The Health Insurance Portability and Accountability Act (HIPAA) of 1996

The Portability Act (HR 3103) was signed by President Clinton in 1996. Some provisions became effective on January 1, 1997 and other provisions become effective on the first health plan renewal date after June 30, 1997. The law is intended to reduce barriers for individuals when obtaining new health insurance coverage, whether through a new employer or an individual plan.

It covers health care plans with at least two participants who are active employees of single employers, multi-employers, collective bargaining units, churches or governmental employers. Retirees and their dependents are covered under the law as well, provided they participate in a group plan with at least two active participants. State and local government employers can elect not to have their health plans covered under the law on a plan-year by plan-year basis.

Health Plan Availability and Renewability

HMO's, insurers and employers' self-funded groups cannot deny coverage to any individual on the basis of health status (e.g., medical condition, genetic information, evidence of insurability). These provisions are effective for plan years after June 30, 1997.

• Insurers and HMO's providing group health coverage to the "small group market" (employers with 2 to 50 employees) must generally make the coverage available to all eligible employees.
• Insurers and HMO's must guarantee renewability of group health coverage in both large and small markets.

Pre-existing Medical Condition Limitation (Portability)

These provisions are also generally effective for plan years beginning after June 30, 1997.

• Preexisting condition exclusions are generally limited to a 12-month maximum after timely enrollment for conditions that were treated or diagnosed in the previous six months. The exclusion period can be up to 18 months for late enrollees (those who decline to enroll when first eligible).
• The preexisting condition exclusion period is reduced by the length of prior continuous coverage, unless more than 62 days have elapsed since coverage ended. The break in coverage cannot include waiting periods required by plans before commencing coverage.
• Employers or plan sponsors must provide certification of prior coverage (going back to 7/1/96) when:

1. an individual loses coverage,
2. an individual becomes covered under COBRA,
3. COBRA coverage ends, and
4. upon an individual's request (provided the request is made no more than 24 months after coverage ceases).

• No group plan may exclude pregnancy as a preexisting condition, nor exclude newborns or adopted children under age 18, as long as the child is enrolled within 30 days after birth, adoption, or placement for adoption.
• Companies will be required to allow employees enrollment for certain losses of "other coverage" or employee changes in family status. For example, if employees don't join the company plan when they first become eligible because they want to keep their other coverage, including COBRA coverage, employers must allow them to join the company health plan within 30 days after cessation of that other coverage.

HMO Waiting Periods

An HMO must provide immediate coverage and may impose a waiting period only if:

• no preexisting condition exclusion is imposed;
• the period is imposed uniformly without regard to health status;
• the period does not exceed two months for timely enrollment or three months for late enrollment.

COBRA Changes for 1997

The Health Insurance Portability Act expands COBRA eligibility, effective January 1, 1997. In addition, employers of 20 or more were required to communicate specific COBRA changes by November 1, 1996 to employees or dependents who have elected COBRA continuation. The new rules apply to all COBRA continuees beginning on January 1, 1997.

Disability extension of 11 months may be added to the regular 18 month COBRA coverage period if the Social Security Administration determines that the disability occurred within 60 days of the COBRA qualifying event and if the qualifying event was either loss of employment or reduction in hours. Extended COBRA coverage is also available to non-disabled family members.

Definition of a qualified beneficiary was amended to include a child born or adopted during the COBRA continuation period. COBRA qualified beneficiaries may also change coverage status, (i.e. from individual to family) under the same terms as active employees upon the birth or adoption of a child.

State of California's Pre-existing Condition Limitation

The State of California has had a pre-existing condition limitation on the books (AB1672) since 1993 that is generally more beneficial to employees than HIPAA. Under the state law, the maximum length of a pre-existing condition limitation is six months. In addition, a new employee's health coverage cannot be affected by a pre-existing medical condition, as long the employee has had continuous medical coverage for the preceding six months.

Conclusions

From an employee standpoint, this is a popular bill as it will eliminate barriers to changing jobs. From an employer perspective, there is good and bad. Although employers may incur higher medical costs (or medical insurance costs) by virtue of hiring employees with pre-existing medical conditions (e.g. employee or dependents with chronic medical conditions), it is also possible that employees with high medical usage may leave and join another company. In theory, over time the cost and benefit should even out. In addition, hiring managers will appreciate eliminating barriers to hiring qualified candidates (e.g. the pregnancy of an applicant or the wife of an applicant), especially in today's tight labor market.

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