local School District
Carey Village School District
Galion City School District
Ashtabula Area City School District
City of Wadsworth
St. Marys City School District
St. Henry Consolidated Local School District
New Knoxville Local School District
New Bremen Local School District
Minster Local School District
Auglaize County Education Service Center
Celinda City School District
Mercer County Education Service Center
Coldwater Village School District
Fort Recovery Local School District
Waynesfield-Goshen Local School District
Parkway Local School District
Marion Local School District
Buckeye Central Local School District
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Buckeye Valley Local School District
North Union Local Schools
Fairbanks Local Schools
West Liberty Salem Local School District
Colonel Crawford Local School District
Upper Sandusky Village School District
Champaign County Educational Service Center
Upper Valley Joint Vocational School District
Big Walnut Local School District
Wheelersburg Local School District
Washington-Nile Local School District
Valley Local School District
Valley Industrial Trucks, Inc., Auto Mechanics Local 1363
Scioto County Joint Vocational School District
Scioto County Educational Service Center
Northwest Local School District
New Boston Local School District
Minford Local School District
Green Local School District (Franklin Furnace, OH)
Green Local Schools (Green, OH)
Twinsburg City Schools
Portage Area School Consortium
Ashland City Schools
Sebring Local Schools
Maysville Local Schools
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Lisbon Schools
Mt. Vernon City Schools
West Muskingum Schools
Whitehall City Schools
Cuyahoga Falls City School District
Franklin County Board of MR/DD
City of St. Marys
Shawnee State University
City of Lorain
Jackson Township
Northern Buckeye Education Council
City of East Cleveland
Robinson Memorial Hospital
City of Lima
City of Brecksville
Toledo Area Regional Transit Authority
Wayne County
Richland County
Erie County
City of Berea
Worthington City School District
Wooster Community Hospital
City of Shelby
Portage County
City of Canton
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Oklahoma (5)
Union Public School District
Jackson County Memorial Hospital
Oklahoma County
Metropolitan Library System (serves Oklahoma County)
City-County Health Department of Oklahoma County
Pennsylvania (5)
Reading School District
Pennsylvania Faculty Health and Welfare Fund
City of York
Central Bucks School District
Borough of Kutztown
Tennessee (2)
City of Memphis
Shelby County
Texas (172)
Heart of Texas Memorial Hospital
City of Tulia
City of Lufkin
City of Laredo
City of Port Lavaca
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Texas Municipal League Group Benefits Risk Pool (represents 537 political subdivisions)
City of Marshall
City of Waco
City of El Campo
City of Abilene
City of Greenville
City of North Richland Hills
Burnet County
Pecos County
City of Gardland
City of McAllen
City of Midland
Gaines County
Reeves County Hospital District
Winkler County
Fort Bend County
Ward County
City of Dumas
Webb County
State of Texas (for 2 self-funded plans: HealthSelect and HealthSelect Plus)
City of Lewisville
City of Brenham
Brazoria County
Ector County
Woodville Independent School District (ISD)
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Gardland ISD
Gunter ISD
Uvalde Consolidated ISD
Kingsville ISD
Allen ISD
Spring ISD
Wall ISD
Bowie County Schools
Rice Consolidated ISD
Willis ISD
Columbia-Brazoria ISD
Alvin ISD
Regional III Medical Co-op (represents 6 school districts)
Texas Schools Health Benefits Program
Channelview ISD
Seguin ISD
Alvin ISD
University of Texas
Brazosport ISD
Los Fresnos Consolidated ISD
Point Isabel ISD
Education Service Centers of Texas
La Joya ISD
North East ISD
Dickinson ISD
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Duncanville ISD
Livingston ISD
Willis ISD
Hardin-Jefferson ISD
Hempstead ISD
McAllen ISD
Clear Creek ISD
Greenwood ISD
Houston-Trinity County Co-op (represents 5 school districts)
Pearland ISD
Mexia ISD
Woden ISD
East Chambers County Consolidated ISD
Anahuac ISD
Andrews ISD
Haskell ISD
La Marque ISD
Sulphur Springs ISD
Dumas ISD
Muleshoe ISD
Angleton ISD
Crane ISD
Weatherford ISD
Stanton ISD
Texas City ISD
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Lumberton ISD
Wink-Loving County ISD
Tomball ISD
West Texas School Co-op
Nacogdoches ISD
McCamey ISD
Stamford County Line ISD
Boerne ISD
Ranger ISD
New Deal ISD
Hereford ISD
Winters ISD
Eula ISD
Childress ISD
Farwell ISD
Shallowater ISD
Denver City ISD
Springlake-Earth ISD
Midland County
City of Mesquite
Taylor County
Brazos County
Mitchell County
Deer Park ISD
Montgomery County
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Waskom ISD
Bryan ISD
Hardin County
Tyler County
Wilbarger County
Kilgore ISD
Williamson County
Frenship ISD
Texas Educational Benefits Association
Nolan County
Matagorda County
City of Kilgore
Laird Memorial Hospital
Galveston County
Fayette County
Denton County
Cuero Community Hospital
Galveston ISD
Brazos ISD
Pasadena ISD
Brownfield ISD
City of Luling
Harrison County
Plano ISD
Denton ISD
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Jefferson County
City of Rosenberg
City of Bryan
Rusk County
Washington County
City of Carrollton
Victoria ISD
City of Amarillo
City of Victoria
Bexar County Hospital District d/b/a University Health System
Klein ISD
Tom Green County
Friendswood ISD
Rusk ISD
City of San Antonio
City of Colorado City
Citizens Medical Center
Harris County Hospital District
City of Grand Prairie
City of Palestine
Longview ISD
Tarrant County
Hansford County Hospital District
City of Austin
City of El Paso
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Ysleta ISD
West Texas Rural Counties Association (represents 36 counties/municipalities)
Olton ISD
City of Dallas
Graham ISD
Hansford County
Humble ISD
Housing Authority of the City of El Paso
Maverick County Hospital District d/b/a Fort Duncan Medical Center
Hidalgo County
City of Big Spring
Gaines County
Coppell ISD
Ector County ISD
Permian Basin Community Centers
City of Huntsville
Guadalupe Valley Hospital
Washington State (1)
City of Richland
Wisconsin (19)
Dodge County
Wood County
City of Oak Creek
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Door County
State of Wisconsin
Watertown Unified School District
Portage County
Oneida County
Wisconsin Counties Association (represents 22 counties/entities)
City of Green Bay
Waupaca County
Rock County
Douglas County
Milwaukee Public Schools
City of West Allis
Village of Pewaukee
Walworth County
City of Beloit
City of Milwaukee
—————
Mr. STARK. I am going to ask the panel just briefly, in the nineties, the years of boom, it is my understanding the total percentage of Americans with employer provided health insurance has gone down. Is that, as far as any of you know, correct? Ms. Miller, you are nodding your head. Ms. Moore, would you agree?
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Ms. MOORE. Yes.
Mr. STARK. Mr. Iwry, to the extent you know, would you agree or disagree?
Mr. IWRY. We haven't checked the data, but I would defer to my colleagues.
Mr. STARK. Does HIPAA, in any of your opinions, do anything to help keep employers from dropping health insurance or encouraging them to use it?
Ms. MILLER. Well, Congressman, HIPAA was designed specifically for workers who change jobs.
Mr. STARK. The answer is no?
Ms. MILLER. The answer is no.
Mr. STARK. That is what we are getting at. And in the nineties, employers on average have been dropping dependent coverage; is that not correct?
Ms. MILLER. Yes.
Mr. STARK. Ms. Moore.
Ms. MOORE. Yes.
Mr. STARK. Does HIPAA do anything to help with this problem?
Ms. MOORE. No.
Mr. STARK. I notice the witnesses are nodding no. And in the nineties, employers on average have been asking their workers to pay a larger share of the health insurance bill, higher premiums, deductibles, copays, and so forth; is that not correct?
Ms. MOORE. Apparently, yes.
Mr. STARK. Does HIPAA do anything to help with that problem, that any of you know of? Is it not correct, then, that HIPAA requires that people avail themselves and use COBRA benefits, or exhaust those benefits, before they move into HIPAA?
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Ms. MOORE. That is correct.
Mr. STARK. And in general, would it be your understanding that HIPAA policies are more expensive than COBRA policies because they are not grouped? Does anybody know anything different to that?
Ms. MOORE. I don't know that we have data one way or another.
Mr. STARK. All right. And is it not correct that only about 20 percent of the people who are eligible for COBRA benefits avail themselves of the COBRA benefits; is that your understanding as well?
Ms. MOORE. Yes.
Mr. STARK. Can any of you then explain to me, if only 20 percent of the people are availing themselves of a benefit which is less expensive, why do we think that a larger percentage of people are going to avail themselves of a plan that is more expensive? Can any of you answer that question for me?
Are you stating no, Ms. Moore?; Ms. Miller, no?
How about the Treasury? How about using the children's tax credit, could we use that for this?
Well, thank you very much. Thank you, Mr. Chairman.
[The following was subsequently received from Ms. Moore:]
Question. HIPAA requires people to exhaust their group health insurance COBRA benefits before they are eligible for a guaranteed issue, no pre-existing condition individual policy. In general, are HIPAA policies more expensive than COBRA policies because they are not grouped?
Answer. In general, group health insurance policies tend to be less expensive than individual health insurance policies. However, it is too early to have established a ''track record'' from which any generalization could be made that individual health insurance policies under HIPAA are more expensive than COBRA policies. We would note, that in particular cases, COBRA coverage with generous benefit packages and/or low out-of-pocket costs may be more expensive than HIPAA individual policies with a less generous benefit package and/or higher out-of-pocket costs. Moreover, in the absence of benchmarks of comparison, cost differentials which may ultimately exist between COBRA and HIPAA policies are difficult to quantify. This is because it is difficult to make cost comparisons between policies that have different benefit packages, deductibles, copayments and premiums. The cost of coverage is also affected by the extent of each individual State's regulation for mandated benefit packages or rates which may be charged.
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Question. Yet, less than 20 percent of people eligible for COBRA elect coverage, because the costs are so high. Why?
Answer. Frequently, employers pick up 40–50 percent of group health plan premium costs. Larger employers may pay an even greater share of these costs. Under COBRA, an individual is responsible for 102 percent of his full group premium (150 percent in the case of a disabled individual). While cost may be a major factor influencing whether individuals elect COBRA continuation coverage, there may be other factors, as well. For instance, alternative sources of private coverage may be available, such as through unions, associations or a spouse, or if unemployed, an individual may qualify for governmental means-tested assistance programs, such as Medicaid.
—————
Chairman THOMAS. The gentlewoman from Connecticut.
Mrs. JOHNSON of Connecticut. I would like to ask you about the States that have not passed complying legislation. Do you know much about why they have not done that, and how cooperative have they been with you in carrying out your responsibilities to implement the Federal law in their jurisdiction? California particularly has 10 percent of the Nation's individual insurance market, so this would represent a tremendous burden to you.
What has been the rationale in Missouri, Rhode Island, and California for not participating?
Ms. MOORE. I don't know firsthand why those States chose not to participate. I have been told there were differences of opinion among State legislators or perhaps between the legislative and the executive branch that just left them unable to pass legislation that would be acceptable, or pass any legislation at all, actually.
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We have worked very, very cooperatively, and very well, with all of the States. We have not started working with California because we have not been formally notified by California yet of this activity. We have had some telephone conversations with them, but it has only been about a week and a half that we knew we were going to have to take over the work in California, and there is still some confusion as to exactly which parts of the reinforcement we will have to take on, other than the individual market, which we know is for sure.
With regard to Rhode Island and Missouri, which we have some experience with, several months' worth of experience with, we have worked very closely with the State insurance agencies. We have worked with them in getting—having meetings in the States to explain to the issuers and insurers what role we played and how things were going to work. Both Rhode Island and Missouri State officials have gotten out information for us, and so it is a very cooperative relationship so far.
Mrs. JOHNSON of Connecticut. And in your dealings with them, you didn't gain any insight into why they were unable to pass legislation?
Ms. MOORE. I suspect that some of the people in HCFA regional offices who are working closely with them would be able to answer that question, but I personally don't know very much. I was told that in Rhode Island there was a question about whether State resources were adequate to meet the regulatory burden, but I don't know that to be a fact.
Mrs. JOHNSON of Connecticut. What kind of comments are you getting on your proposed regulations to implement the Newborns' and Mothers' Act, and the mental health parity provisions?
Ms. MOORE. We got quite a large number of comments and are sifting through those and analyzing them, and I think there is—I think there is a keen interest, a lot of issues on the part of different groups, to make sure we implement them the way they would like to see them implemented, and we are sorting out those issues at this point. I think with regard to mental health parity, there are probably more issues related to how you come to that 1 percent threshold than anything else.
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Mrs. JOHNSON of Connecticut [presiding]. Thank you.
Mr. Kleczka.
Mr. KLECZKA. Thank you, Madam Chair.
I regret that the insurance commissioner from the State of Wisconsin, the State I represent, won't be with us today. However, in the testimony that she was to present, on behalf of the National Association of Insurance Commissioners, she raises some very disturbing points which I would like to ask the panel before the Subcommittee about. In fact, she indicates there is some very troubling behavior being put forth by the carriers in an attempt to circumvent the law.
Let me ask the panel, have you reviewed the testimony of the insurance commissioner for the State of Wisconsin? Ms. Moore has?
Ms. MOORE. Only in general form.
Mr. IWRY. Not yet.
Mr. KLECZKA. Well, let me just share with you some of her points in the testimony. She indicates some companies have stopped issuing individual policies during the initial HIPAA implementation phase in hopes of forcing other carriers to pick up the eligibles. She indicates other carriers will pay no commissions to agents who sell these types of policies to the individual market, thus eliminating the incentive of agents to sell the products and again circumventing the guarantee requirements of the law.
And last, she indicates large group carriers are delaying the processing of insurance applications so individuals all have a break in coverage of more than 63 days, and then imposing preexisting condition limitations on the entire group.
Are you aware that that is happening across the country in the market?
Ms. MOORE. We have heard anecdotes. I personally have heard anecdotes about the two former practices that you mentioned.
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Mr. KLECZKA. The commissions and the stopping issuing of the individual policies?
Ms. MOORE. We have heard those charges that is part of what I mentioned at the end of my testimony for areas that we are concerned about monitoring.
Mr. KLECZKA. Now, you have heard about them; have you checked them out at all?
Ms. MOORE. For the most part, the States are in the position of doing that first, and we look to the States. And in some States it is against the law to do those kinds of things and in other cases the law may not be clear. We do not have an explicit regulatory provision for reviewing those kinds of things and we are going to continue to monitor them to see if, in fact, they are happening and if it is a widespread problem about which we need to do something.
Mr. KLECZKA. Has Labor or Treasury been aware of any of these incidents?
Ms. MILLER. No, we have had quite a bit of contact with the plan-sponsored community and the range of top issues have not included delaying the processing of applications, and I would like to clarify and reinforce what my colleague said, which is that the frontline responsibility for issuers, in this case, this particular incident, would be the States, under HIPAA's enforcement framework, but we have not heard any feedback about this from the employer community.
Mr. IWRY. Same.
Mr. KLECZKA. OK. It seems the responsibility of you three individuals and the agencies you work with, paraphrasing the point that Mr. Thomas, the Chairman, brought up, is to monitor the intent and make sure the intent of the legislation is achieved. Clearly, these types of abuses go contrary to the intent of the legislation, so I would think there is a role for all three or if not all three, one of you three, to follow up and to look into these types of abuses, and I am going to ask you, since two of the three have not reviewed the testimony, if you would please do so, and then respond back to me and naturally share a copy with the Subcommittee as to what you found out was going on on the streets of America as it relates to this problem. Because I think the longer we let this fester, the more we are going to see the actual intent of the legislation, being not only diminished, but possibly made null and void. This is very serious. This is a very serious set of abuses that she raises on behalf of the insurance commissioners, and I think you, the Federal agency in charge of monitoring the intent, has a responsibility to follow these up and not only monitor them. So I ask you, look at this and possibly get back to me as soon as possible. If corrective legislation action is necessary, I would be willing to go forward on that, but if you are going to have carriers through little shifts of hand here circumvent the law, I think that has to be nipped in the bud before this thing gets too far.
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Ms. Miller.
Ms. MILLER. I want to say I am glad we have heard this at this point, because for the group market, 75 percent of the plans don't end up renewing, actually being subject to HIPAA until January 1, 1998, so this is a very good and an important heads-up for us, and I appreciate the information.
Mr. KLECZKA. You are probably aware of the GAO report that was done at my request on employee retirement health plans, and coverage being diminished for that segment. Well, this is just going to exacerbate that problem, as we all know, so I would appreciate a response.
Ms. MILLER. I appreciate your issue.
[The following was subsequently received:]
| U.S. Department of Labor |
| Assistant Secretary for Pension and Welfare Benefits |
| Washington, DC 20210 |
| November 17, 1997 |
The Honorable Gerald Kleczka
U.S. House of Representatives
Washington, D.C. 20515–4904
Dear Representative Kleczka:
I would like to thank you for giving me the opportunity on September 25, 1997 to testify before Members of the House Ways and Means Health Subcommittee regarding the Department's role in the implementation of the Health Insurance Portability and Accountability Act of 1996 (HIPAA).
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As I stated in my testimony, I believe the Committee's efforts and commitment in overseeing the passage and implementation of this important legislation is an important step in providing American workers and their families adequate security in their health care coverage. I believe that the hearing allowed for an important exchange of ideas regarding issues facing both the Department and the States with regard to the implementation of the portability, access, and renewability provisions under HIPAA.
As you know, the Department enforces HIPAA's requirements against group health plans under the Employee Retirement Income Security Act of 1974 (ERISA). Under HIPAA, the Department may not enforce these requirements against health insurance issuers. Instead, States have primary responsibility to enforce the group and individual market requirements imposed on health insurance issuers. Please be assured that the Department is working diligently to ensure that implementation of the provisions of HIPAA is accomplished as smoothly as possible.
With regard to our implementation efforts, and in response to a question you raised during the hearing, I indicated that the Department would look into an issue raised by Commissioner Kathleen Sebelius of the National Association of Insurance Commissioners (NAIC) during her testimony before the Subcommittee. During her testimony, Commissioner Sebelius mentioned that it had been brought to the attention of the NAIC that certain health insurance issuers may be attempting to circumvent the health insurance protections established for individuals under HIPAA. In particular, Commissioner Sebelius indicated that in one instance a health insurance issuer may have attempted to intentionally delay the processing of an employer's application for group coverage in order to force individuals to experience a significant break in insurance coverage and thereby deny individuals ''credit'' for any prior health insurance coverage.
