In August of 1996, Congress passed, and President Clinton signed into law, the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). Originally proposed as the Kennedy-Kassebaum Bill, HIPAA was advertised as embodying a modest "compromise" approach to health care reform, after the more drastic health care reforms proposed early in the first Clinton administration went down to dramatic defeat. HIPAA, however, turned out to be something akin to "stealth" legislation, as it is likely to lead to far more extensive changes in America's health care system than may be apparent at first glance.
In enacting HIPAA, Congress sought to provide Americans with the right to obtain health care coverage beyond the rights provided in the 1985 COBRA statute. It sought to create "portability" of health care coverage by establishing rules with respect to pre-existing condition exclusion/limitation periods in employer-sponsored plans and health insurance policies. In theory, the HIPAA rules could allow an individual to maintain cradle-to-grave health insurance coverage, first as a dependent, then as an employee or purchaser of individual insurance. HIPAA makes this possible no matter how many times health coverage is lost and then replaced and despite any illness or injury the individual (or family member) might suffer.
Regulations addressing HIPAA's crucial portability provisions were issued in early April. These new regulations flesh out the rules governing permissible pre-existing condition exclusion/limitation periods, the administrative requirements concerning Certificates of Creditable Coverage and disclosure requirements relating to both. As these regulations impose new obligations upon employers and insurers by (and even before) HIPAA's formal effective date of July1, 1997, this article will provide a brief overview of these new requirements.
THE PORTABILITY RULES
Pre-Existing Condition Exclusion/Limitation Periods
*A Group Health Plan or Group Health Insurer cannot impose a pre-existing condition exclusion/limitation period of more than 12 months from an individual's "Enrollment Date" (defined to include any waiting or affiliation period under the Plan or policy), and an individual must be allowed to reduce such period of exclusion/limitation by presenting evidence of periods of prior "Creditable Coverage."
*A pre-existing condition (which triggers an exclusion or limitation in coverage) is a physical or mental condition for which medical advice, diagnosis, care or treatment was recommended or received within the 6 months immediately prior to the individual's Enrollment Date.
*Pre-existing condition exclusion/limitation periods cannot be imposed: (1)on account of pregnancy, (2)on newborns or adopted children if enrolled within 30days of birth or adoption, and (3)with respect to genetic information (as defined in the regulations).
*Creditable Coverage is prior coverage under a wide-range of programs, including ERISA plans, group or individual insurance, Medicare, Medicaid, active military health program, CHAMPUS, American Indian Health Care Programs, a state health risk pool, a public health plan, or the Peace Corp Health Program.
Certificates of Creditable Coverage
*An individual may prove the existence of prior Creditable Coverage by means of a Certificate of Creditable Coverage which each Group Health Plan and Health Insurance Issuer is required to provide when: (1)an individual loses coverage or would lose coverage but for the election of COBRA, and (2)COBRA coverage ceases for an individual who elected COBRA. Certificates must be issued automatically upon these occurrences. In addition, a Certificate must be provided upon request any time within 24 months after coverage cease.
*No Certificate needs to be issued before June1, 1997, and a Certificate need only reflect coverage after October 1, 1996, unless an individual specifically requests in writing a Certificate evidencing coverage between July1, 1996 and October1, 1996.
Administrative Transition Rule -- Individuals who lost coverage or elected COBRA between October1, 1996 and May31, 1997 are entitled to a Certificate on June1, 1997. This requirement can be met by the Plan or Insurance Issuer sending a Certificate to each such individual as soon as is reasonably possible after that date, or sending a model "Notice of Your Right to Documentation of Health Coverage" issued by the Department of Labor to each such individual, and sending a Certificate only to those persons who specifically request one.
*Certificates issued automatically must be provided within the time frame required for COBRA notices (generally within 14days). Requested Certificates must be provided as soon as is reasonably possible.
*Individuals who cannot get a Certificate, or who may need coverage due to a medical emergency, may prove the existence of prior Creditable Coverage by producing other documents that evidence the existence of such prior coverage.
*New Administrative Requirement -- Upon receipt of evidence of Creditable Coverage a Plan or Health Insurance Issuer is required, within a reasonable period of time, to make a determination as to the Creditable Coverage and notify the individual. If, after making this determination, the Plan or Issuer still seeks to impose a pre-existing condition exclusion/limitation period, it must disclose that determination to the individual in writing, the basis for that determination, including the source and substance of any information on which it relied, and any appeal procedures provided under the Plan or policy, including a reasonable opportunity to submit additional evidence.
Special Enrollment Periods
*Special Enrollment Periods must be provided for participants and dependents who declined coverage under a Group Health Plan on account of the availability of other coverage and who later lost such other coverage. Participants who decline coverage, but who add dependents by marriage, birth or adoption, can also enroll when their dependents become covered.
*Special enrollment periods must be provided when a participant acquires a dependent through marriage, birth or adoption. Both the participant and the new dependent must enroll within 30 days of the event, and coverage will be effective from the date of birth or adoption or the first day of the month following notice of the marriage.
