General Practice, Solo & Small Firm DivisionBest of ABA Sections

SPRING 1998 - VOLUME 2, NUMBER 1  

Health Law

Analysis of the Provisions of the Health Insurance Portability and Accountability Act of 1996

By Jack A. Rovner

This article reviews key features of the Health Insurance Portability and Accountability Act of 1996, which has important implications for consumers as well as providers of health services, and is now effective.

The Act guarantees renewal and portability of health insurance coverage to those already with coverage by requiring insurers to make policies available to anyone who has had health insurance and who otherwise meets the Act’s eligibility requirements. Insurers offering dependent coverage must enroll dependents of insured individuals, without waiting periods or preexisting condition exclusions, provided such dependents are enrolled within thirty days of
marriage, birth, or adoption. Individuals who had group health coverage, but who can no longer get it, must be accepted by health insurers offering individual coverage without waiting periods or preexisting condition exclusions, provided the individual opted for and exhausted COBRA continuation coverage and has at least eighteen months of prior health insurance coverage.

Insurers may not impose a preexisting condition exclusion period, except on an individual (but not on dependents) who either has yet to satisfy any such period because the individual is a first time group health insurance enrollee or failed to obtain new insurance before the expiration of sixty-three days since the termination of the individual’s prior coverage. Pregnancy may not be considered a preexisting condition. Waiting periods for preexisting conditions for first time group health insurance enrollees or for previously insured individuals who let the sixty-three days lapse are limited.

Providers may select the coverage and benefits they want to offer, but cannot use an individual’s health status, claims experience, medical treatment history, genetic information, disability, or evidence of insurability to limit eligibility.

Plans offering mental health coverage must do so on terms comparable to physical health coverage. Starting January 1, 1998, through September 30, 2001, coverage limits for mental health benefits cannot be less than any such limits for physical benefits.

 

Caveat: This does not apply to employers with fifty or fewer employees, or if it increases the cost of health coverage by 1 percent or more, and it does not include treatment for substance abuse or chemical dependency.

The Act prohibits group plans from restricting hospitalizations related to childbirth to less than forty-eight hours for vaginal births or ninety-six hours for Caesarean births, although a new mother may leave earlier when authorized by her attending provider.

While the Act permits insurers to service large groups and/or small groups and/or individuals, it ensures nondiscriminatory coverage for small employers and individuals by requiring an insurer that elects to service either of these market segments within a state to make their benefits packages available to every small employer or eligible individual within the state that applies. An insurer serving small employers or individuals in a state may deny coverage to additional small employers or individuals only because of inadequate underwriting capacity and only on a nondiscriminatory basis, but that insurer is thereafter precluded from offering further coverage in the small group or individual market segment for a predetermined time.

States may impose shorter waiting periods for preexisting condition exclusions and longer enrollment eligibility periods, and may substitute their own programs for ensuring the availability of health coverage for individuals, provided such programs include at least the same renewal and portability requirements as the Act.

Since October 1, 1996, group plans had to start tracking their enrollees’ and beneficiaries’ periods of continuous health insurance coverage. Since June 1997, plans and insurers have been required to issue certificates stating an individual’s period of "creditable coverage." Individuals must be given these certificates when their health insurance coverage ends and again when any COBRA continuation coverage ends. Certificates must also be issued upon request for two years after the end of coverage.

The Act addresses concerns of the self- and unemployed and the employees of small businesses. A limited demonstration project –Medical Savings Accounts (MSAs)–was instituted. From 1997 through the fall of 2000, the Act permits establishment of up to 750,000 MSAs. MSAs may be established by individuals who are self-employed or employed by small businesses and who have no health insurance other than one with annual deductibles of $1,500 to $2,250 for individual coverage and $3,000 to $4,500 for family coverage (as adjusted annually for cost-of-living increases). Such individuals may, tax deductably, contribute annually up to 65 percent of the deductible for individual coverage (i.e., from $975.00 to $1,462.50 in 1997) or up to 75 percent of the deductible for family coverage. MSA funds may be used to pay medical expenses incurred to the extent the expenses are not otherwise compensated. Such withdrawals are excluded from the individual’s gross taxable income. MSAs and their earnings are exempt from taxation. MSA funds may be distributed for nonmedical reasons without tax penalty only on the accountholder’s disability or death or once the accountholder becomes eligible for Medicare.

The Act increases the percentage of health insurance premiums paid by the self-employed that are tax deductible to 40 percent in 1997, 45 percent for 1998 through 2002, 50 percent in 2003, then increasing 10 percent a year until reaching 80 percent in 2006. Persons, including self-employed individuals, losing their jobs or businesses and health insurance may, after twelve weeks, make penalty-free withdrawals from their Individual Retirement Accounts to pay their premiums.

The Department of Health and Human Services (HHS) must establish a national databank to record information about providers and suppliers that have committed health care fraud or abuse.

Until February 2001, HHS, Office of Inspector General in consultation with the Attorney General, must issue advisory opinions as to whether specific activities are prohibited by the fraud and abuse provisions. Failure to seek an advisory opinion, however, cannot be used as evidence that a party intended to violate the fraud and abuse provisions.

The Act adds an exemption for risk-sharing arrangements with managed care plans that permits "remuneration" between providers and a plan where the relationship is reflected in a written agreement between them and either the plan is a Medicare-qualified HMO or competitive medical plan (CMP) or the agreement puts the providers at substantial financial risk for the cost or utilization of the items or services that the providers are obligated to deliver. But the Act considers waiver of coinsurance or deductibles or the transfer of items or services for less than fair market value to be remuneration subject to civil monetary penalties. Waivers will be legal only when used infrequently and properly justified.

The Act expands the civil and criminal penalties for health care fraud and abuse; e.g., HMOs that don’t comply with their Medicare contracts will be subject to intermediate sanctions, as an alternative to contract termination. Additionally, health care fraud is made an independent federal crime. The Act authorizes awards to encourage reporting of fraud and suggestions for improving the efficiency of the federal health programs.

HHS must standardize the encoding of health information to enable its exchange and to reduce administrative costs of health care, while prohibiting the disclosure of trade secrets or confidential commercial information. Every health plan, provider, and clearinghouse must maintain safeguards to ensure against threats to the security and integrity of "individually identifiable health information" and any unauthorized use or disclosure of such information.

Jack A. Rovner is a partner with Michael, Best & Friedrich, and co-chair of the firm’s Chicago office health law practice group.

This article is an abridged and edited version of one that originally appeared on page 1 in The Health Lawyer (9:3).

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