Subsequent to the hearing, we worked in close coordination with the NAIC to investigate the alleged practice by the health insurance issuer and ensure that workers and their families were not unjustly denied any protections provided under HIPAA. I am happy to report that we have learned that the situation alluded to by Commissioner Sebelius has been successfully resolved by the State Insurance Commissioner responsible for oversight of the health insurance issuer in this particular case. It is our understanding that the alleged practice raised by Commissioner Sebelius was an isolated incident and we are not aware of any other instances where allegations involving such practices have been raised.
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You can be assured that as we go forward in implementing the provisions of HIPAA, as well as other recently enacted health care provisions, the Department will continue to coordinate and maintain a close dialog with all relevant parties in order to anticipate and effectively address issues surrounding the implementation of this important and historic legislation.
Again, I thank you for giving me the opportunity to testify before Members of the Subcommittee. I look forward to continuing to work with you and other Members in the future.
Very truly yours,
| Meredith Miller |
| Deputy Assistant Secretary for Policy |
—————
Mr. KLECZKA. Thank you. Thank you, Madam Chair.
Mrs. JOHNSON of Connecticut. Thank you.
Mr. McCrery.
Mr. MCCRERY. Before I ask a question, I want to respond to some of Mr. Stark's comments.
There are some things that we tried to do in this legislation, to give individuals incentives to purchase insurance to care for their families, medical savings accounts, for example, is in this bill, and we hope that that will provide a vehicle for families to insure themselves at perhaps a little less than they would be accustom to in the individual market, and of course we were thwarted in our attempts to make that as broad as possible, but we hope to continue that fight and make those available to anyone who might want one.
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Also, I think it needs to be pointed out that one of the reasons health insurance costs are so high for individuals is that States continue, and even the Federal Government now is getting into it, to mandate benefits, and the more benefits that are mandated by States to be included in health insurance policies, the higher the cost is going to be. So I just thought I would point out a couple of things in response to Mr. Stark's line of questioning.
Now for the panel, I want to get back to the mental health parity provision because there is some concern over how the exception to the mental health parity requirement will be interpreted. The exception, of course, being if inclusion will cause the cost of the employer's policy to go up more than 1 percent, then the carrier is not required to include the mental health benefits.
And what I would like to know from you all is, Do you plan to allow health plans or employers to present prospective actuarial data to show that the costs would go up more than 1 percent, or will you require them to provide actual retrospective data showing that the cost indeed went up more than 1 percent?
Ms. MOORE. That is the exact question we are focusing on right now. We are looking at the pros and cons of both options and the positive and negative futures of both, because we basically are still doing our analysis and we don't know.
But as you suggest, you can look prospectively, based on projections, to come to that threshold question, or you can look retrospectively based on claims history and we have not decided.
Mr. MCCRERY. Well, if you were to require actual data, retrospective data, what kind of impact would that have on some plans and some employer's ability to provide plans to their employees? Have you thought about that? Is that going to be a part of your calculation?
Ms. MOORE. Oh, of course, absolutely.
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The question also is, If you do it prospectively, is it based on premiums, next year's premiums, in which case it perhaps becomes a shell game? So there are definite problems associated with both prospective and retrospective reviews of this and it is very much still an analytical question. We are still gathering data and analyzing the situation ourselves.
Mr. MCCRERY. When do you anticipate being able to give us some more guidance on this?
Ms. MOORE. We anticipate having a regulation out this fall——
Mr. MCCRERY. I am sorry, what?
Ms. MOORE. This fall, sometime this fall.
Mr. MCCRERY. Sometime this fall?
Ms. MOORE. Yes.
Mr. MCCRERY [presiding]. Thank you. And I am the only one left and I have very little time to get to the floor for a vote so I think we will have to recess until the Chairman returns.
The Subcommittee is in recess.
[Brief recess.]
Chairman THOMAS. The Subcommittee will reconvene.
I thank the members of the last panel and ask Kathleen Sebelius, who is currently the insurance commissioner for the State of Kansas, filling in for my friend, Jo Musser; and Jay Angoff, director of the Missouri Department of Insurance, and if you noticed as you were coming to the table, the bells rang, so I would indicate if you have any written testimony, it will be made a part of the record. You may address us in any way you see fit in the timeframe you have available on your observations of HIPAA to this point, and Ms. Sebelius, if you will begin.
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STATEMENT OF JOSEPHINE W. MUSSER, COMMISSIONER, STATE OF WISCONSIN; AND PRESIDENT, NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS; AS PRESENTED BY KATHLEEN SEBELIUS, INSURANCE COMMISSIONER, STATE OF KANSAS
Ms. SEBELIUS. Thank you, Mr. Chairman. I do apologize for the last minute substitution. I am here pinch-hitting for commissioner Musser from Wisconsin, who, after 4 days of our national meeting here in Washington, is ill. I don't think it has anything to do with the hearing this morning but topics of previous days.
But I am delighted to be here to represent the national association and 42 member States of the Special Committee on Health Insurance. What I am going to try to do is focus on two key areas: First of all, a brief update on what States are doing and have done to implement HIPAA, and, second, to share with you some preliminary ambiguities and concerns that we are beginning to see in the marketplace.
First of all, I think it is important to note that States deserve some real commendation for their efforts to implement HIPAA so rapidly. It has been a complex undertaking, in a very short timeframe, particularly since every State needed to enact legislation simultaneously. The States' record of achievement is pretty remarkable, and the work with State legislators, Governors, and insurance departments has made this all possible.
As of today, 44 States and the District of Columbia have enacted legislation, adopted regulations, or taken action to implement at least some provisions of HIPAA. Of the remaining States, three State legislatures have adjourned 1997 sessions without enacting legislation—Missouri, Rhode Island, and California. In another three States—Wisconsin, Massachusetts, and Kentucky—the States have not enacted legislations but the legislature is still in session.
Jay Angoff, insurance director from Missouri, is here today to explain in detail what is going on in Missouri, so you will be able to hear firsthand about States where a Federal agency is actually overseeing the implementation.
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HIPAA acknowledged that States are the primary regulators of the health insurance market in both group and individual markets, and I just want to briefly summarize the achievements with respect to some of the HIPAA reforms. Our written testimony contains further details about State activities, along with accompanying charts, which Subcommittee Members have an opportunity to review in more detail. While we recognize that the charts are here, we want to caution the Subcommittee that they are somewhat preliminary and we will be revising them as we get additional information.
In the group market, one of the most significant HIPAA provisions requires carriers in the small group market to guarantee issue all products. That is a fairly dramatic step forward for a lot of small businessowners in many of our States, which often had State laws in place for the small group market but only required issuance of a basic and standard policy. So to get to the point where all employers in the small group market have access to all products is a major step forward.
Thirty States have implemented legislation in this recent period to put that provision in place and at least 15 others already had legislation providing that opportunity for small employers. Thirty-eight States recently passed legislation to enact the HIPAA provisions for preexisting condition exclusions. Again, seven States already met or exceeded that requirement.
HIPAA also establishes rules about crediting prior coverage, and 33 States have enacted that legislation. Again, 11 States already had laws in place which exceeded the Federal requirements.
In the individual market, as the Subcommittee is aware, HIPAA gave States a variety of options. Forty-three States currently have implemented HIPAA's availability requirements in the individual market. Of these, 9 have chosen Federal fallback, at least 19 passed legislation dealing with the high-risk pool, and 15 have other alternative mechanisms in place. Many of those 15 had already enacted individual market reform prior to the passage of HIPAA. Of the eight States that have not enacted legislation addressing HIPAA's availability requirements in the individual market, four are still in session and one has been granted until July 1, 1998, to implement the provisions, so we anticipate that most of the States will have this in place.
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Let me just highlight a couple of the ambiguities and omissions in the bill. HIPAA doesn't make it clear whether a group health insurer is required to accept late enrollees. We think that needs to be clarified and have pointed that out in some correspondence with the key agencies. Although HIPAA clearly imposes rules limiting preexisting condition exclusions from coverage, we don't feel the statute is sufficiently clear on whether a group insurer can avoid the rules through benefit design. There is a prohibition in one section of the act but not a clear regulatory framework. Again, we feel this could be solved through regulation.
The key area I wanted to bring to the Subcommittee's attention which does need legislative correction, as far as the NAIC is concerned, is that there is not a Medicare exception to the requirement of individual guaranteed renewability for people over the age of 65. The way the law is written now, what has happened is that a new market has been created for those over 65 to continue on with individual coverage. I am not sure that that is what Congress intended with the passage of HIPAA, but feel that it is of significant concern because if the post-65 population opts to continue their individual coverage, they may well forgo the open enrollment policy for Medigap insurance, and never again be able to purchase a Medigap policy without some kind of preexisting condition being imposed on them, so we would urge that Congress address that.
We also are getting together anecdotes from the market. As the Congressman from Wisconsin mentioned earlier, the testimony has a variety of anecdotal information. I would remind the Subcommittee that the act has only been in effect for 80 days, so in many of our States we are just beginning to see carriers working under the new laws. I think States are gathering this information in order to take appropriate regulatory action, but we wanted to make the Subcommittee aware that there is some troubling behavior in the marketplace, and we are seeing some carriers who seem to be avoiding the individual market that they find less desirable by just ceasing to actively market their products. They haven't withdrawn from the individual marketplace but they are not actively marketing those plans currently. We have heard of incidents in some States where large group carriers are breaking the coverage by delaying applications for over the 63-day period of time, as was already mentioned.
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The abuses do have the potential, I think, to eviscerate the intent of HIPAA and cause chaos in the marketplace and States will continue to collect that information. We do urge that Congress continue to monitor closely the implementation of this act.
A number of these issues, which are specifically addressed in the testimony, can be corrected through regulatory action by the implementing agencies, but the one issue we feel that does need some legislative attention is the issue with the post-65 population in the individual marketplace. We intend to work with you to clarify these ambiguities and to monitor closely the continued implementation of HIPAA in the States.
With that, Mr. Chairman, I would be glad to answer questions, or you might want to hear from my colleague from Missouri about State implementation in a State where the legislature did not pass a framework and then perhaps both of us would be available.
[The prepared statement and attachments follow:]
Statement of Josephine W. Musser, Commissioner, State of Wisconsin; and President, National Association of Insurance Commissioners; as Presented by Kathleen Sebellius, Insurance Commissioner, State of Kansas
Good morning Mr. Chairman and members of the Subcommittee. My name Kathleen Sebellius, Commissioner of Insurance from Kansas, and I am testifying today for Josephine Musser. Josephine is the President of the National Association of Insurance Commissioners (NAIC) and the Chair of the NAIC's Special Committee on Health Insurance (''NAIC Committee''), and she is also the Commissioner of Insurance for the State of Wisconsin.
The NAIC, founded in 1871, is the organization of the chief insurance regulators from the 50 states, the District of Columbia, and four U.S. Territories. The NAIC's objective is service to the public by assisting state insurance regulators in achieving their regulatory objectives. Protection of consumers is the fundamental purpose of insurance regulation.
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The NAIC Committee is composed of 42 of our members and was established as a forum for NAIC members to respond to Congressional and federal requests for technical assistance. Over the past several years, other members of the NAIC and I have testified before this Subcommittee on various legislative proposals of concern to state insurance commissioners.
On behalf of the members of the NAIC, I thank you for the opportunity to address you this morning concerning the implementation of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) (P.L. 104–191). The members of the NAIC have a strong interest in HIPAA because they oversee its implementation at the state level. HIPAA, in recognition of the states' historic role as the primary regulators of the business of insurance under the McCarran-Ferguson Act, provides that states may enforce the Act's group and individual insurance market reform requirements.(see footnote 12) The statute also permits the states to establish or continue health insurance requirements in both markets, to the extent that those requirements are not preempted by HIPAA.(see footnote 13)
My testimony this morning will focus on two areas: (1) an update on the efforts of the states to implement HIPAA; and (2) the issues raised by certain ambiguities in the statutory language. I am happy to report that the states have made significant progress in implementing HIPAA since its enactment on Aug. 21, 1996. I will also discuss instances where the statute's complexity has raised important questions about how to interpret it accurately and implement it effectively.
I. State Implementation Activities
My summary is intended to respond to your request to review the status of the efforts by the states to implement HIPAA's various provisions and is not intended to pass judgment on the activities of any state. But having said that, I think that the information I will present demonstrates a commendable effort by the states to respond rapidly to implement HIPAA. The enactment of state legislation to implement HIPAA has been an enormous and complex undertaking for state legislatures, governors, and insurance departments. I am proud of the record of achievement that I can report to you today.
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Before summarizing the legislative activities of the states, I would like to make a preliminary point about the need for state legislation. Because state insurance commissioners, directors, and superintendents derive their authority from state legislation, and only have authority to enforce state law as set forth in each state's insurance code and related state statutes, each state needed to enact legislation authorizing that state's commissioner to enforce HIPAA and conforming state law to HIPAA as necessary in order to avoid federal preemption. Amending state law proved a complex undertaking in most states, but one which the great majority of states have largely accomplished. Obviously, the legislation adopted by some states will need refinement in the years ahead, especially given the short timeframes imposed by HIPAA, but the states have made an impressive start.
General conclusions
In August 1997, the NAIC surveyed its members to obtain current information about the status of legislation implementing HIPAA in each state and the significant features of that legislation. The survey solicited information about how each state's legislation addressed the significant features of HIPAA: its guaranteed renewability requirements in the large group, small group, and individual markets; its guaranteed issue requirement in the small group market; its guaranteed issue requirement in the individual market, including whether the state had implemented an alternative mechanism; its provisions addressing medical saving accounts; its provisions addressing long-term care insurance policies; its mental health parity provisions; and its mandated maternity benefit provisions.
I am happy to report that, as of today, 45 states and the District of Columbia have enacted legislation, adopted regulations, or taken other administrative action to implement at least some of HIPAA's provisions. Of the remaining five states, one -Massachusetts, has a legislature that will not adjourn until December of 1997, and one—Kentucky, was granted a deadline of July 1, 1998, to implement HIPAA's individual market guaranteed issue requirement because its legislature did not meet in regular session in 1997. In my own state of Wisconsin, the legislature has not yet enacted HIPAA legislation, but the legislature will not adjourn until March of 1998.
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In three states, Missouri, Rhode Island, and California, the state legislatures adjourned their 1997 sessions without enacting legislation to implement HIPAA. Consequently, the federal government will assume the responsibility for enforcing some HIPAA requirements in these three states. My colleague Jay Angoff, the Director of Insurance for the State of Missouri, will explain in detail the situation in his state.
I would like to summarize the states' achievements with respect to some of HIPAA's most important reforms, which are depicted in more detail in the twelve charts attached to this testimony.
Small Group Market
One of HIPAA's most significant provisions requires carriers in the small group market to guarantee issue all their products. Thirty states have enacted legislation to conform to HIPAA, and in fifteen others, the state law already had this requirement.
HIPAA also requires guaranteed renewability in the small group market. Twenty-eight states enacted legislation to ensure guaranteed renewability; eighteen already had this requirement in their law.
With respect to HIPAA's provisions for preexisting condition exclusions, thirty-eight state insurance departments reported that their state had enacted legislation, while seven had laws that already contained adequate provisions. HIPAA establishes portability rules about the crediting of prior coverage. Thirty-three states reported enacting legislation to implement HIPAA, while eleven had law that was already sufficient.
HIPAA establishes a standard ''small group'' size of 2 to 50 for purposes of the guaranteed issue requirement. Thirty states reported that they had amended their law to conform to this group size requirement for the guaranteed issue requirement, but at least two of these states kept their prior definition for rating purposes. Of the remaining twenty-one jurisdictions that did not change their group size, at least fourteen have laws that already define ''small group'' consistently with HIPAA.
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Medical savings accounts: HIPAA establishes a demonstration project for medical savings accounts (MSAs) to be sold in the small group market and to self-employed individuals. The vast majority of state insurance departments (48) reported that the sale of MSAs and an accompanying high deductible health insurance plan is permitted under state law. Only seven of these 48 indicated that state law had to be amended to permit these sales.
Individual Market
HIPAA requires the guaranteed issue of individual products for consumers who meet certain criteria specified in the statute. However, HIPAA allows states to fulfill this requirement by enacting an acceptable alternative mechanism, or by implementing the federal ''fallback'' standards, which permit carriers to limit guaranteed issue to a choice of either the two most popular policies, or to a choice of two ''representative'' policies as defined in the statute.
Forty-three states have enacted legislation or taken administrative action to implement HIPAA's guaranteed issue requirements in the individual market. Nine have chosen to enact and enforce the federal fallback provisions; nineteen are implementing or conforming a high-risk pool; and fifteen have chosen other alternative methods to implement this provision of HIPAA. Of the eight states that have not yet acted with respect to this provision of HIPAA, four have legislatures that are still in session, and one is granted until July 1, 1998, to implement this provision of the statute.
HIPAA also requires that carriers guarantee the renewability of all policies in the individual market, not just those sold to consumers who qualify for guaranteed issue. Twenty-eight states have enacted legislation, while eleven reported that their law already required this.
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Large Group Market
In the large group market, HIPAA established requirements with respect to guaranteed renewability, preexisting condition exclusions, credit for prior creditable coverage, and prohibitions on the use of health status-related factors. Thirty-seven states reported having enacted legislation to implement these provisions of HIPAA; and five reported that their state law already contained similar provisions.
Mental Health Parity: The mental health parity provisions that were adopted after HIPAA's enactment, but that also amended the Public Health Service Act and ERISA, apply only to the large group market. Fifteen states have enacted legislation to implement the mental health parity provisions, while seven reported that their state's law already contained adequate provisions. The technical complexity of the mental health parity provisions, as well as the fact that these provisions were enacted after HIPAA itself and after some states had already drafted legislation for their 1997 sessions, may have prompted numerous states to await further guidance from the federal government.
Mandated maternity benefits: The requirements with respect to maternity benefits that were also adopted subsequent to HIPAA's enactment apply to the large group, small group, and individual markets. Twenty-eight states reported that their state law already contained maternity provisions, and another fifteen enacted legislation to implement these provisions. These numbers indicate that more than half the states had already addressed maternity benefits before the federal government enacted legislation.
Long-term care contracts: HIPAA contains provisions enabling long-term care contracts that meet certain specifications to receive favorable federal income tax treatment. Thirty-six states reported that the sale of qualified contracts was allowed in their state without any amendment to state laws or regulations. Another twelve reported making changes to laws and/or regulations to permit the sale of qualified long-term care policies.