No Discrimination on Account of Health Status-Related Factors
*Plans and Issuers cannot base eligibility on any Health Status-Related Factors. These are: (1)health status, (2)medical condition, (3)claims experience, (4)receipt of health care, (5)medical history, (6)genetic information, (7)disability or (8)evidence of insurability.
*This does not require Plans or Issuers to add benefits to those already provided, nor does it prohibit Plans or Issuers from placing limitations or restrictions on the amount, level, extent or nature of the benefits provided to similarly situated individuals.
*Plans or Issuers may not impose, on account of Health Status-Related Factors, any additional premiums or contributions on an individual that are not required of similarly-situated individuals.
Notice and Disclosure Requirements
*For Group Health Plans or Health Insurance Issuers which retain pre-existing condition exclusion/limitation periods after June 30, 1997, participants and beneficiaries must be notified that such an exclusion/limitation period may apply, but that it may be reduced by proof of prior Creditable Coverage. The notice should also inform participants and beneficiaries that the Plan Administrator will help them secure evidence of prior Creditable Coverage. They must also be told about how the Plan or Insurer will determine that a period of pre-existing condition exclusion/limitation will be applied and procedures for appealing that determination.
*Plans which contract with insurance companies to underwrite benefits or process claims must inform participants and beneficiaries of the name, address and phone number of the insurer and describe its responsibilities with respect to the Plan.
*The statement of ERISA rights required to be included in any summary plan description must also include the address and phone number of the nearest office of the Department of Labor participants and beneficiaries may contact about these rights. For most Michigan employers, that address is Pension and Welfare Benefits Administration, U.S. Dept. of Labor, Detroit District, 211 Fort Street, Suite 1310, Detroit, Michigan 48226-3211, (313)226-7450.
*Participants and beneficiaries must be given information about special enrollment periods, and any Plan requirements for special enrollment treatment upon re-instatement in the Plan.
*ERISA requires that notice of material modifications to benefit plans generally be disclosed to participants and beneficiaries within 210 days following the plan year in which the modification was adopted. While the general rule has not been changed, any modification that represents a Material Reduction in Covered Services or Benefits must be disclosed within 60 days following the adoption of such modification. The definition of a Material Reduction in Covered Services or Benefits is any change or modification that "would be considered by the average plan participant to be an important reduction." The regulations make this a subjective standard from the point of view of the average plan participant, and it is likely to be liberally construed to protect participants and beneficiaries. This rule will accelerate the time period for disclosing many changes in benefits and coverage, and while no specific penalties are imposed under the statute or regulations, it may well be that such changes may be unenforceable absent a 60-day notice.
Effective Dates
*Effective dates for these requirements are the first plan year after June 30, 1997 for Group Health Plans and their Health Insurance Issuers (or the day the collective bargaining agreement terminates if the Plan is collectively bargained), and July 1, 1997 for Health Insurance Issuers of individual coverage.
Administrative Transition Rules -- Plans may keep impermissible pre-existing condition exclusion/limitation provisions until the date HIPAA applies to that Plan, even if that date is after July1, 1997, but still must provide certificates of Creditable Coverage starting June1, 1997 for events occurring after October1, 1996.
Any pre-existing exclusion/limitation provision, even if violative of HIPAA, may be enforced until the date HIPAA applies to the Plan, but as of the date HIPAA does apply (i.e., the first day of the next plan year which begins after June 30, 1997), the Plan can only impose a pre-existing exclusion/limitation provision that complies with HIPAA, and participants and beneficiaries will be able to offset any remaining pre-existing exclusion/limitation period with proof of prior Creditable Coverage (including coverage under the Plan prior to June 30, 1997 and/or prior coverage from another employer or Health Insurance Issuer).
However, any existing pre-existing exclusion/limitation provision which does not conform to HIPAA requirements should be amended to conform prior to the first day of the Plan Year HIPAA applies to the Plan.
In addition, HIPAA imposes a number of requirements (also fleshed out in the recent regulations) with respect to health insurers who offer coverage to small employers (between 2 and 50 employees) in the group health insurance market and to individuals in the individual health insurance market. These requirements are designed to guarantee the right to buy and renew health insurance coverage (with certain exceptions), without regard to the health-related status of the protected groups or individuals.
While employer Plans which operate on a calendar year basis may not have to implement many of these requirements before January 1, 1998, all Plans and insurers will be required to provide Certificates of Creditable Coverage starting June1, 1997 for employees who lost coverage or elected COBRA since October1, 1996. Moreover, Plans and insurers will either have to eliminate pre-existing condition provisions from their plans or policies, and will have to establish procedures for assessing evidence of prior health coverage, by the date HIPAA is to apply.
This article was prepared by John H. Eggertsen and Michael J. Friedman, partners in our Employee Benefits Department, and previously appeared in the September 1997 edition of the Detroiter magazine.