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These numbers indicate that almost all states now allow the sale of long-term care policies that will qualify for the federal tax treatment. However, HIPAA's creation of ''qualified'' long-term care contracts has several unforeseen consequences. First, to qualify for the federal tax treatment, a contract must contain some provisions that are more onerous to consumers than the long-term care contracts whose sale is now common in many states. For example, a contract that is qualified under HIPAA requires a certification that the consumer will need care for at least 90 days. The NAIC's Long-Term Care Model Act contains no such requirement. This provision of HIPAA effectively limits qualified contracts to those that address chronic conditions. There are other health conditions covered by non-qualified long-term care contracts that raise equally legitimate needs for long-term care.
The NAIC's Senior Issues Task Force of its Accident and Health (B) Committee has reviewed HIPAA's provisions in detail and will be addressing possible revisions to both the NAIC's Long-Term Care Model Act and Long-Term Care Regulation. The Task Force has also expressed some concerns to the Internal Revenue Service in response to the interim guidance issued by the IRS in Internal Revenue Service Notice 97–31. We have attached a copy of this letter to our testimony.
We have made every effort to assure the accuracy of these figures. As with any complex legislation, there will be differences of opinion about how to characterize a particular state's law or action. But I think that the numbers speak for themselves and indicate that the states have acted rapidly to implement HIPAA's most important provisions. Moreover, the law in a number of states exceeds HIPAA's requirements for the individual market.
II. Statutory Ambiguities
The NAIC submitted extensive comment letters on the two sets of HIPAA regulations issued on April 8, 1997: the regulations for the individual health insurance market promulgated by the Secretary of the Department of Health and Human Services, Donna Shalala;(see footnote 14) and the regulations issued jointly for the group health insurance market by Secretary Shalala with the Secretary of the Treasury, Robert Rubin and the Secretary of Labor Alexis Herman.(see footnote 15) We have attached our comment letters to this testimony for your review. At this time I would like to commend the extraordinary efforts of the Secretaries and the staff of their respective Departments to issue these regulations in a timely manner. It is a remarkable achievement, especially because of the complexity of the statute and the short timeframes involved.
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Most of the issues raised by the regulations and discussed in our comment letters derive from certain ambiguities in the statute. These ambiguities have critical consequences for consumers and have created some situations where the intent of Congress in enacting the statute has arguably been thwarted. The examples I will discuss fall into two categories: (1) ambiguities in the statute; and (2) omissions in the statute.
Group Health Insurance Market—Treatment of Late Enrollees
HIPAA does not make precisely clear whether a group health plan or health insurance issuer is required to accept late enrollees. It is also ambiguous on the question of the rules that apply to late enrollees if the plan or issuer does accept them.(see footnote 16)
The preamble to the group market regulations issued by the three federal departments contains the statement that ''the issuer is not required to accept late enrollees.''(see footnote 17) The NAIC Committee requested in its comment letter that the agencies reconsider this interpretation, as stated in the preamble, and that they adopt in the modified regulations an interpretation that would require issuers to accept late enrollees.
The NAIC Committee's position, as expressed in its comment letter, is that HIPAA's provisions addressing late enrollees, when read together, assume that a plan or issuer must accept late enrollees, but may impose a longer preexisting condition exclusionary period on late enrollees. We think that this latter interpretation is better public policy than the position stated in the preamble to the regulations. We set forth in our comment letter an analysis of the statute that supports our interpretation.
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Interpreting HIPAA to require plans and issuers to accept late enrollees is consistent with the relevant NAIC model and the laws of numerous states. The NAIC's Small Employer Health Insurance Availability Model Act (Prospective Reinsurance With or Without an Opt-Out) (''Small Group Model'') requires carriers to accept late enrollees, but allows the carrier to impose on late enrollees a preexisting condition exclusionary period of twelve months, as opposed to six months for regular enrollees. (See § 7A(2) of the Small Group Model.) The laws in numerous states also require plans and issuers to accept late enrollees.
Benefit Designs Used as Preexisting Condition Exclusions
HIPAA clearly imposes rules limiting the extent to which group health plans and issuers can exclude from coverage preexisting conditions. However, the statute does not provide guidance on the question of whether a group health plan or issuer is prohibited from designing benefits for a policy in a manner that acts as a preexisting condition exclusion. For example, with respect to pregnancy, some policies exclude any coverage for a set period (e.g., one year), and then phase in coverage (e.g., 50 percent coverage in the second year of the policy, 80 percent coverage in the third year and thereafter). Policies may also, in their benefit design, exclude or limit organ transplants for a specified period of time.
Benefit designs differ from preexisting condition exclusions in that they apply to all insureds, regardless of whether that insured has the illness or condition excluded from the policy. Nevertheless, benefit designs that limit or exclude coverage for certain illnesses or conditions for a specified period of time can effectively operate as preexisting condition exclusions because they will preserve ''job-lock'' in spite of HIPAA's portability provisions. If issuers are allowed to impose blanket exclusions of certain benefits for set time periods and apply these exclusions to all insureds, people suffering from those excluded conditions will not be able to change jobs and maintain adequate coverage, despite HIPAA's rules that limit the use of preexisting condition exclusions and that require credit for prior coverage.
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The NAIC Committee, in its comment letter to the three federal departments, has urged them to make clear in the final rules that benefit designs excluding coverage for specified conditions for a set period are prohibited by HIPAA. Such benefit designs effectively function as preexisting condition exclusions. The NAIC Committee believes that such a regulation is authorized by the statute's clear intent to limit the use of exclusions based on preexisting conditions and by the plain language of PHSA § 2702(a)(2). Without such a regulation to implement the statute, HIPAA's rules limiting the use of preexisting condition exclusions could be severely undermined.
Nondiscrimination Provisions
HIPAA's prohibition of discrimination on the basis of health status-related factors raises some of the statute's most important and potentially complex questions of application.(see footnote 18) The statute provides little guidance, for example, about when individuals are ''similarly situated'' for purposes of premiums or contributions.(see footnote 19) The nondiscrimination provisions also create questions about what benefit designs are legitimate.
The NAIC Committee has requested the federal agencies to provide significant guidance on these issues in their final regulations. We point out in our letter that HIPAA's nondiscrimination provisions are particularly significant in their impact on small groups, where there is great potential for adverse selection and gaming.
Market Withdrawal as An Exception to Guaranteed Renewability
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In both its individual market and group market provisions, HIPAA creates an exception to the guaranteed renewability requirement for issuers that choose to cease offering comprehensive health insurance in the group or individual markets.(see footnote 20) These provisions as drafted leave unclear three important questions: (1) When an issuer withdraws from the market for comprehensive group or comprehensive individual coverage, must the carrier also nonrenew existing business, or does it have the discretion to retain existing business but not write new business? (2) Must the carrier that is ceasing to write comprehensive coverage in those markets also cease to issue all other types of health policies, such as limited benefit policies? and (3) Must the carrier terminate all existing business on one date, or can it terminate on the anniversary date of the respective policies?
Both of our comment letters discuss this issue in more detail. We requested the federal agencies to clarify these three issues, and we suggested certain interpretations that reflect the preference of the states and the reality of the insurance market. The ambiguities in these statutory provisions, and, in particular, their inconsistent use of words, could have profound effects on both the group and individual insurance market and on the ability of the states to regulate those markets.
Multiple Employer Welfare Arrangements (MEWAs)
HIPAA requires health insurance issuers serving the small group market to guarantee issue all their products for that market. But HIPAA does not explicitly set forth how these guaranteed issue rules apply to MEWAs that consist in whole or in part of small employers. This issue is significant because many small companies fund health benefits for their employees by using MEWAs.
The NAIC Committee discussed in detail this and other MEWA issues raised by HIPAA in its comment letter on HIPAA's group market provisions. We think that HIPAA's guaranteed availability rules apply to any MEWA that is fully insured, or that is not itself an employee welfare benefit plan within the meaning of ERISA. With respect to risk-bearing MEWAs that are employee welfare benefit plans,(see footnote 21) we have concluded that, although HIPAA's guaranteed availability rules do not appear to apply to a risk-bearing MEWA that is an employee welfare benefit plan, such MEWAs should remain subject to any applicable state availability requirements because HIPAA does not alter the clear authority to regulate MEWAs that states possess under existing law. We have respectfully requested that the regulations include provisions clarifying both these points.
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Exception to Guaranteed Renewability for Medicare Eligibility
The individual market provisions of HIPAA require that all individual policies be guaranteed renewable unless one of the exceptions explicitly set forth in the statute applies.(see footnote 22) The statute does not contain an exception for cases when the policyholder becomes eligible for Medicare on the basis of age. The statute's failure to include this exception means that carriers must renew to policyholders who also qualify for Medicare.
HIPAA's failure to provide an exception to the guaranteed renewability requirement of the individual market provisions for individuals who become eligible for Medicare on the basis of age will have a very deleterious impact on that market. Premiums in the individual market will increase because some of those who would have switched to Medicare supplement (''Medigap'') policies will remain in the individual market. They will cause the pool in the individual market to become older and sicker, and the cost of individual health insurance will therefore rise.
Moreover, carriers may attempt to reduce the benefit paid under the individual contract by the amount that Medicare will pay. The individual policy will in effect become a Medigap policy when the individual attains age 65, but it will not be one of the standardized Medigap policies established by law. Issuers will have the burden of creating disclosure statements to inform their customers that they in fact do not have a Medigap policy when they renew their individual policies. Medicare beneficiaries will also need to be informed that they may lose the 6-month open enrollment window which they have upon turning age 65 to obtain a guarantee issued Medigap policy if they choose to renew their individual policy instead of purchasing a Medigap policy. Finally, when they enroll in Medicare Part B, these consumers will find that late penalties are added to their Part B premium. If prices in the individual market increase, Medicare beneficiaries may find themselves unable to afford their individual policies, but also unable to purchase a Medigap policy because their poor health makes them uninsurable.
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Even if the carrier does not reduce the benefit under the individual contract by the Medicare amount, the situation is not good. Elderly consumers will once again be at risk of purchasing expensive coverage that duplicates their Medicare benefits.
We believe that HIPAA's failure to contain a Medicare exception to the guaranteed renewability requirement for individual health insurance constitutes a technical drafting error that has very serious policy implications. At present there is no market for individual health insurance coverage for people age 65 and older. HIPAA's omission creates such a market and reverses years of public policy addressing Medigap insurance.
We do not think that Congress intended for HIPAA to create this situation. We have suggested in our comment letter that HHS seek a correction to the legislation to remedy this serious omission in the guaranteed renewability section of HIPAA's individual health insurance provisions. The NAIC's Small Employer and Individual Health Insurance Availability Model Act (§ 6B(1)(a)) and the NAIC's Individual Health Insurance Portability Model Act (§ 6A(3)) each contain model language providing for such an exception to the requirement of guaranteed renewability.
Rating Restrictions in the Individual Market
HIPAA does not explicitly impose restrictions on the premium rates that may be charged individuals who qualify under the statute for guaranteed issue in the individual market. However, states may choose to establish a high risk pool that provides for premium rates and covered benefits that are consistent with the standards contained in the NAIC's Model Health Plan for Uninsurable Individuals Act. Another option for states implementing an alternative mechanism is to adopt either the NAIC's Small Employer and Individual Health Insurance Availability Model Act or the Individual Health Insurance Portability Model Act. Both of these models contain risk spreading mechanisms and rating restrictions to ensure that the rates charged to eligible individuals are controlled. Finally, states adopting any other type of alternative mechanism must ensure that the mechanism ''provide[s] for risk adjustment, risk spreading, or a risk adjustment mechanism'' and meets other criteria.(see footnote 23)
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These provisions suggest that Congress did not intend carriers to classify HIPAA-eligible individuals separately from others in the individual market and charge them higher premiums.
The ambiguity about restrictions on the premiums in the individual market is also contained in the HIPAA provisions containing the federal fallback standards. In states that do not implement an alternative mechanism, HIPAA permits carriers to limit their offerings to HIPAA-eligible individuals to a choice of either the two most popular policy forms or, in the alternative, to two policy forms with representative coverage.(see footnote 24) The statutory language addressing the policy forms having representative coverage explicitly requires them to be covered under a method of ''risk adjustment, risk spreading, or financial subsidization.''(see footnote 25) The language addressing the two most popular policy forms lacks this language, presumably because Congress thought that the two most popular policy forms would always be subject to some method of risk adjustment.(see footnote 26)
This omission has made it extremely difficult for states attempting to implement the federal fallback provisions to prevent carriers from segregating HIPAA-eligible individuals from the rest of the individual market and increasing their premiums based solely on the fact that these individuals are HIPAA-eligibles. It has created the potential for gaming by the industry with respect to the policy forms that they will offer HIPAA-eligibles. We think that HIPAA should be interpreted to prevent carriers from segregating HIPAA-eligibles from other purchasers of individual health insurance, and we would have liked Congress to be more explicit about this intent. Because of the fragility of the individual insurance market, any activities by carriers that fragment the market into two separate pools will make the cost of insurance prohibitive for some individuals and will enable carriers to comply with the law in a technical sense, but avoid having actually to insure HIPAA-eligible individuals.
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The examples I have discussed are intended to respond to this Subcommittee's request for a candid assessment of the strengths and weaknesses of the statute. I would also like to mention the statute's strengths. In our opinion, one of the statute's major strengths is that it accords the states significant flexibility in implementing the guaranteed issue requirement in the individual market. We were also heartened by the statute's clear recognition that the regulation of insurance is and should remain primarily the responsibility of the states. The statute's requirement of the guaranteed issue of all products in the small group market, and its requirement of guaranteed renewability of all products in the small group and individual markets, are consistent with policy positions adopted in the relevant NAIC model acts. The NAIC Committee considers these features to be significant strengths of the legislation.
The ambiguities and omissions that I have discussed are important because of the responses that they have elicited from some insurance carriers. I have already mentioned the serious problem raised by the statute's failure to contain explicit language in the individual market provisions to prevent carriers from segregating HIPAA-eligibles from other individuals for rating purposes. Some state insurance departments report that certain carriers are charging HIPAA eligibles as much as 500 percent of the standard rate to buy one of the most popular forms.
State insurance departments are reporting other troubling behavior by carriers. In the individual market, some companies are choosing to stop issuing individual products during this initial phase of HIPAA implementation. Their hope is that other carriers will have to pick up HIPAA-eligibles, and that they can avoid the law's obligation for now and reenter the individual market later, when there may be fewer HIPAA eligibles who are seeking coverage.
Carriers are also attempting to circumvent the law in other ways. Generally, state law does not specify how agents are paid their commissions by carriers. However, it is common practice in the industry to pay agents a percentage of the premiums for each policy that they sell. The size of the commission generally depends on the size of the group, with the percentage decreasing as the group size increases. Some state insurance departments report hearing of dramatic declines in the percentage that carriers will pay agents who sell policies to very small groups or to HIPAA-eligible individuals. Some carriers have announced that they will pay no commissions at all on policies sold to HIPAA-eligibles in the individual market, or will pay a minimal flat fee, such as $25 per policy. By eviscerating the incentive of agents to sell to these groups and individuals, some carriers are circumventing HIPAA's guaranteed issue requirements. They also create a situation that other carriers may emulate in order to remain competitive.
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Another issue is whether a carrier may impose additional requirements. For example, may a carrier impose an additional waiting period on late enrollees that it does not impose on regular enrollees? May a carrier require an enrollee in a group policy to be ''actively at work'' in order to be covered, and drop coverage if the enrollee is sick or hospitalized?
Finally, some insurance departments suspect that large group carriers are delaying the processing of applications to cause a break in coverage that exceeds 63 days. This break is then used as a pretext to impose preexisting condition exclusions on the entire group.
I would be less than candid if I did not share these examples with this Subcommittee. It is too soon to say how widespread these practices are, and what effect they will have on the individual and small group insurance markets. But clearly these practices have ominous potential to disrupt these fragile markets and to eviscerate the intent of HIPAA. State insurance departments will continue to monitor carrier behavior and to share information about practices like these.
III. Conclusion
The regulation of health insurance is a complex undertaking. The states have invested more than 125 years in regulating all types of insurance. In 1995, this industry wrote nearly three-quarters of a trillion dollars in premiums. State insurance departments employ nearly 10,000 people. The combined budgets of these departments total more than 700 million dollars.
Therefore, despite the commendable features of HIPAA that I have mentioned, the NAIC Committee would respectfully recommend that Congress exercise caution before expanding on HIPAA or enacting other legislation that sets federal minimum standards for health insurance. The timeframes established by the statute, the technical complexity of the subject, and the unique political and legal issues facing the 50 state legislatures have combined to make the implementation of HIPAA a major undertaking. I have discussed examples of statutory provisions where the failure to address an issue or the ambiguity of the terminology can literally have consequences in the millions of dollars. There are others. Moreover, in enacting HIPAA, Congress may not have anticipated that certain states would choose not to implement and enforce its provisions, and would instead place that responsibility in the hands of the federal government. This is now the situation in Missouri, Rhode Island, and California. The federal government has new and significant responsibilities to protect consumers in these states. Fulfilling these responsibilities will require significant federal resources.
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Mr. Chairman, once again, the NAIC Committee and I thank you for the opportunity to testify today. We stand ready to assist Congress and the federal departments to ensure the successful implementation of HIPAA. The states have made a tremendous start on this endeavor. We look forward to working with the 105th Congress on issues relating to HIPAA and health insurance generally. I would be happy to answer any questions that you might have.
In accordance with the ''Truth in Testimony'' Rule within H. Res. 5 (adopted by the U.S. House of Representatives on January 7, 1997), we hereby state that the National Association of Insurance Commissioners (NAIC) (on behalf of whom Commissioner Musser is testifying) received a federal grant in 1995 in the amount of $50,000 from the Department of Commerce, the purpose of which was to educate insurance regulators from the government of Poland.
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Mr. MCCRERY [presiding]. Thank you, Ms. Sebelius.
Unfortunately, we do have another vote on the floor and I am going to recess the Committee until another Majority Member returns to take over the Chair, and I hope that will be in just a couple minutes and then we will hear from Mr. Angoff.
Thank you.
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[Brief recess.]
Mr. MCCRERY [presiding]. The Subcommittee will come to order.
Mr. Angoff, if you would please share with us your verbal testimony. Your written testimony will be admitted to the record without objection.
STATEMENT OF JAY ANGOFF, DIRECTOR, MISSOURI DEPARTMENT OF INSURANCE
Mr. ANGOFF. Thank you very much, Mr. Chairman.
I am Jay Angoff, Missouri insurance commissioner. Missouri was the first State in which the Federal Government is now enforcing the Federal minimum standard in the individual market under HIPAA. I would like to talk about the two big structural changes that HIPAA makes.
First, it changes the rules in the small group market. In the small group market, HIPAA says that insurers must sell all their policies to any small group that applies of any size between 2 and 50 employees. For most States, that is a major improvement. In our State, for example, our law only applies to groups of 3 to 25, and even within that small universe, it only requires that insurers sell two policies to small groups, to groups of 3 to 25. So to have the Federal law superimposed on that is a major step forward for Missouri.
Now there is an interesting aspect to that in that our law for groups of 3 to 25 does establish some rate regulation, and so technically for groups of the State of Missouri now in the small group market is the following: For groups of two, insurers must sell all their policies, there is no rate regulation; for groups of 3 to 25, insurers must sell all their policies. There is rate regulation under Missouri law, which we enforce, for groups of 26 to 50; insurers must sell all policies, there is no rate regulation.
That sounds complicated and convoluted, but as a practical matter it makes very little difference because the rate regulation which we have under Missouri law, although in form seems to impose a great many restrictions, in fact it doesn't. So in the group market, as a practical matter, there is guaranteed issue of all policies between 2 and 50. There really isn't rate regulation and I think that that is a meaningful step forward, particularly in many States, and it definitely is in Missouri.
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What HIPAA does in the individual market is much more complicated. HIPAA basically gives the States three choices. Either the States can enforce a new Federal minimum standard, that is number one; number two, the States can implement one of six so-called acceptable alternative mechanisms, one of which offers less protection than the Federal minimum standard, the others offer more protection; or, third, the State can do nothing, as we did, and allow the Federal Government to enforce this Federal minimum standard.
Now what is this Federal minimum standard? And it is very important because there are right now three States, and there will probably be more, in which the Federal Government is enforcing the Federal minimum standard, and there are about nine States in which the State is enforcing the Federal minimum standard.
OK. What is that standard? Under the Federal minimum standard insurers have three choices. First, they can choose to sell all their policies to all eligible individuals, and I will explain what that means in a second; second, they can choose to sell their two most popular policies to all eligible individuals; third, they can choose to sell their two representative policies to all—they can choose to sell two so-called representative policies to all eligible individuals. Eligible individuals are those who have had at least 18 months of prior coverage, the most recent coverage in a group plan, and who have also exhausted their COBRA coverage.
Interestingly, there are many States, about a dozen States, that before HIPAA was enacted, had gone way beyond HIPAA and had required insurers to sell more policies to more people than just eligible individuals under HIPAA. New York, Maine, Oregon, Washington, New Jersey and Vermont are probably the leaders in that area.
On the other hand, there are a lot of States that didn't go as far as HIPAA and who did not change the rules in their individual insurance market at all, who did not require insurers to sell policies to any individuals and simply relied on a high-risk pool, where the carries were assessed for the difference and usually they would take a tax credit against their assessment. So HIPAA really is a middle ground but it is a funny middle ground because no State was there. It is really sort of polarized in the States; either they have had no reforms or they have had very substantial reforms. So HIPAA is the middle ground but it is an unusual middle ground.
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As I said, we are the first State to allow the Federal Government to come in and enforce the Federal minimum standard. We have had a very, I think, excellent working relationship with HCFA, even before our legislature adjourned on May 6. We got in touch with them, they came out to our State, we have had several meetings in Kansas City, St. Louis, Jefferson City, the capitol, in which we and the HCFA people explained to the industry exactly who would be doing what as far as enforcement is concerned.
To just mention a few details, we handle complaints about HIPAA in the first instance like we handled any other complaint. If we can resolve them easily and quickly, we do that; if not, we refer them to HCFA for enforcement.
The policy approval process. So far we have allowed carriers simply to use a rider that allows them to use their existing policies with this rider, but, ultimately, carriers will have to get approval by HCFA, insofar as HIPAA requires certain provisions in the form, and also by us because we have our own State law that would require certain provisions.
We do market conduct examinations of carriers, and in the context of those market conduct examinations, we would determine whether or not the carriers are complying with HIPAA, and if they were not, we would again refer those violations to the Federal Government.
From a consumer perspective in Missouri, there are several advantages to Federal enforcement over State enforcement, all things being equal. Assuming the same standard is going to be enforced, the same standard is going to be enforced either at the State level or Federal level, there are several advantages to Federal enforcement and they are these:
Number one, Federal penalties are much heavier than are State penalties under Missouri law; number two, the burden that the government has to meet under Missouri law is much heavier than the burden the government has to meet under Federal law. We have the burden under Missouri law, we have to prove almost that the insurer knew it was violating the law; under Federal law, the carrier has the burden. Third, HCFA has much more extensive regulatory authority than we do under State law; and fourth, Federal courts are significantly less likely to issue temporary restraining orders enjoining rules from taking effect. So all things being equal, I think there are several advantages to the Federal enforcement.
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Nevertheless, Mr. Chairman, no matter how many advantages of Federal enforcement there are and no matter how good our relationship is in working with HCFA, HIPAA forces all of us to confront two very significant issues. The first issue is this: To what extent, if any, under HIPAA, is rate regulation or rate limitation allowed? There is a provision in HIPAA which says that nothing in here shall in any way affect the ability of States to set their rates under applicable State law. That seems pretty clear. On the other hand, there is also language in here that says that if a carrier elects to offer two representative policies to HIPAA eligibles, there must be some risk spreading or risk adjustment mechanism that is implemented. So I can argue either side of this issue.
On the one hand, there is language which seems to explicitly prevent rate regulation; on the other hand, there is language which explicitly says there must be some risk spreading or risk adjustment mechanism.
So you go back to the question, what did Congress intend? Obviously, you are more qualified to answer that question than I am. What we see, though, in the marketplace, Mr. Chairman, is that the companies are acting as if there is no rate regulation allowed and so, for example, we get reports of companies charging 500 percent of standard to HIPAA eligibles. The 500 percent, by the way, understates the real rate because the carriers typically rate by age, so an older person would typically pay about four times as much as a younger person. You multiply that out by five and what that means is an older person under HIPAA would pay 20 times what a healthy individual would pay in the regular market. So those are the types of problems we are seeing in the market and, again, there is a tension in the law there.
The second big issue which HIPAA forces us to confront is this: HIPAA applies in the individual market only to a very small universe. It applies only to those people who have had 18 months of prior coverage, their most recent coverage in a group plan, who have exhausted their COBRA coverage.
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By our estimates, in Missouri, about 3,000 people are likely to come in under HIPAA who would not be accepted by carriers under their normal underwriting requirements. To give you some sense as to how much this 3,000 is, under New Jersey's law, which goes much, much further with its community rating and open enrollment for all individuals, about 100,000 people have come in.
That is a very controversial law. The insurance industry opposes it strongly. It is a much more regulatory approach than we typically take in Missouri. The New Jersey approach is much more regulatory than we typically take in Missouri, but it clearly has brought in a lot more people than most laws in other States or laws that only apply to people, to the so-called eligible individuals, which HIPAA applies to.
In conclusion, Mr. Chairman, I think the most insightful analysis of HIPAA you can find is in a recent article in the New England Journal of Medicine, written by Robert Kuttner, it is not his, he attributes it to an unnamed high government official, and the analysis is this: What we get with HIPAA, Mr. Chairman, is all the regulation of significantly expanded coverage but with not a heck of a lot of coverage, and I don't say that in any partisan way or in any anti-Washington way at all, but I think all of us have become so skittish about significantly expanding coverage or having the government have any role that what we have done is try to take these tiny, tiny steps, and they are steps in the right direction, but in taking these tiny steps and in restricting eligibility to such a small class, it is necessary to have layers and layers of regulation. So HCFA has got big volumes of regulations, Treasury does, Labor does, and this is necessary to determine who is eligible and who is not and what is credible coverage, what coverage applies, what coverage can be credited, what can't, and it is just a possibility, Mr. Chairman, that if we had a little more coverage, maybe we would be able to have a little less regulation.
Thank you very much for listening, Mr. Chairman, and Members of the Subcommittee. I would be glad to answer any questions the Subcommittee might have.
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[The prepared statement follows:]
Statement of Jay Angoff, Director, Missouri Department of Insurance
Mr. Chairman and members of the health subcommittee of the House Committee on Ways and Means, I am Jay Angoff, director of the Missouri Department of Insurance. I am pleased to appear here today to discuss early implementation of the Health Insurance Portability and Accountability Act of 1996, also known as HIPAA, and our experience thus far with that law.
Missouri: one of the HCFA-enforcement states
Congress provided the states with six avenues, or ''acceptable alternative mechanisms,'' for complying with and enforcing HIPAA, generally effective July 1, 1997:
• Use of a qualified high-risk pool that met both HIPAA and National Association of Insurance Commissioners (NAIC) standards.
• Enactment of the NAIC Model Portability Act.
• Guaranteed issue of all policies for individuals with prior group coverage.
• Enactment of the NAIC Model Availability Act.
• Creation of a mechanism for financial subsidies to high-risk individuals with prior group coverage.
• Open enrollment—that is, the right to purchase a policy during a given period—from one or more health insurers.
If a state did not select one of those options, the federal government would enforce a new minimum federal standard. Under that standard, insurers must sell—on a guaranteed-issue basis—either all their policies, their two most popular policies or two representative policies to those whom HIPAA defines as ''eligible individuals.'' Under HIPAA, ''eligible individuals'' are those with at least 18 months of prior group coverage, most recently in a group plan, who have exhausted their COBRA coverage.
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Missouri is one of three states—along with Rhode Island and California—in which the federal Health Care Financing Administration is enforcing HIPAA. In Missouri, because no consensus formed on any of the alternative mechanisms allowed for HIPAA compliance, the legislature took no action, requiring the federal government to enforce the federal minimum standard.
The advantages of federal enforcement
From the viewpoint of the consumer, federal enforcement has these advantages:
• HCFA has broader and more flexible authority to issue regulations implementing HIPAA than the Missouri department does under state law.
• HCFA has more meaningful penalties for violations of HIPAA. HCFA can levy a fine of $100 per day per person affected per violation while the Missouri department can only assess a $100 penalty per violation.
• With federal enforcement, the burden of proof for compliance lies with the insurance companies while under Missouri state law, the reverse is true. Moreover, in Missouri, the department must prove that the insurer knowingly violated the statute before a penalty is imposed.
• Obtaining temporary injunctive relief from federal courts, often simply to stall the process, is typically less likely to occur than at the state level.
Working relations with HCFA
In mid-May, we began working closely with HCFA officials in the Baltimore national headquarters and Kansas City regional office to set out the duties of each agency and the logistics for enforcing HIPAA.
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HCFA and the department jointly announced that any insurer offering either its two most popular policies or all its policies to HIPAA eligible individuals is considered in compliance with the law under a rider valid through Dec. 31, 1997. We have worked out procedures for both federal and state approval of all insurance contracts modified for HIPAA. The department and HCFA also held three informational meetings with insurance industry representatives across Missouri in July to help explain the expectations of insurers.
Under the protocols we have developed with HCFA, it and—in cases involving self-insured companies or entities—the Department of Labor retain enforcement powers under HIPAA except where Missouri law already allows the department to act. For example, a small-group contract that violates HIPAA also may violate Missouri's small group law or unfair trade practices act and, in that event, Missouri will take enforcement action.
The Missouri department maintains its fact-finding powers as far as practicable in the cases of consumer complaints that are HIPAA-related and uses its Consumer Hotline and service representatives as the main contact point for consumers. HCFA personnel in Kansas City have a direct modem link to the MDI complaint database that allows both HCFA and our department to track and update HIPAA complaints against a company.
If our Division of Consumer Affairs believes a HIPAA eligible has been wronged but cannot resolve the matter after initial fact-finding, these complaints are forwarded to the federal agency with enforcement authority—either HCFA or, if the complaint concerns a self-insured arrangement, the Department of Labor.
HIPAA does create some enforcement anomalies. Missouri law defines small groups as those between 3 and 25 employees and includes restrictions on how large a rate spread can exist. Those rating restrictions will remain in effect for groups of 3 to 25, and Missouri will enforce those limits. But for groups of 2 or from 26 to 50, no rating restriction will apply under state or federal law.
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The Missouri department also has no authority to regulate self-insured companies or other entities that are exempt from our oversight under the Employees Retirement Income Security Act, or ERISA. While our moral suasion may prove effective in convincing a company or its third-party administrator to reconsider a HIPAA-related decision, enforcement authority is reserved for the Department of Labor.
HIPAA—its successes
Moving to the effect of HIPAA itself, general agreement appears to exist that HIPAA has had at least three positive effects on the insurance marketplace:
• All groups between 2 and 50 employees, regardless of health status, have a right to buy any policy offered by any health insurers or HMOs.
• No person with 12 or more months of prior continuous coverage is subject to a pre-existing condition exclusion when he or she changes coverage.
• All health insurance—individual, small group or large group—is guaranteed renewable.
Those improvements are meaningful.
HIPAA—its shortcomings
On the other hand, HIPAA may not effectively control the use of rates as a barrier to coverage; and it generally does not apply to those who have had individual coverage rather than group coverage or to the uninsured. In Missouri HIPAA is projected to affect only 3,000 individuals through mid-2002.
Interestingly, HIPAA explicitly states that it does not allow rate regulation, but it also explicitly requires the establishment of a risk-spreading or adjustment mechanism in some cases. Arguably, while HIPAA forbids rate regulation, it does contemplate some mechanism that would have the effect of compressing rates.
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However, our early experience in Missouri indicates that insurers do not believe HIPAA limits rates in any way, and they are acting accordingly. For example, in the less than three months that HIPAA has been in effect, our consumer affairs staff has found:
• The third-party administrator for one insurer asserted the right to mark up premiums by 500 percent on any HIPAA eligible. A similar position has been taken by two of Missouri's largest carriers on all guaranteed-issue policies.
• Several insurers are using a large agency that automatically attaches at least a 35 percent increase in HIPAA eligibles' premiums, on top of other surchages.
• Other companies are offering HIPAA eligibles an expensive guaranteed-issue policy, accompanied with the offer of a far-less-costly plan with pre-existing condition exclusions.
• One well-known insurer charges a base premium to HIPAA applicants with a disclaimer that allows substantially higher rates based on later medical underwriting. Even if these rates are not disclosed within 10 days of policy receipt, the contract then is not voidable. The time lost waiting for the actual premium also can consume much of the (maximum) 63 days in which HIPAA eligibles can obtain a guaranteed issue policy. In either event, the strategy discourages any HIPAA eligible from buying a policy from this company.
In addition, one insurer eliminated all coverage for late enrollees for 18 months despite HIPAA's intent while another is dropping coverage for all late enrollees from its contracts.
Finally, in the small group market, we already have received a complaint that one insurer no longer will pay agent commissions for enrolling groups with a rate that is 25 percent greater than the standard premium. This message to agents will have an adverse impact on the enrollment of ''substandard'' small groups by that insurer.
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Conclusion
HCFA and our department have an excellent working relationship, and each of us will continue to use the authority we have under HIPAA to enforce its provisions to the best of our ability.
The reforms HIPAA brings to the small group market are meaningful, and the reforms it brings to the individual market are headed in the right direction.
On the other hand, HIPAA's reforms of the individual market apply to a very small universe, and it does not explicitly limit rates. Congress may wish to address these two areas in the future.
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Mr. MCCRERY. Thank you, Mr. Angoff.
Mrs. Johnson has to leave in just a few minutes to go downtown, I think, so I will give her an opportunity to ask questions first.
Mrs. JOHNSON of Connecticut. Thank you.
I am sorry I missed Ms. Sebelius's testimony but I will look back on that. But to just follow up on your testimony, how does Missouri deal with the problem of uninsured people?
Mr. ANGOFF. The only thing that exists under Missouri law, as in many States, is a high-risk pool, which charges rates that are much higher, higher than standard rates. Even those rates are not sufficient to cover the losses in the pool. The carriers are assessed for the difference between the premiums——
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Mrs. JOHNSON of Connecticut. I am familiar with that mechanism.
Mr. ANGOFF [continuing]. And the losses. And there is a tax credit, a 100 percent tax offset for that difference. So in effect, the taxpayers pay.
Mrs. JOHNSON of Connecticut. The taxpayers fund the high-risk portion?
Mr. ANGOFF. Yes.
Mrs. JOHNSON of Connecticut. And in Missouri, if you changed jobs, and so you have been covered by your current employers and you moved to another job, what are the rules? Are you likely to face exclusion rules with your next employer?
Mr. ANGOFF. Yes, under Missouri law, other than the Federal law, there is no portability.
Mrs. JOHNSON of Connecticut. Under State law?
Mr. ANGOFF. Under State law, there is no portability.
Mrs. JOHNSON of Connecticut. There is no law that says that the employer can't exclude you for preexisting conditions when you have come from a covered plan?
Mr. ANGOFF. That is correct, under Missouri law.
Mrs. JOHNSON of Connecticut. Has there been any discussion of that?
Mr. ANGOFF. Yes.
Mrs. JOHNSON of Connecticut. What is the barrier to passage of that?
Mr. ANGOFF. The same barriers that exist in this body. In my 4 1/2 years as insurance commissioner, I have found health insurance reform to be the most intractable, difficult political issue to deal with.
Mrs. JOHNSON of Connecticut. But it doesn't seem rational that there should be so much trouble with group-to-group movement, because if you are employed, and, furthermore, if somebody else has hired you, you are probably pretty functional, and it seems to me irrational we should be having so much trouble as a society.
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I tend to agree the Kassebaum-Kennedy bill was absolutely a microstep. Why is it so hard for States to just assure seamless movement from covered plan to covered plan when—I just don't see the selection issue.
Mr. ANGOFF. Well, it is a good question and I will give you an honest answer, maybe too honest. The insurance industry will not permit it.
Mrs. JOHNSON of Connecticut. That is right. But I think if everybody had to play by those rules, in the working population, which is in itself a selected population, this is the nut that we have to really crack.
And then the second issue is how do you get individuals into something that is affordable? The high-risk pool of premium alternative isn't affordable. I tell somebody who is unemployed or who has been downsized at 55 and working for a company that is uninsured to go to the high-risk pool and it is a joke, it is half their monthly salary. So this is a problem that we have to find a way to solve.
But your testimony was very interesting to me about what kind of deal this is for States, and as one who in the past has been very impressed with testimony from States and in support of State regulation of insurance, and the advantages thereof, I think this raises a lot of questions about what is the Federal role and can we make the rules clear and not get into this regulating in a way that will be far more powerful than apparently this bill is.
Thank you.
I am sorry that I can't stay but I will catch up from my friend, Jim McCrery, and I hope to get back for the other panels.
Thank you.
Mr. MCCRERY. Thank you, Mrs. Johnson.
Mr. Stark.
Mr. STARK. Thank you, Mr. Chairman, and I want to welcome Ms. Sebelius. My suspicion is that somewhere in her family, the two best jobs in the world that are always suggested are symphony conductors and Members of Congress, and I rather suspect that somewhere behind that name in Kansas, you may have been related to both, and you make a great substitute.
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Mr. Angoff, your testimony was interesting. I think I sent you this agent field bulletin. I don't testify to its authenticity. So many things slide under our doors and over our transoms, I suppose it could be made up, but I don't think what it purports to show is very difficult.
If my colleagues haven't seen it, it is basically a bulletin to agents of an insurance company suggesting that if they write HIPAA policies, they won't get any commission, and they won't be eligible for that trip to California or New Orleans for the jazz festival as their prize for writing this, and it would seem to me that if the agents don't get paid, at least the insurance agents I know, they don't work very hard to sign people up.
I ask, Mr. Chairman, that we put this in the record with a caveat as to my uncertainty as to its authenticity and show it as an example.
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Mr. STARK. But do either of you suspect that there is a concerted effort or, if not, wouldn't it be relatively simple for the insurance companies to avoid writing the policy?
Mr. Angoff, you listed, and I think you did, Ms. Sebelius, I missed your testimony, but a litany of ways slowing down on issuing the policy so that somebody goes beyond the 60 days and a host of ways that you could avoid taking the risks that we hoped would be covered. That is possible, isn't it?
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Mr. ANGOFF. It is possible, but the easiest way—you don't have to go through a whole litany—the easiest way is simply to charge a very, very high rate. If one interprets HIPAA as not restricting rates in any way, then a carrier can charge an impossibly high rate and thereby avoid insuring anyone.
Mr. STARK. I asked earlier about the fact you had to go through your COBRA and only 20 percent of the people who are eligible for COBRA take advantage of that. I postulated that by definition individual policies under HIPAA would be more expensive than COBRA extension costs to the individual. Is that a fair assumption?
Mr. ANGOFF. Yes.
Ms. SEBELIUS. I think it is because the people in the marketplace that we typically would look at, the people who take advantage of COBRA are only those who have some kind of preexisting condition because COBRA by itself is often expensive. If your employer has been paying 80 percent of your policy and you have been paying 20—
Mr. STARK. Do we have any statistics to that? I have seen a lot of examples of people who can't get insurance, they are between jobs, and COBRA is all they have.
Ms. SEBELIUS. In our State, Congressman, individual policies can be some of the cheapest coverage available for pretty good benefits, assuming you are healthy and have no risks.
Mr. STARK. But you don't have a mandatory open enrollment.
Ms. SEBELIUS. We don't.
Mr. STARK. So, if you are healthy.
Ms. SEBELIUS. If you are healthy, you are passing through the system anyway so either HIPAA eligible or conversion folks are people who have met the gate at some point along the way and they are going to get into the individual market through the HIPAA eligibility. If you are healthy and in a good risk, you are not going to need HIPAA in order to move into the individual market. You could be dumped.
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Mr. STARK. In what I referred to as NAIC, but that isn't probably the right acronym for all of you, out of the 50 States, how many insurance commissioners are elected and how many are appointed? Do you know, roughly?
Ms. SEBELIUS. I am one of the 12 elected insurance commissioners in the country.
Mr. STARK. So the other 38 are appointed?
Mr. ANGOFF. I am one of the 38 appointed.
Mr. STARK. Do you both feel secure in your work?
Mr. ANGOFF. Excellent question.
Ms. SEBELIUS. Until 1998, I am secure. I don't know about my colleague.
Mr. STARK. If the Chair will indulge me for a moment, I can't resist, and this may come as news to you, as it did to me, but on the front page of the New York Times this morning, and I think other papers in the country, it suggested that, I think, probably three of the largest HMOs in the country, along with AARP and other consumer interest groups, are urging us to promulgate national Federal standards for managed care plans. Kaiser, HIP, and Puget Sound cite the fact that it is difficult, and I am sure multistate employers would find a variety of regulations making it somewhat difficult.
How do you think the National Association of Insurance Commissioners would react as a policy for your group, if we began to dip our toe into the waters of Federal standards for managed care plans?
Ms. SEBELIUS. Congressman Stark, I have given at least some testimony on that to another congressional Committee within the last 6 months and I do chair the health Committee for the NAIC, and over the course of the last 2 or 3 years NAIC has developed a series of models on managed care issues, network availability, a variety of standards. I think the focus that we have urged Congress to take a look at is to look at the gap right now in ERISA plans, because while many States have implemented managed care guidelines for State-enforced policies, and they are in place, and we would hate to see Congress duplicate that effort or confuse consumers about who to call, what I see on a regular basis are thousands of calls that come to our office for the identical problem, but the caller is in a self-insured plan and has no standard to enforce and has no ability to have anybody respond to that complaint. I think it would be helpful if we used the NAIC models as a starting ground and looked at 40 percent of our health market which right now—
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Mr. STARK. How many States have transferred the model into law?
Ms. SEBELIUS. I can't tell you off the top of my head.
Mr. ANGOFF. We have transferred quite a bit.
Ms. SEBELIUS. We had a patient protection act passed last year.
Mr. STARK. Mr. Pomeroy, I think we went through this some years ago, when we were going to right the Medigap standards, to try and bring some uniformity to that, and Earl, while he was still among you and not among us, testified that—the same thing, he said, Gee, the National Association of Insurance Commissioners does have this plan for uniformity in Medigap policies. At that point I think 12 or 15 States, some small number, had actually reduced it to law. And he thought and he said, Well, if we don't have at least 40 States in the next couple years, then you are right. It was just a couple years later, we came back and only maybe two more States had done it and he endorsed it; he said, OK, we have got the model.
Would you all subscribe to the same thing? I am in no hurry to take on all HMOs in the country, and I do know that many States have got good policies. I agree with you that we have to do something on the ERISA law, but if we don't get it in time in a majority of the States, ought we not be able to put some Federal standards down and say if States want to exceed these or do it themselves, be our guests, but for States who choose not to, there is a standard. Does that make sense?
Mr. ANGOFF. Speaking solely for Missouri, I see nothing wrong with Federal minimum standards. I would say this, though, Mr. Stark. I think there is a difference between the managed care issues where there are disputes between carriers and providers, both of whom are pretty sophisticated and both of whom have a lot of bargaining power on the one hand, and on the other hand the insurance reform issues, where you don't have two equally sophisticated parties, you have the carrier and the consumer. So I think the latter issue is much more—
Mr. STARK. Absolutely. And that is, by the way, what this plan addresses, pretty much standards for consumer or patient protection.
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Thank you for the time, Mr. Chairman.
Mr. MCCRERY. It is a good question.
Ms. Sebelius, just to follow up on that, does the NAIC have a position on further Federal regulation of the private health care market?
Ms. SEBELIUS. Well, I think, Mr. Chairman, we have identified at least one area specifically that we think is important for Congress to address.
Mr. MCCRERY. I mean, outside of corrections to HIPAA, does NAIC favor further additional Federal regulation of the private health care industry?
Ms. SEBELIUS. I would say NAIC favors State regulation of the health care market with the recognition that for most of us, 40 percent of the health care market, is out from under our jurisdiction so it is a bit of a catch-22. I think States have the ability, the expertise, and the framework in place to do an appropriate job with regulatory oversight and consumer protection; we just don't have the jurisdiction.
Mr. MCCRERY. OK. Mr. Angoff, do you anticipate Missouri taking steps in the next year or so to write their own compliance with HIPAA, or do you think Missouri will continue to operate under the Federal enforcement?
Mr. ANGOFF. I think we will continue operating under Federal enforcement for the foreseeable future. I think it is very, very unlikely that the Missouri legislature will pass any legislation in this area.
Mr. MCCRERY. So, generally, do you think it is more advantageous for States to operate under the Federal enforcement? Can you look beyond Missouri and see—give us some guidance on that.
Mr. ANGOFF. Sure. On the one hand, I think it is advantageous for States to have a significantly higher standard than the minimum Federal standards. So I would much prefer Missouri enact one of the acceptable alternative mechanisms that is higher than the Federal standard, such as the NAIC's model availability act, which is one of the specific alternatives that is set out in legislation. So I would prefer a higher standard.
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On the other hand, the Federal standard, the Federal minimum standard, in my view, is better than the subminimum standard, which prevails in about 20 States where there is only a high-risk pool and no guaranteed issue of any kind to any individuals.
All things equal, if we are to have the Federal minimum standard, I would prefer the Federal Government to enforce it because of the advantages under Federal law of greater enforcement authority, a lighter burden for the government, greater regulatory authority, and a lower likelihood of the Federal courts enjoining rules from taking effect.
Mr. MCCRERY. Ms. Sebelius, I want to ask you a question that is derived, actually, from the written testimony, of Ms. Musser, so please tell me if you don't have an opinion on this. But in her written testimony she stated relatively few States have enacted laws to comply with the mental health parity provisions of HIPAA, and I was just wondering if you have any idea as to why States are slow to enact those provisions.
Ms. SEBELIUS. Mr. Chairman, I can't be terribly specific about that comment. I do know in our own State we tried to deal as expediently as possible, given the timeframe, with what we knew we had to have in place this year, and we saw mental health as an issue we could bring to the legislature if changes are needed in our statutory framework when they reconvene in January. So if other States shared our view, it was really an attempt to try and tackle as much as we needed to in the timetable laid out by Congress.
Mr. MCCRERY. So you don't know of anything inherent in the mental health parity provisions that the States are resistant to?
Ms. SEBELIUS. No. I think there is some—I mean, again, I can only speak for Kansas in this instance, but there is a real question in our department about how widespread this application will be, given the fact that a 1-percent benefit differential will alleviate any mandate and there is a great deal of uncertainty. We already have a mental health mandate in place for the fully insured market, which has at least some provisions for mental health coverage.
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What this parity language will mean, insofar as it is alleviated, as soon as you get a 1-percent differential, we are not quite sure how to interpret that until we get some rates in from companies. We are not sure we will have it applicable to anybody, so I think we are trying to analyze right now what effect it will have on the marketplace and feel legislation to enforce it is really premature at this point.
Mr. MCCRERY. Thank you. I thank both of you for your testimony.
And, again, we have a vote on the floor. I am going to recess the Subcommittee but I will excuse this panel with thanks.
Ms. SEBELIUS. Thank you.
Mr. MCCRERY. And ask the next panel, Mr. Gradison, Ms. Lichtman, Ms. Mahoney, and Mr. Knettel to come forward, and I will return as soon as I can.
The Subcommittee is in recess.
[Brief recess.]
Chairman THOMAS. The Subcommittee will reconvene, and the Chair apologizes for the difficulty in getting the testimony in. We appreciate your patience.
This is the last panel, so if we can move expeditiously, it would be helpful.
Joanne Hustead is with the Women's Legal Defense Fund; Anthony Knettel is here for the ERISA Industry; a former colleague, someone who knows something about this, and I wanted to make sure he was listed as president of the Health Insurance Association of America, Bill Gradison; and Diane Mahoney, who is the senior products chair of the National Association of Health Underwriters.
All of you have written testimony that will be made a part of the record, without objection, and why do we not begin with you, Ms. Hustead, and work across the panel, and you can inform us in any way you see fit.
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STATEMENT OF JUDITH L. LICHTMAN, PRESIDENT, WOMEN'S LEGAL DEFENSE FUND; AS PRESENTED BY JOANNE HUSTEAD, DEPUTY DIRECTOR, WOMEN'S HEALTH PROGRAMS, WOMEN'S LEGAL DEFENSE FUND
Ms. HUSTEAD. My name is Joanne Hustead, I am the deputy director for women's health programs at the Women's Legal Defense Fund, and I am here substituting for Judith Lichtman, our president, who very much hoped to testify in person but was unable to remain. I thank the Subcommittee for allowing me to testify in her place.
Chairman THOMAS. Would you convey our apologies to her? As you usually say, difficulties outside of our control created the current situation.
Ms. HUSTEAD. I will do that. Thank you.
The Women's Legal Defense Fund is a national advocacy organization that works to improve the lives of women and their families. We believe that HIPAA is the most important health-related achievement of the 104th Congress and it is especially important for women.
As you know, women are the Nation's primary health consumers, and they make the bulk of health care decisions for their families, from choosing an insurance plan to managing the care of children and elderly relatives. We are proud to have helped shape some of HIPAA's key provisions and to be playing a leading role in educating the public about this new law and how it can help women and their families.
We have already reached out to more than 10 million people through our public education campaign and consumer guide. I brought several copies of the recently printed edition of the guide, and it is my understanding that this will be made part of the record as well. We have also helped organizations that range from the National Multiple Sclerosis Society to cancer support groups in helping them understand how HIPAA works.
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But the need for two things—first, general information about the law, and, two, help for people with very specific problems—is far greater than a group like the Women's Legal Defense Fund alone can meet. I would like to take just a few minutes to describe some of the major areas of confusion that we have encountered in our conversations with consumers, employers, and others.
Some of them are quite basic; for example, which plans are subject to the new law? HIPAA applies to ERISA plans, but most people just do not know whether they are in a plan that is covered by the law or not, and they just do not know how to evaluate its usefulness for them. The situation with respect to State and local plans and church plans is particularly problematic.
When will the law apply to their plan? Because of the staggered effective dates based on when the plan year begins, people need to know a very basic question about when the law will help them, and the staggered effective dates have made it particularly difficult for people trying to plan ahead. It is very difficult when you are in a job interview to find out when the plan year might be starting.
All of the portability rhetoric we heard is quite misleading, and it obscures many of the law's important protections. The emphasis on the concept of portability leads a lot of people to think they can literally take their insurance with them when they go. This confusion obscures the very important ways that HIPAA does help people by prohibiting certain kinds of discrimination, by limiting preexisting condition exclusions, and by giving credit for prior insurance coverage.
In effect, what HIPAA guarantees is continuity of coverage, not actual portability. But too few people understand how the law really works. For example, people need to know that the law helps both people who are changing jobs and those who are getting health insurance for the very first time, and they also need to know that the law prevents plans from charging different premiums to people in the same insured group.
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There are four things that are especially important for women to know. One is that pregnancy can no longer be treated as a preexisting condition. The second is that there are special protections for newborn and newly adopted children. The third is that insurers cannot discriminate against people because of their genetic makeup. In other words, if you are a woman who has tested positive for a breast cancer gene, you cannot be refused coverage and you cannot be treated like you have a preexisting condition just because of your test results. And I would like to thank Congresswoman Johnson in particular for the work she did in this area as HIPAA was moving through. And the fourth provision that is particularly important to women is that you cannot be denied coverage because you are a victim of domestic violence.
Another area where general awareness is far too low is the fact that the law helps people who are already insured and are not changing jobs, but have been denied coverage for a particular health problem.
One final point of concern is how difficult it has been for us to advise people who are making the transition from the group to the individual market. Because of the very different approaches taken in the States and the confusion, all we have been able to do is suggest that people contact their State insurance commissioner.
As I have said, there are two things we recommend: First, the public needs more and better information about the law. This means reaching both consumers at large but also key groups like employers, professional benefits managers, and health care professionals.
Second, people need help with specific questions that they have, and we suggest that some sort of ombudsperson program be created to address what can only be a growing need for direct consumer assistance.
To address these two essential needs, it is imperative that the agencies charged with making HIPAA work be given the resources they need to fulfill their responsibility to the American public.
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In the last section of my comments, I would just like to highlight a couple of ways HIPAA itself should be improved and the unfinished business that remains.
First, with respect to improving the law itself, HIPAA should explicitly prohibit discrimination on the basis of gender, race, national origin, religion, age, sexual orientation, and similar factors.
Consider a 57-year-old woman who is in remission after being treated for breast cancer. HIPAA clearly prohibits plans from denying her insurance because of her history with breast cancer. With that avenue closed, might plans try to deny her insurance on some other grounds? For example, what if a plan just decided not to insure women who were over 55? To close such loopholes, we urge that gender, along with the other factors I mentioned, be added to HIPAA's list of nondiscrimination factors.
A second way HIPAA should be improved is by expanding the limited premium protections it provides. We recommend that all premium differentials, intragroup, and group-to-group, based on health status, be prohibited.
But even with these improvements, HIPAA cannot do it all. There is still some very important unfinished business when it comes to expanding access to health care. Perhaps most importantly, HIPAA does little to address the growing problem of those who have no access to or cannot afford health insurance at all, whether they are uninsured people seeking insurance in the individual market, people who work in jobs that do not offer insurance, or people who leave their jobs but just cannot afford COBRA continuation coverage.
We hope Congress will continue its commitment to improving access to insurance by building on what we hope and expect will be HIPAA's ultimate success as the new children's health insurance program does.
Another limit of HIPAA is that while it takes an essential first step toward eliminating genetic discrimination, it deals with only part of the problem. Other bills pending before this Congress would do more by prohibiting plans from requiring people to disclose genetic information, by providing better premium protection, by protecting people better who are in the individual market, and by protecting people from discrimination in employment because of their genetic makeup.
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Finally, HIPAA does not address the particular problems posed by the managed care revolution. Just because someone has access to insurance, in many cases a managed care plan, there is no guarantee she will get fair treatment or good quality health care. And, again, there are numerous bills pending before this Congress and this Subcommittee that attempt to deal with some of these issues.
We applaud Congress and the President for HIPAA, but much remains to be done, and we look forward to working with this Subcommittee to address all of the issues we have raised here today.
Thank you very much, and I would be happy to answer any questions you may have.
[The prepared statement and attachment follow:]
Statement of Judith L. Lichtman, President, Women's Legal Defense Fund; as Presented by Joanne Hustead, Deputy Director, Women's Health Programs, Women's Legal Defense Fund
Introduction
The Women's Legal Defense Fund (WLDF) would like to thank Chairman Thomas for the opportunity to discuss implementation of the Health Insurance Portability and Accountability Act (Pub. Law 104–191)(HIPAA). Founded in 1971, WLDF is a national advocacy organization that develops and promotes policies to help women achieve equal opportunity, quality health care, and economic security for themselves and their families. The goals of WLDF's health care project are to promote the highest quality care for women and families, and to ensure that women have access to information that helps them make the best decisions for their own and their families' health. WLDF helped shape some key provisions of HIPAA that particularly benefit women, and we have taken a leading role in educating the public about how this new law can help women and families get and keep health insurance.(see footnote 27)
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HIPAA is the most important health-related achievement of the 104th Congress. It is truly an historic piece of legislation that will expand millions of Americans' access to health insurance. Having access to adequate health coverage can dramatically influence fundamental decisions like changing jobs, starting a family, or having genetic tests performed. People need the protections that HIPAA affords—and accurate information about those protections—before they can make these critically important decisions.
HIPAA is particularly important for women, who handle the bulk of health-related responsibilities in their households—from choosing an insurance plan to managing the care of children, elderly relatives, and spouses—and who tend to live longer and use more health services than men. Women are also more likely to be covered by a spouse's plan, and are thus vulnerable to losing or changing insurance through divorce or job loss within the family. Because they are especially vulnerable to the vagaries of our health insurance ''system,'' women can benefit greatly from the new protections HIPAA provides both to those who are changing insurers and who are entering the private insurance market for the first time.
HIPAA has extraordinary potential. However, it is both a very new and a very complex law. Before people can make the best decisions for their own and their families' health and finances, they must both know that the new law exists and have access to clear and accurate information about how it works.
WLDF's Public Education Efforts
Because of HIPAA's significance for women and families and our familiarity with its provisions, WLDF has taken a leading role in educating key audiences about who the law helps and how. Even as the bill was still taking shape, we established its importance for women with a popular fact sheet for policymakers and other advocates. As soon as HIPAA became law, we produced a consumer-friendly guide explaining how the law can help women and families in a variety of situations. Our guide pays particular attention to HIPAA provisions that are especially helpful to women, such as the ban on treating pregnancy as a preexisting condition and protections for newborn and adopted children.
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Aggressive use of the media has helped WLDF reach more than 10 million women with information about HIPAA's existence and potential benefits. From the start, health reporters and editors have been hungry for straightforward ''news-you-can-use'' about the new law, and newspapers and magazines—including eight national women's magazines—across the country have referenced our guide. We have been flooded with orders from women in all 50 states who first learned about the law from us in the Ladies' Home Journal, Working Mother magazine, the Washington Post, or the Oakland Tribune, just to name a few.
In addition to the general public, WLDF has reached out to other audiences with a need for practical information about HIPAA. Joanne L. Hustead, Deputy Director of WLDF's Women's Health program, has addressed or provided information to groups ranging from the National Multiple Sclerosis Society to cancer support groups to the National Institutes of Health, all of them struggling to understand the new law.
The response to our public education efforts has been overwhelmingly positive, but also just plain overwhelming. From our contact with individual women, health professionals, and employers, it is clear that those who most need to know about HIPAA are not getting enough information to make the best decisions for themselves, their families, their patients, or their employees. The need for both general information and for help with specific problems is far greater than a group like WLDF can meet alone. While we will continue to spread the word, it will take increased efforts from all sides—including government, employers, providers, advocates, and the press—to make sure that HIPAA fulfills its potential.
Confusion and Questions About HIPAA
Through our interactions with consumers, health professionals, other advocates, and the media, we have found some very basic and overarching gaps in the public's understanding of HIPAA. Here are some of the most common questions and sources of confusion about the law.
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1. Difficulty figuring out which plans are subject to the law. One of the harder things to explain to people—and one of the most basic questions—is whether it applies at all to the health plan they are in. HIPAA applies to ERISA (Employee Retirement Income Security Act) plans, but people often do not know if they are in an ERISA plan. Not all employment-related plans are ERISA plans, and there is particular confusion about HIPAA's applicability to governmental and church plans. Before figuring out how the law might help them, people need to know whether the plan they are in (or the plan they are thinking of joining) is subject to HIPAA.
2. Confusion over staggered effective dates. Once people find out that their plan is covered by the law, they still need to know exactly when that coverage will begin. The staggered effective dates for the key nondiscrimination and portability provisions in the group market have been quite confusing. As the Subcommittee is well aware, the law takes effect for plan years beginning on or after July 1, 1997. According to the interim regulations published on April 8, 1997, more than half of plans begin their years on January 1. People in those plans will not be protected by HIPAA until January 1998. Indeed, only 24 percent of plans will be subject to the law in 1997, while 69 percent of plans become subject to the law in 1998.(see footnote 28) The staggered effective dates are a particular problem for people now trying to plan ahead: how do you find out in the job application and interview process when the employer's plan year starts, without risking the very sort of discrimination HIPAA (and the ADA) prohibit? Yet, how can you make the best job decision without knowing what the impact will be on your health insurance coverage?
3. The ''take your insurance with you when you go'' rhetoric is misleading. The ''portability'' features of the law are often summarized as allowing you to ''take your insurance with you when you go.'' People often interpret this to mean that they will not have to change insurers if they change jobs, but that interpretation is wrong. Some confuse HIPAA with COBRA, which does allow to you keep the same insurance after leaving a job, but only for a limited time.(see footnote 29) Confusion over the concept of portability ends up obscuring how HIPAA does work. By limiting pre-existing condition exclusions, giving credit for prior insurance coverage, and prohibiting certain kinds of insurance discrimination, HIPAA guarantees continuity of coverage rather than actual portability.
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4. Nondiscrimination provision has too low a profile. Because of the rhetorical emphasis on portability, one of HIPAA's most significant provisions gets far less attention than it merits. HIPAA prohibits discrimination on the basis of health status, medical condition (including both physical and mental illness), claims experience, receipt of health care, medical history, genetic information, evidence of insurability (including conditions arising out of acts of domestic violence), or disability. This provision is critically important, yet there seems to be little awareness that it exists. People who have heard of HIPAA tend to think it helps you when you change jobs, but the nondiscrimination provision helps both those changing jobs and those seeking insurance for the first time. Many also do not realize that HIPAA generally prohibits plans from charging different premiums to people within the same group. For example, a plan could not charge someone who had a heart attack two years ago more than someone without such a history in the same insured group.
5. Elements of the nondiscrimination provision with particular significance for women are often missed. WLDF worked extensively on two specific features of HIPAA's nondiscrimination provision: the ban on genetic discrimination and the protection for victims of domestic violence. These bans are especially important for women. We have made special efforts to educate the media about the genetic information protections, but it has been an uphill battle. Women are increasingly the subjects of new genetic research and tests—from prenatal testing to the search for breast cancer genes. HIPAA offers the very first federal protection against genetic discrimination. For example, if you test positive for the BRCA–2 gene, you cannot be denied insurance or treated like you have a ''preexisting condition'' solely because of your genetic profile. Many women learn about the latest health developments from the media, but press coverage of genetics has just begun to take note of the potential insurance risks and the protection that HIPAA can provide.
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6. No knowledge that the law helps people who are currently insured and not changing jobs or health plans. Again, because of the focus on portability, there is virtually no awareness that the law helps people who already have insurance and are not changing jobs or insurance, but who have been denied coverage for a particular health condition. The new law helps such people in a variety of ways: 1) by prohibiting a plan from continuing to impose a preexisting condition exclusion if the individual has been enrolled in the plan for 12 months at the time the law takes effect as to that plan; 2) by requiring the plan to give credit for prior coverage if the individual has been enrolled in the plan for less than 12 months at the time the law takes effect as to that plan; and 3) by defining the term ''preexisting condition'' narrowly, thereby making plans reassess the continued imposition of any preexisting condition ban they are imposing at the time the law takes effect as to that plan. Because there is so little understanding about these aspects of the law, WLDF recently added a new section to our guide to address just these points.
7. It is difficult to assist people entering the individual insurance market. We have found it virtually impossible to provide helpful information to people making the transition from group to individual coverage because of the different approaches taken in each state. As the members of this Subcommittee know, the group-to-individual-market portability provisions only apply in states that have not adopted some alternative mechanism to improve access to the individual market. Nearly all of the states intend to implement state-adopted mechanisms, in which case the protections of the federal law will not apply. And since states have until January 1, 1998 (or, in some cases, July 1, 1998) to implement these mechanisms, we know very little about whether or how HIPAA is helping people in the individual market. All we can do is suggest callers contact their state insurance commissioner.
The Need for Broad-Based Public Education and Targeted Consumer Assistance
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WLDF is proud to be helping women learn about HIPAA, but we know that we cannot do it alone. We frequently get calls from women who have WLDF's guide, but who say their employer does not know anything at all about the law. They have been able to take our guide into their employer's office and educate him or her about its basic provisions. Many of these women are in relatively straightforward situations. For instance: they are pregnant; they or their husbands have recently changed jobs; their health insurance plan has refused to cover the pregnancy on the basis that it is a preexisting condition; and they want to know if (and how) the new law helps them. Others—including employers—call us with detailed questions that require extensive technical assistance and knowledge not only of HIPAA, but also of ERISA and other complex laws. These callers, and potentially millions of others, need more and better information to help prevent misunderstandings of the law, and they need someplace to go for help when problems do arise.
The Department of Labor's Pension and Welfare Benefits Administration (PWBA) has gotten off to a good start with a useful HIPAA publication (in ''Q&A'' format) available through a toll-free number and on its Internet web site. We also understand that PWBA has consumer service representatives in each regional office prepared to answer HIPAA questions and is conducting trainings geared towards professional benefits managers, employers, and consultants. We hope that PWBA and other agencies involved with HIPAA compliance will have the resources to build on these preliminary public education strategies. It will clearly take increased efforts from all sides—including advocates like WLDF, government, employers, the insurance industry, and the press to meet the growing need for information.
Getting the word out to everyone who needs to know about HIPAA requires a major, multifaceted campaign. In addition to informing the general public, we must address the information needs of specific groups, such as:
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• employers and employer associations that sponsor health plans subject to the law;
• professional benefits managers and consultants;
• health plans/insurance companies and the associations that represent them;
• health care professionals and the associations that represent them.
Educating these and other key audiences is essential, but even that is not enough. Individual consumers need an effective ombudsperson program to answer their particular questions. We recommend an assessment to determine the best place to locate such a program. In our guide, we refer people with questions about employment-based insurance to the Division of Technical Assistance and Inquiries of the PWBA, or to the local PWBA office nearest them. We urge that until an ombudsperson program is established, PWBA have the resources necessary to assist those with fact-intensive questions about the law. We look forward to working with PWBA and others to make sure that HIPAA consumer response mechanisms meet the needs of women and their families.
Suggested Improvements to HIPAA
In addition to expanded public education on the law as it stands, we believe that women and families will be best served if HIPAA is improved in two specific ways.
1. Prohibiting discrimination on the basis of gender and other factors. HIPAA's nondiscrimination provision lists numerous health status-related factors that cannot be used as bases for discrimination in health care coverage. While we are pleased with the breadth of this list, we are nonetheless concerned by the failure of the statute to explicitly ban discrimination on the basis of gender, race, national origin, religion, age, and sexual orientation.
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To illustrate our concern, consider a 57-year-old woman who is in remission after being treated for breast cancer. HIPAA clearly prohibits a plan from denying this woman insurance because of her history of breast cancer. With that avenue closed, might a plan try to deny her insurance on some other grounds—like the fact that she is a 57-year-old woman? What if she personally had not had breast cancer, but the plan concludes that 57-year-old women are just too risky to insure? To the extent that her denial of coverage can be proved to be based on a health status-related factor—such as history of breast cancer—it would be banned by HIPAA. But the consumer would bear the often difficult burden of showing that the denial really was based on a health status-related factor and thus in violation of HIPAA. HIPAA, in its current form, would not protect against discrimination based on gender or age (or the other factors listed above) where the plan's action (denial of insurance or charging higher premiums) cannot be shown to be linked to, or a pretext for, a health status-related factor.(see footnote 30) For these reasons, we urge the addition of gender and the other factors noted above to the list of nondiscrimination factors.
2. Expanding the limited premium protection afforded by HIPAA. As discussed above, HIPAA prohibits plans from charging one person in a group more than any other person in the group on the basis of health status. It does not prohibit a plan from charging one entire group more than another group on the basis of health status. That means that two identical employers could be charged wildly different group premiums because their employees have different health histories. We believe that all premium differentials (intra-group and group-to-group) based on health status should be prohibited. This prohibition, when combined with the expanded discrimination ban described above, would also prevent plans from charging one group comprised predominantly of older women more than another group comprised predominantly of young men.
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HIPAA Should Serve as a Model for Other Laws
In the recently enacted Balanced Budget Act (Pub. Law 105–33), signed by President Clinton on August 5, 1997, the Medicare section of the law explicitly bans discrimination on the basis of the health status-related factors spelled out in HIPAA.(see footnote 31) But in the Medicaid section of the law, there is only a ban on discrimination on the basis of ''health status or requirements for health care services.''(see footnote 32) At the very least, the Medicaid section of the law also should explicitly incorporate each of the HIPAA nondiscrimination factors.
Unfinished Business
Although the potential of HIPAA to help millions of people is real, the law has significant limitations. It basically helps people with access to ERISA group plans. It does little to address the growing problem of the uninsured, those who have no access to, or cannot afford, health insurance at all. Specifically, it does not help uninsured people seeking insurance in the individual market. It does not help people who work in jobs that do not provide health insurance and, if married, have spouses who also lack access to the group market. It does not help people who leave their jobs but are unable to afford continuation coverage under COBRA—the very coverage that would allow them to benefit to the maximum extent from HIPAA's portability provisions.
In addition, it does not fully address the problem of discrimination on the basis of genetic information. Other bills pending before this Congress would do more—by prohibiting plans from requiring people to disclose genetic information, by providing better protection against being charged higher premiums, and by protecting people seeking insurance in the individual market.(see footnote 33) HIPAA also does not address the particular problems posed by the managed care ''revolution.'' Just because someone has access to insurance does not ensure fair treatment or quality health care. Others bills pending before this Congress attempt to deal with some of those issues.(see footnote 34)
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While we applaud Congress and the President for HIPAA, there is much that remains to be done. We look forward to working with this Subcommittee to address these issues.
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WLDF's Guide to HIPAA—What the New Health Insurance Reform Law Means for Women and Their Families
Introduction
Millions of Americans have medical histories or preexisting conditions that make it difficult to get comprehensive insurance coverage. Forty million have no health insurance at all. Many who now have insurance are effectively ''locked'' in their jobs, afraid that changing jobs would put their own and their family's coverage at risk. And small businesses, which employ nearly half of working Americans, often have trouble getting group insurance policies when even one employee has a medical problem.
The Health Insurance Portability and Accountability Act (Pub.L. 104–191) has the potential to help millions of women and their families by making it easier to get and keep comprehensive health insurance. The law is often referred to as ''HIPAA'' or the ''Kennedy/Kassebaum'' law after its lead co-sponsors, Senators Nancy Landon Kassebaum (R–KS) and Edward Kennedy (D–MA). Passed by Congress and signed by President Clinton in August 1996, the law's key provisions began to take effect on July 1, 1997.
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This new law will primarily help people who have access to group insurance coverage through employers or unions. Nearly 90 percent of people who have private insurance get it through an employer or union. The law's group market reforms apply not only to traditional insurance companies, but also to health plans operated by employers who self-insure. Since plans operated by self-insured employers are beyond the reach of state insurance laws, federal regulation in this area is particularly critical and overdue. In addition, there are some provisions that have the potential to help people who leave a group plan and seek individual policies for themselves or their families.
In general, this law will make it possible for people to get coverage even when they have past or present medical problems. And it will help people maintain the coverage they need when they change insurance or jobs. It also will make insurance more accessible for those who work in small businesses.
What follows are specific examples of how this law will make a difference in the lives of women and their families:
1. This law will help uninsured women who start a new job with an employer who provides health insurance.
It will mean that an uninsured woman applying for group medical insurance:
• will not be refused coverage (for herself or her family)—or charged a higher premium than others in the group—because of past or present medical problems.1 For example, she cannot be refused coverage if she has a condition such as heart disease or lupus. She also cannot be refused coverage because she has a family history of breast cancer or has tested positive for the breast cancer gene.
• will not be discriminated against because she is a victim of domestic violence.
• will not be denied coverage for a preexisting condition 2 for more than twelve months (as long as benefits for that condition are otherwise available under the plan). This includes preexisting conditions caused by domestic violence.
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• will not be denied coverage for pregnancy-related care just because she is pregnant when she enrolls.
• will not be denied coverage for a newborn or newly adopted child's medical problem—as long as she signs the child up for health insurance within 30 days of birth or adoption (and benefits for the medical problem are otherwise available under the plan).
• will get coverage for children she already has at the time she enrolls—with no preexisting conditions excluded—if those children have had Medicaid or other forms of insurance for the last 12 months. (Children under 12 months of age—or newly adopted children—-get this protection if their insurance coverage began within 30 days of birth or adoption and has been continuous since then.)
2. This law will help women and their families when they change from one health insurance plan to new group coverage.
It will ensure that a woman changing from one health insurance plan to new group coverage:
• will not be refused coverage for herself or her family—or charged a higher premium than others in the group—because of past or present medical problems.
• will not be denied coverage for a preexisting condition if she (or the relevant family member) has been insured continuously for the past 12 months (as long as benefits for that condition are otherwise available under the plan).3 This prior insurance can be with another group plan, an individual plan, or a publicly provided plan like Medicaid. If the family has had insurance for less than 12 months before changing plans, preexisting conditions can be excluded for up to a maximum of 12 months, with ''credit'' for the period of prior coverage. These are the ''portability'' features of the law.4
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Example: A woman works at a job with health insurance for ten months. She then changes to a new job that also offers health insurance. She was treated for breast cancer five months before changing jobs. In her new job, she cannot be refused group medical insurance even though she has had breast cancer. Her breast cancer medical expenses cannot be excluded for more than two months because she had continuous health insurance for ten months in her prior job. (If she had not been previously insured, her new employer's insurance company could have denied coverage for her breast cancer expenses for the full 12 months.)
• will not be denied coverage for pregnancy-related care just because she is pregnant when she enrolls in the new plan—regardless of how long she was covered under a prior plan.
• will not be denied coverage for a newborn or newly adopted child's medical problem—as long as she signs the child up for health insurance within 30 days of birth or adoption (and benefits for the medical problem are otherwise available under the plan).
3. This law will help current, insured employees (and their dependents) who are subject to a preexisting condition exclusion when the law takes effect as to their plan.5
This law will benefit current, insured employees (and their dependents) in a number of ways by:
• prohibiting a plan from continuing to impose a preexisting condition exclusion if the individual has been enrolled in the plan for 12 months by the time the law takes effect as to that plan.
• requiring the plan to give ''credit'' for prior coverage if the individual has been enrolled in the plan for less than 12 months.
• defining the term ''preexisting condition'' narrowly: only conditions for which advice, diagnosis, care, or treatment was recommended or received during the 6-month period before the individual enrolled in the plan can be excluded as preexisting conditions.
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Example: A woman has been enrolled in her employer's health plan for 10 months as of January 1, 1998, when the law takes effect as to her plan. The plan has been refusing to cover ongoing expenses related to a back condition because she had injured her back 3 years before joining this plan, and the plan considered her back condition a preexisting condition. She did not receive advice, diagnosis, care, or treatment for her back condition in the 6-month period before joining this plan. As of January 1, 1998, the plan can no longer refuse to cover expenses related to her back condition because it does not fit the narrow definition of what can constitute a preexisting condition. (In addition, the plan could only refuse to cover other legitimate preexisting conditions for 2 more months.)
4. This law will help women who run or work in small businesses, which often have difficulty obtaining insurance, especially if one employee has medical problems. It will also help women who are self-employed.
It will help women in small businesses or who are self-employed by:
• giving ''small'' businesses (those with between two and 50 employees) guaranteed access to insurance coverage and guaranteed renewability of insurance plans.
• prohibiting insurance companies from denying coverage to a small business due to any employee's (or dependent's) past or present medical problems.6 This law does not prohibit insurance companies from charging the entire group more than another group because of past or present medical problems. Therefore, while coverage may theoretically be ''available,'' it may still be too expensive.
• phasing in a health insurance tax deduction for the self-employed. People who are self-employed and pay for their own insurance will be able to deduct 40 percent of the cost of their premiums in 1997. The deduction will increase periodically, reaching 100 percent in 2007.7
5. This law will help women who lose their jobs and can afford to continue their group coverage under COBRA.
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It will ensure that a woman who continues group coverage under COBRA: 8
• can get immediate coverage for a newborn or adopted child under her COBRA policy without waiting for the group's open enrollment period.
• will be able to extend COBRA coverage an additional eleven months (beyond 18 months) if she or a family member becomes disabled during the first 60 days of COBRA coverage.
6. This law will benefit some women who leave the group market to start their own businesses or take a new job (including a part-time one) with more flexible hours but fewer benefits.
It will allow a woman leaving the group market and seeking individual coverage: 9
• to qualify for coverage in the individual market regardless of past or present medical problems under limited circumstances.10 Unfortunately, these changes in the law will only help those who have had prior coverage for 18 months (most recently with a group health plan, governmental plan, or church plan) and can afford to maintain any COBRA coverage available to them for another 18 to 36 months.11
These and other conditions in the new law will be difficult for many women to satisfy. But those who can will have an easier time qualifying for individual insurance.12
It will not, however, ensure that individual coverage is affordable:
• In a major shortcoming, this law does not prevent plans from taking the person's medical situation into consideration when setting premiums.13 Therefore, while coverage may theoretically be ''available,'' many may find that it is just too expensive.
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7. This law will create new tax incentives relating to health insurance and medical costs.
Some of the new tax-related features of this law include:
• a 4-year, enrollment-limited ''demonstration project'' for medical savings accounts (MSAs) that will allow up to 750,000 people/year to obtain tax-advantaged MSAs linked to high-deductible insurance policies. Only those who work in small businesses and the self-employed are eligible to participate.14
• favorable tax treatment for some long-term care expenses not covered by insurance, and for long-term care insurance premiums.
• penalty-free withdrawals from Individual Retirement Accounts (IRAs) to cover high medical bills.
• penalty-free withdrawals from IRAs to cover health insurance premiums for people who receive unemployment compensation for at least 12 weeks and for some self-employed people.
Unfinished Business
This law is an important breakthrough for women and families. But it has significant limitations, and many women will not benefit from it. There are also concerns that the new data collection and transfer provisions in this law could impair confidentiality of people's medical records.
8. In general, the law's key features will not help:
• uninsured women applying for coverage in the individual market.
• women who work in jobs that do not provide health insurance (whether they work full-time, part-time, seasonally or erratically) and, if married, have spouses who also lack access to group insurance.
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• women who leave their employer and the group insurance market but are unable to afford continuation coverage under COBRA.
Additional Resources
If you are enrolled in an employment-based insurance plan (through your employer or a union) and have specific questions about your rights under the new law, contact the national office of the Pension and Welfare Benefits Administration (PWBA), U.S. Department of Labor, or the nearest regional office. (Addresses and phone numbers are listed on page 9). If you do not have employment-based insurance and have questions about the law, contact your State insurance department.
A booklet explaining the new rules, entitled Questions and Answers: Recent Changes in Health Care Law, is available at the Department of Labor's Internet web site at http://www.dol.gov/dol/pwba, or by calling the Department's toll-free Brochure Hotline at 1–800–998–7542. This PWBA publication also includes information on The Newborns' and Mothers' Health Protection Act of 1996 and The Mental Health Parity Act of 1996, which were passed by Congress and signed into law after HIPAA.
If you do not have employment-based insurance and have questions about the law, contact your State insurance department.
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National PWBA Office, The Division of Technical Assistance & Inquiries, Pension and Welfare Benefits Administration
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U.S. Department of Labor
200 Constitution Avenue, N.W., Room N–5625
Washington, DC 20210
202–219–8776
Regional PWBA Offices
Atlanta Regional Office
61 Forsyth St., S.W., Suite #7B54
Atlanta, GA 30303
Phone: 404–562–2156
Boston Regional Office
One Bowdoin Square, 7th Floor
Boston, MA 02114
Phone: 617–424–4950
Chicago Regional Office
200 West Adams Street, Suite #1600
Chicago, IL 60606
Phone: 312–353–0900
Cincinnati Regional Office
1885 Dixie Highway, Suite 210
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Ft. Wright, KY 41011
Phone: 606–578–4680
Dallas Regional Office
525 Griffin Street, Room #707
Dallas, TX 75202
Phone: 214–767–6831
Detroit District Office
211 West Fort Street, Suite 1310
Detroit, MI 48226
Phone: 313–226–7450
Kansas City Regional Office
City Center Square
1100 Main, Suite 1200
Kansas City, MO 64105
Phone: 816–426–5131
Los Angeles Regional Office
790 E. Colorado Blvd., Suite #514
Pasadena, CA 91101
Phone: 818–583–7862
Miami District Office
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111 NW 183rd St., Suite #504
Miami, FL 33169
Phone: 305–651–6464
New York Regional Office
1633 Broadway, Room #226
New York, NY 10019
Phone: 212–399–5191
Philadelphia Regional Office
Gateway Building
3535 Market Street, Room M300
Philadelphia, PA 19104
Phone: 215–596–1134
St. Louis District Office
815 Olive Street, Room #338
St. Louis, MO 63101
Phone: 314–539–2691
San Francisco Regional Office
71 Stevenson St., Suite #915
P.O. Box 190250
San Francisco, CA 94119
Phone: 415–975–4600
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Seattle District Office
1111 Third Avenue, Suite #860
MIDCOM Tower
Seattle, WA 98101
Phone: 206–553–4244
Washington D.C. District Office
1730 K Street, NW, Suite #556
Washington, DC 20006
Phone: 202–254–7013
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Endnotes
(1) The law prohibits plans from taking into consideration an individual's health status, medical condition (including both physical and mental illness), claims experience, receipt of health care, medical history, genetic information, evidence of insurability (including conditions arising out of acts of domestic violence), or disability in determining eligibility for coverage or in setting premiums. While the law does not regulate how much insurance companies can charge the group as a whole, it does prevent group plans from differentiating between ''similarly situated'' enrollees within a group on the basis of these factors in setting premiums.
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(2) The law defines a preexisting condition as ''a condition (whether physical or mental), regardless of the cause of the condition, for which medical advice, diagnosis, care, or treatment was recommended or received during the 6-month period ending on the enrollment date.'' For people who enroll late in the plan, the maximum exclusion for a preexisting condition is 18 months. The law states explicitly that genetic information shall not be considered a preexisting condition.
(3) Children under 12 months of age—or newly adopted children—will receive the same protection if coverage began within 30 days of birth or adoption and has been continuous since then.
(4) The law gives health plans the option of refusing to give complete ''credit'' for prior coverage that was less comprehensive than the new coverage being sought. Regulations published on April 8, 1997, state that plans can impose separate preexisting condition exclusions for five types of services (mental health services, substance abuse treatment, prescription drugs, dental care, and vision care) if the prior plan did not cover those services. How much of a barrier to comprehensive coverage this will create will depend largely on whether health plans exercise this option.
(5) The law takes effect at different times for different plans, depending on when the ''plan year'' begins. Generally, the law takes effect at the start of the plan year that begins on or after July 1, 1997. More than half of plans have calendar-based ''plan years''; for those plans, this law applies beginning January 1, 1998.
(6) Although the law prohibits insurance companies from denying coverage to employees (or their dependents) based on past or present medical problems, it appears that insurance companies that sell plans to small employers are not required to accept people who fail to enroll when they first become eligible to enroll. This means that people who work for small employers who do not qualify to enroll late under the law's ''special enrollment periods'' should enroll in their employer-sponsored plan at the first opportunity.
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(7) HIPPA raised the deduction over time to 80 percent by 2006; the Taxpayer Relief Act of 1997, signed into law on August 5, 1997, increased the deduction to 100 percent by 2007 and changed the schedule of the phase-in.
(8) For years, a federal law referred to as ''COBRA'' has allowed people to continue coverage through a group plan if they leave their job or would otherwise have lost their insurance due to death or divorce. Coverage can be continued for 18 to 36 months, depending on the circumstances. This new law will close some gaps in COBRA coverage.
(9) Individual coverage is designed for people who are not eligible to participate in a group-sponsored plan through an employer or union. In the individual market, insurance policies are sold on an individual basis to single people and to families.
(10) It should be noted that these limited provisions will only apply in states that have not adopted other methods of improving access to insurance in the individual market. Nearly all of the states are expected to implement state-adopted mechanisms, in which case the protections of the federal law will not apply.
(11) Under COBRA, beneficiaries must pay the full cost of their insurance coverage without employer contribution (plus a two percent administrative fee)—which can make this coverage expensive to maintain and out of reach of many in need.
(12) Plans are also prohibited from denying coverage for preexisting conditions to individuals moving from the group to individual market who meet the conditions set out above.
(13) State law, however, may place limits on premiums that can be charged in the individual market.
(14) WLDF opposed broad-scale implementation of an MSA program due to concerns that such a program would attract primarily younger and healthier people, leaving older and sicker people in the traditional insurance market facing potentially skyrocketing insurance premiums. It could also discourage the use of primary and preventive care.
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Chairman THOMAS. Thank you, Ms. Hustead.
Mr. Knettel.
STATEMENT OF ANTHONY J. KNETTEL, DIRECTOR, HEALTH POLICY, ERISA INDUSTRY COMMITTEE
Mr. KNETTEL. Thank you, Mr. Chairman.
My name is Anthony Knettel. I am the director of health policy for the ERISA Industry Committee. Kevin Anderson, who was originally scheduled to testify today, is, unfortunately, seriously ill and not able to be here, and he sends his regrets.
My brief comments are based on the section headed ''Summary of Detailed Comments,'' which begins on page 1 of our written statement, if you wish to follow along.
The degree of difficulty employers have experienced adjusting to HIPAA's requirements is a function of several factors including, but not limited to, the following: First, the number, type, and complexity of health plans offered by an employer; second, the current degree of automation of their payroll and health plan administration; third, the guidance or, in some cases, the lack of guidance provided by joint agency regulations issued in April of this year; and, fourth, the size and sophistication of the employer.
When ERIC members discussed HIPAA as implemented by the interim regulations, several priority issues emerged. The first priority issue relates to HIPAA's nondiscrimination rules. The drafters of HIPAA were careful to circumscribe the act's scope. HIPAA was meant to be targeted reform and not comprehensive reform.
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This was particularly true with respect to the nondiscrimination rules in new ERISA section 702 and the analogous provisions in section 2702 of the Public Health Service Act. Section 702 prohibits discrimination in eligibility to enroll in the plan on the basis of health-status-related factors, and 702(b) prohibits discrimination on the basis of health-status-related factors with respect to premium contributions.
Despite ample legislative history and a statutory rule of construction, the preamble to the interim regulations is ambiguous regarding the scope of section 702. Extending HIPAA's nondiscrimination rules beyond their intended scope would strongly discourage employers from continuing to offer health care coverage. Congress was wise to draw the clear line that it did, and it must make sure this line is not fuzzed or erased in the final regulations.
ERIC believes it is critical that the final regulations implementing ERISA emphasize that the nondiscrimination rules apply only to enrollment in premiums, as Congress intended, and that the extent, scope, nature, and duration of benefits offered under an employer-sponsored plan fall outside of the scope of 702. And I would be happy to discuss the technicalities of that issue in more detail later, if you wish.
The second priority issue relates to automatic certifications under HIPAA. Given the substantial number of employers who currently do not use preexisting condition exclusions and the additional number who will eliminate preexisting condition exclusions in response to HIPAA's enactment, the vast majority of automatic certifications of prior coverage required by HIPAA not only appear to be unnecessary but create a significant burden for health plans.
In order to avoid a needless and expensive administrative burden on employers, the interim regulations provide a transition rule enabling employers to provide a notice that a certification is available in lieu of an automatic certification. ERIC believes this transition rule ought to be made the permanent rule.
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The third priority issue relates to the alternative method of credit and coverage. The interim regulations' treatment of the alternative method of credit and coverage places what ERIC believes is a disproportionate burden on employers certifying coverage—that is, the former employer—relative to employers crediting prior coverage; that is, the new employer.
The final regulation should minimize the burden on certifying employers by clarifying that, number one, providing a completed model form or a summary plan description is the only form in which a certifying employer need respond; and, number two, providing that certifying employers may simply attach a completed model form or a summary plan description to an automatic certification, thereby foreclosing the need for further inquires by crediting employers.
The fourth and final priority issue relates to needed guidance that is missing in the interim regulations. The interim regulations fail to address in detail several issues that are crucial to employers' understanding their obligations under HIPAA and their ability to comply with HIPAA's requirements.
In particular, employers need much clearer guidance regarding HIPAA's applicability to, number one, retirees, especially with respect to whether special enrollment rules override employers' eligibility requirements for retiree coverage; and, number two, the applicability of HIPAA to flexible spending accounts in cafeteria plans, especially with respect to the circumstance, if any, under which status changes trigger automatic certifications.
These are quite complex issues, and we understand why the agencies did not provide guidance, but in fact the absence of guidance is very disrupting for employers. It makes it very difficult for them to understand their liabilities, and therefore it is important that the final regulations address these issues.
That concludes my brief comments. I would be happy to respond to any questions.
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Thank you.
[The prepared statement follows:]
Statement of Anthony J. Knettel, Director of Health Policy, ERISA Industry Committee
HIPAA Implementation
Mr. Chairman and members of the Committee: I submit this statement on behalf of The ERISA Industry Committee, generally known as ''ERIC.''
The ERISA Industry Committee
The ERISA Industry Committee is an association of more than 130 of the Nation's largest employers concerned with national retirement and welfare benefit issues. As the sponsors of health, pension, savings, disability, life insurance, and other welfare benefit plans covering millions of participants and beneficiaries, ERIC's members share with this Commission a strong interest in the success and expansion of the employee benefit system in the private sector.
Background
Each of the five titles included in the Health Insurance Portability and Accountability Act of 1996 (HIPAA, Pub.L. 104–191) contains provisions of interest to ERIC member companies. However, title I (relating to health care access, portability and renewability) has the most immediate impact on employer-sponsored health plans. Therefore, this statement focuses on issues raised by the implementation of title I, including comments on the interim regulations published jointly by the Departments of Health and Human Services, Labor and Treasury in the Federal Register on April 8, 1997.
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Summary of Detailed Comments
The difficulty employers have experienced adjusting to HIPAA's requirements is a function of the interaction of several factors, including (but not limited to) the following:
• the number, type and complexity of health plans offered by an employer to employees and dependents;
• the current degree of automation of health plan administration;
• the guidance (or in some cases, lack thereof) provided by the joint agency regulations issued April 8, 1997; and
• the size and sophistication of an employer.
The detailed discussion that follows this summary is in the form of comments on the joint agency interim regulations implementing HIPAA. For reasons discussed below, the following are priority themes and issues for ERIC member companies:
• The drafters of HIPAA were careful to circumscribe the provisions of HIPAA and to make clear the Act was intended to be limited in scope. This was particularly true with respect to the nondiscrimination rules in new ERISA § 702 and analogous provisions of the PHSA: § 702(a) relates specifically to nondiscrimination in eligibility to enroll in a plan; § 702(b) relates specifically to nondiscrimination in premium contributions. Despite ample legislative history and a statutory rule of construction, however, the interim regulations are ambiguous regarding the scope of section 702.
Extending HIPAA's nondiscrimination rules beyond their intended scope would strongly discourage employers from continuing to offer health care coverage. Thus, ERIC believes it is critical that the final regulations implementing HIPAA emphasize that the nondiscrimination rules apply only to enrollment and premiums, as Congress intended, and that the extent, scope, nature and duration of specific benefits offered under an employer-sponsored health plan are benefit design decisions that fall outside the purview of § 702.
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• Given the substantial number of employers who currently do not use pre-existing condition exclusions (PCEs) and the additional number who will eliminate PCEs in response to HIPAA's enactment, the vast majority of automatic certifications of prior coverage required by HIPAA not only appear to be unnecessary but create a significant burden for health plans. In order to avoid a needless and expensive administrative burden on employers, the interim regulations' transition rule enabling employers to provide a notice in lieu of automatic certifications of prior coverage should be made permanent.
• The interim regulations' treatment of the alternative method of crediting coverage places a disproportionate burden on employers certifying prior coverage (i.e., a former employer) relative to employers crediting prior coverage (i.e., a new employer). The final regulations should minimize the burden on certifying employers by clarifying that:
• providing a completed model form or a summary plan description (SPD) are the only forms in which certifying employers need respond to crediting employers, and that providing either one eliminates the need for future requests for additional information; and
• certifying employers may provide either a completed model form or an SPD as an attachment to an automatic certification, thereby foreclosing the need for further inquiries by crediting employers.
• The interim regulations fail to address in detail several issues that are crucial to employers' understanding of their obligations under HIPAA and their ability to comply with HIPAA's requirements. In particular, employers need much clearer guidance regarding HIPAA's applicability to:
• retirees, especially with respect to whether the special enrollment rules override employers' eligibility requirements (e.g., with respect to years of service required to qualify for retiree health benefits); and
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• flexible spending accounts and cafeteria plans, especially with respect to the circumstances (if any) under which status changes trigger automatic certification.
Detailed Comments on Interim Regulations Implementing HIPAA
The following detailed comments follow the organizational scheme used in the preamble to the interim regulations. Statutory citations refer only to the relevant ERISA sections, but they generally apply to the parallel PHSA and IRC provisions as well.
1. Definitions (26 CFR § 54.9801–2, 29 § CFR 2590.701–2, 45 CFR § 144.103)
a. Lack of a definition of ''plan'' under HIPAA: The term ''group health plan'' is defined, but ''plan'' is not. This is a significant omission because it creates numerous uncertainties regarding the application of HIPAA's requirements, particularly with respect to whether certifications of prior coverage must be provided to an employee or dependent when he/she changes enrollment options during an open enrollment period. For a more detailed discussion of this concern, see ''Certificates and Disclosure of Previous Coverage,'' below.
b. Lack of a definition of ''employee'' under HIPAA: The term ''employee'' is not defined. This omission is significant because it leaves uncertain the application of many HIPAA requirements, particularly with respect to whether benefits provided to retirees are subject to HIPAA's requirements. For a more detailed discussion of this concern, see ''Special Enrollment Periods,'' below.
2. Rules Relating to Creditable Coverage (26 CFR § 54.9801–4, 29 CFR § 2590.701–4, 45 CFR § 146.113)
Clarifying treatment of non-domestic employees' coverage.
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By asking whether ''public health plan'' includes the public health systems of other countries, the interim regulations also raised questions as to whether an employer must credit (or certify) the coverage of an employee working outside the U.S. who is covered by a foreign private health plan. ERIC believes it was not the drafters' intent to require an employer to credit (or certify) coverage in these circumstances, though an employer presumably would have to credit (or certify) coverage for periods of domestic employment if an employee moved to the U.S. and became covered by a U.S.-based private health plan. As a practical matter, crediting, and especially certifying, foreign coverage would be exceedingly difficult, if not impossible, to do. Since there is some lingering confusion on this point, ERIC suggested that the final regulations clarify that employers do not need to credit or certify coverage for periods when employees previously worked overseas and were covered by foreign health plans.
3. Certificates and Disclosure of Previous Coverage (26 CFR 54.9801–5, 29 CFR 2590.701–5, 45 CFR 146.115)
a. Making the notice-in-lieu-of-certificate transition rule permanent: Many employers currently do not use PCEs, and ERIC expects the number to grow in response to HIPAA's enactment and the administrative burdens it imposes. As a result, a substantial proportion of the automatic certifications of prior coverage required by the statute will never be used—a serious waste of plan resources. Moreover, except during an initial transition period when employers may issue a notice in lieu of an automatic certification, the interim regulations impose on employers that do not use PCEs a significantly greater burden and expense (i.e., automatically certifying prior coverage for former employees and their dependents) than is imposed on crediting employers (who apparently can minimize the administrative burden and expense of using PCEs by waiting until a claim is filed before requesting certification of prior coverage).
It is perverse to impose a disproportionate share of the burden of health plan ''portability'' on employers that do not use PCEs vis-a-vis those that do. In order to avoid needlessly imposing expensive administrative burdens on employers, ERIC requested that guidance be issued as soon as possible (without waiting for the issuance of final regulations) indicating that the transition rule will be made permanent, and urged that the final regulations adopt the notice-in-lieu-of-certificate transition rule as a permanent rule.
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b. Whether switching coverage options during an open enrollment period or following a status change triggers the requirement to issue an automatic certification
Many employers offer employees and their dependents the opportunity to choose among several types of health care coverage during an open enrollment period or when a status change occurs. Some employers offer multiple enrollment options under a single plan governed by a single plan document (for purposes of this discussion, referred to as a ''multi-option plan''), while other employers maintain a separate plan and associated plan document for each enrollment option (for purposes of this discussion, referred to as ''multiple single-option plans''). In the case of a multi-option plan, switching from one coverage option to another during an open enrollment period or following a status change does not terminate coverage under the plan as a whole. In the case of multiple single-option plans, however, switching coverage options during an open enrollment period might be viewed as terminating coverage under one single-option plan and commencing coverage under another.
While changing options within a multi-option plan does not appear to trigger the requirement to issue a certificate—since coverage under the plan is not terminated—it is unclear whether employers offering multiple single-option plans must issue a certificate when an employee or dependent changes coverage (from one single-option plan to another) during an open enrollment period or following a status change. As far as employees' and dependents' coverage is concerned, a multi-option plan is the functional equivalent of multiple single-option plans; there is no break in coverage and no PCE will be applied in either case. Thus, ERIC believes it makes no sense to treat these two arrangements differently by requiring the issuance of a certificate in one instance but not the other.
Requiring employers with multiple single-option plans to issue certificates in these circumstances will be very confusing to plan participants. For example, issuance of a certificate is likely to make people who receive them think they have lost coverage when, in fact, they have not. Moreover, requiring employers to issue certificates when they have no practical use, as in this case, will devalue certificates in the eyes of recipients and lead individuals to ignore them even when they do have significance.
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The enactment of HIPAA was motivated by an intent to close gaps in health care coverage that occur when individuals change jobs; it is counterproductive to that objective to impose on employers the costly administrative burden of issuing certificates when there is no job change and no gap in coverage. Such a requirement also will discourage some employers from offering multiple enrollment options, thereby reducing employee and dependent choice among different types of plans. ERIC urged that the final regulations include a definition of ''plan'' (or an expansion of the current definition of ''group health plan'') that expressly permits the aggregation of multiple single-option plans into a single ''plan'' for purposes of determining when coverage under ''a plan'' terminates and a certificate must be issued.
c. Excepted limited scope vision and dental benefits should be excluded from disclosure in connection with the alternate method of crediting coverage
The interim regulations are confusing with respect to whether excepted limited scope benefits must be disclosed to employers seeking information in connection with use of the alternate method of crediting coverage. Excepted benefits are defined, in part, as benefits that are not ''integral'' to core coverage (i.e., they are elected separately and have a separate premium). In another context, however, it is stated that additional information about excepted benefits may be required to be provided for purposes of the alternative method of crediting coverage if such benefits are provided ''concurrently'' with other creditable coverage.
''Concurrent excepted benefits'' appears to be a self-contradictory concept: to be ''excepted,'' benefits must be non-integral, which also would make them non-concurrent (as ERIC understands the common usage of the term). If the final regulations continue to use the term ''concurrent'' they should explain what ''concurrent'' means in this context. ERIC strongly objected to the continued use of ''concurrent,'' however, if it is meant to require that employers must determine on a case-by-case basis whether each individual's election of excepted benefits in fact coincided with their separate election of core creditable coverage. Such an interpretation imposes unreasonable added administrative burdens on employers.
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ERIC believes the drafters of HIPAA intended dental and vision benefits to be included in the alternate method of crediting coverage only when such benefits are integral to core coverage. ERIC urged that the final regulations adopt this interpretation and clarify that limited scope dental and vision benefits that are excepted by virtue of being non-integral to core coverage are not required under any circumstances to be disclosed to employers using the alternate method of crediting coverage.
d. Limitations on requests for additional information by crediting employers using the alternate method
The interim regulations indicate that employers using the alternate method of crediting prior coverage may request addition information from certifying employers in the form of either the model form provided for this purpose or a copy of the certifying plan's summary plan description (SPD). Unfortunately, it is unclear whether crediting employers may request additional information in other forms as well. ERIC believes that the administrative burden on certifying employers (especially those that do not themselves use PCEs) should be minimized by clarifying in the final regulations that these two means of providing additional information (i.e., providing a completed model form or an SPD) are the only forms in which certifying employers need respond, and that if an employer provides either one, it is not required to respond to future requests for additional information. Moreover, ERIC urged that the final regulations clarify that certifying employers may provide either a model form or an SPD as an attachment to an automatic certification, and that if an employer does so, it is not required to respond to further inquiries.
e. Clarifying requirement to certify coverage upon request.
ERIC interprets this provision of the statute to require employers to certify prior coverage upon request by an individual whose coverage has ceased if the request is received within 24 months after the coverage terminated. It has been suggested, however, that the agencies may be considering an interpretation of this provision that also would require employers to issue a certificate upon request to an individual who is not yet COBRA-eligible and whose coverage has not yet terminated (e.g., an active employee). ERIC believes a requirement to issue certificates upon request to individuals whose coverage has not ceased is contrary to the plain language of the statute and is unsupported by the legislative history of the provision. Moreover, an open-ended requirement to issue certificates upon request to active employees and covered dependents exposes plans to abuse in the form of repeated nuisance requests.
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A request for certification by an individual whose coverage has not terminated is of no practical use, except perhaps in the very limited circumstance of an individual who knows with certainty that he/she is about to lose coverage. Even in this case, however, it is unnecessary to require certification upon request in anticipation of termination because the statute already requires timely automatic certification when coverage actually ceases. Limiting certification of covered individuals to those who ''anticipate'' or are ''contemplating'' terminating coverage does not reduce the potential for abuse because the individual need not go through with the termination; the only circumstance in which employers have a modicum of assurance that abuse could not occur is when the individual has already formally notified the plan of a date certain on which coverage will cease (e.g., an employee that has given notice that he/she will cease employment on a date certain).
4. Special Enrollment Periods (26 CFR 54.9801–6, 29 CFR 2590.701–6, 45 CFR 146.117)
The special enrollment period rules are noteworthy in that § 701(f)(1) applies to ''employees'' while § 701(f)(2) applies to ''participants.'' While the scope of the term ''participant'' presumably includes persons who are not ''employees,'' the precise difference between the two is not clear. For example, it is not clear whether ''employee'' includes a former employee such as a retiree (as the term ''employee'' has been defined in other contexts), or if retirees only are affected where HIPAA refers specifically to participants rather than to employees.
Given the number of plans and persons potentially affected by these terms, a definition of ''employee'' should be included in the final regulations to reduce uncertainty. We believe the drafters intended the term ''employee;; to be narrowly construed (i.e., to mean an active employee), as is evident from the fact that the broader term ''participant'' is sometimes used. Therefore, ERIC recommended that the final regulations define ''employee'' to mean an individual who is an active common-law employee of the employer.
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If HIPAA is interpreted to apply to retirees, additional clarifications will be needed in the context of the special enrollment rules. For example, many employers limit eligibility for retiree health care coverage to persons who met a service requirement (typically five or ten years of service). ERIC urged that the final regulations explicitly state that such service requirements are not overridden or otherwise affected by the special enrollment rules. In addition, many plans limit eligibility for retiree coverage to dependents who were dependents at the time the employee retired. ERIC urged that the final regulations clarify that such restrictions on eligibility are not overridden by the special enrollment rules.
5. Nondiscrimination in Eligibility and Premiums in the Group Market (26 CFR 54.9802–1, 29 CFR 2590.702, 45 CFR 146.121)
a. Nondiscrimination with respect to eligibility to enroll
Despite the best efforts of the drafters of this provision to articulate a clear distinction between eligibility to enroll (to which the nondiscrimination rule was intended to apply) and benefits offered under the terms of a plan to enrolled participants and beneficiaries (to which the nondiscrimination rule was not intended to apply), the scope and effect of this provision is often misunderstood by persons unfamiliar with benefit plan concepts. The legislative history of HIPAA makes clear that new ERISA § 702(a) was intended to function as an ''equal access'' rule (i.e., that individuals may not be deemed ineligible to enroll in a health plan solely on the basis of their health status). HIPAA places no requirements (other than those related to the use of PCEs and special enrollment periods contained in new ERISA § 701) on the benefits made available to individuals once they enroll in a plan.(see footnote 35)
In other words, an individual may not be excluded from eligibility for a plan on the basis of his/her health status, medical condition, or any other criterion specified by § 702(a)(1). But once an individual becomes a plan participant, § 702(a)(1) does not prevent a plan from treating classes of participants differently, even if the differences are based in whole or in part on the health status or medical condition of the members of each class. This is made clear both by § 702(a)(1), which prohibits eligibility rules that are based on health-related factors ''in relation to the individual or a dependent of the individual,'' and by § 702(a)(2), which provides, in general, that § 702(a)(1) does not prevent a plan from establishing limits or restrictions on the amount, level, extent, or nature of coverage for similarly situated individuals enrolled in the plan.
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Not only would application of the nondiscrimination rule to benefits offered under a plan be contrary to the drafters' expressed intent, it would have disastrous policy consequences as well. Benefit design is inherently based on legitimate health status-related distinctions (e.g., making distinctions in the coverage of different diagnoses, medical procedures, etc.). Taken to its logical conclusion, a rule prohibiting any and all health status-related distinctions in benefit design implies that if one diagnosis or procedure is covered, every medical procedure for every diagnosis must be covered because any exclusions of particular diagnoses or procedures would be health status-related. Further, it appears that a rule prohibiting all health-status distinctions would mean that separate delivery systems, service limits and cost-sharing requirements could not be used for different diagnoses or procedures.
Imposing a nondiscrimination rule on benefits offered under a plan would effectively prohibit the most innovative benefit plan designs that link benefits directly to health status-specific practice protocols and severity-adjusted outcome measures.(see footnote 36) For example, this would prevent plan designs that emphasize improving quality of care as the best means to control cost by providing coverage for certain conditions or illnesses only if care is received from providers meeting performance standards specified by the plan.
Moreover, it would mandate an all-or-nothing choice for employer plan sponsors: cover everything in precisely the same manner or cover nothing. Not only would this requirement reduce employers' flexibility in designing health plans that best meet the needs of their particular workforce, it threatens an explosive expansion of coverage that will produce equally explosive cost increases for employers and employees. Faced with this prospect, many employers would significantly reduce, if not terminate entirely, the coverage they currently offer.
The preamble to the interim regulations asks for comments about use of the term ''similarly situated individual'' in § 701(a)(2). At the time ''similarly situated individual'' first appeared, ERIC understood the provision to permit variations in benefits provided by a plan so long as similarly situated persons (i.e., enrollees with the same health status-related factor) were treated consistently (e.g., two diabetics enrolled in the same plan under the same coverage option received the same benefits). ERIC believes this remains the proper interpretation of the provision, and requested that the final regulations affirm this interpretation of the ''similarly situated individual'' standard and, in doing so, also make clear that individuals may be differentiated under this standard on the basis of such factors as geographic location, years of service, retirement eligibility, management or occupational employment classifications, and active or retired status.
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The preamble appears to suggest that the phrase ''similarly situated individual'' is intended to address a related but separate issue: whether participants in the same plan can be subject to different benefit designs. There are many circumstances in which such differences are legitimate business practices:
• One such circumstance is the ''multi-option plan'' discussed above, where enrollees in the same benefit plan have a choice among two or more coverage options.
• Another is when active employees and retirees are covered under the same plan, but the retiree coverage differs in one or more respects from the coverage offered to active employees.
• A third occurs when an employer offers different benefit packages to employees working at different locations (e.g., plants in different states).
• A fourth example involves a plan that links the duration of post-employment benefits to the employer's retirement eligibility criteria in effect at the time the participant terminated employment. Under such a plan, benefits may end at a stated age (e.g., age 65) for individuals who were not retirement eligible at the time they left employment due to disability, and benefits may continue for life for former employees who left when they were retirement eligible (including retirement-eligible individuals who left employment due to a disability).
In each of these instances, the collective health status of the group subject to one benefit design may differ from the health status of a group subject to another benefit design. Not only is there nothing in ERISA § 702(a) to suggest these common business practices are impermissible, the only credible reading of the provision is one that expressly permits such differences (e.g., in the amount, level, extent, duration, or nature of benefits or coverage) despite differences in health status among groups of similarly situated employees who participate in the same plan. Thus, ERIC urged that the final regulations make it clear that such legitimate design-based differences are not proscribed by the nondiscrimination rules.
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In February 3, 1997 comments submitted to the Departments of Health and Human Services, Labor and Treasury, ERIC requested clarification of the applicability (if any) of HIPAA's nondiscrimination provisions to certain common plan practices. The interim regulations and accompanying preamble did address questions regarding evidence of insurability, though not in the manner recommended in ERIC's comments. As explained in those comments, ERIC continues to believe that a plan should be permitted to allow late enrollment only if the employee (or dependent) can provide evidence of insurability. If plans cannot condition late enrollment on evidence of insurability, employers will be discouraged from allowing employees and dependents to enroll immediately—contrary to the purposes of HIPAA.
The interim regulations did not address other questions raised in ERIC's February 3, 1997 comments, however. ERIC reiterated in subsequent comments its previous request for clarification regarding the permissibility of so-called ''nonconfinement'' provisions, recommending that the final regulations treat them as waiting periods. In addition, we reiterated our previous request for clarification that employer plans may treat certain subgroups of enrollees (e.g., those with a specific medical condition) more favorably based on their health status, recommending that the final regulations expressly authorize health status-related eligibility rules where the purpose of the rule is to make supplemental coverage available to individuals with specific health needs.
To summarize, ERIC urged that final regulations make clear that the nondiscrimination rule addresses eligibility to enroll but not benefits offered to enrollees. To do otherwise is to attribute an intent to the provision that is unsupported by its legislative history. Moreover, such an interpretation would be extremely disruptive to employer-provided coverage and that would result in reductions and termination of coverage that are contrary to the interests of employers, employees and dependents.
b. Nondiscrimination with respect to premium contributions
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It is not uncommon for employers (especially large employers) to vary plan participants' premiums or contributions on the basis of such non-health status-related factors as the division or subsidiary an employee works in, geographic location, active or retired status, and the type of coverage option the employee or dependent chooses to enroll in. Sometimes a single plan, governed by a single plan document, is used to provide benefits to separate groups subject to different premiums or contributions. The general rule contained in § 702(b)(1) expressly precludes only variations in a plan's premiums or contributions that are based on an individual's health status-related factors. Each of the practices identified above has a legitimate business purpose entirely unrelated to health status-related factors. Nevertheless, the discussion in the preamble accompanying the interim regulations asks whether these or similar practices may still be prohibited if they can be shown to indirectly result in a subgroup with higher average health risks being subject to higher premiums or contributions.
The legislative history of § 702(b)(1) does not support the argument that the drafters intended HIPAA to require a disparate impact analysis in assessing the permissibility of differential premiums or contributions that, on their face, are based on considerations other than health status-related factors. In addition, the phrase ''similarly situated'' reinforces the view that incidental differences in health status among classes of employees are not relevant when participants have been grouped on the basis of nonhealth status-related factors.
Not only would application of the nondiscrimination rule based on a disparate impact analysis be contrary to the drafters' intent, it would be extremely disruptive as well. Taken to its logical conclusion, application of the rule in this manner would effectively prohibit multi-option health plans, and impose on employers a one-size-fits-all premium and contribution structure. At best, it forces employers to maintain separate plans and associated plan documents for each covered group. At worst, it mandates an all-or-nothing choice for employer plan sponsors: provide for uniform employee contributions across all classes of employees and all coverage options, or offer nothing at all. Faced with this prospect, many employers would significantly reduce, if not terminate, the plans they currently offer.