The Health Insurance Portability and Accountability Act of 1996
In the last weeks of the 104th Congress, bi-partisan health insurance reform legislation was enacted dealing with three significant issues: health insurance portability; mental health coverage, and length of hospital maternity stays. The legislation, The Health Insurance Portability and Accountability Act of 1996, commonly known as the Kennedy Kassebaum Bill (PL 104-191), is a complex bill which amends the federal ERISA statute, COBRA, and the Internal Revenue Code, just to name a few. The Kennedy Kassebaum Bill was signed by President Clinton on August 21, 1996, but Congress immediately amended the statute by adding provisions dealing with mental health coverage and maternity stays.
AFSCME supported the legislation, until state and local government employers succeeded in getting themselves an opt out from key provisions of the law. The law is a small step in health insurance reform. It does nothing to make insurance more affordable for working families, but it does provide some new security and fairness.
This fact sheet summarizes the major provisions of the new legislation, but rules and regulations are still being written, and in some cases states will have to amend their own insurance codes to comply with the new law. Three federal agencies are charged with implementing the law: The Department of Health and Human Services, The Department of Labor, and The Department of Treasury.
Timetable
Most provisions of the new law become effective July 1, 1997, but there are earlier dates for some provisions. Final regulations are scheduled for release April, 1997.
The law's major components include:
- restrictions on pre-existing condition exclusions;
- nondiscrimination on the basis of a person's health status;
- guaranteed availability and renewability of health coverage;
- establishment of a Medical Savings Account (MSA) "pilot" project;
- modification of COBRA health care continuation rules;
- provisions dealing with health care fraud and abuse;
- requirements for employers who offer mental health coverage;
- requirements for insurers paying for postpartum maternity stays.
Key Issues for AFSCME
What Will Employers and Insurers Be Required To Do?
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Pre-existing Conditions
Portability of insurance coverage will be made easier by new limits on pre-existing condition exclusions. The law defines a pre-existing condition as a mental or physical condition that was present before an individual enrolled in a new plan, for which that individual received treatment before enrolling in the new plan. Plans and insurers must give an individual "credit" for previous coverage and apply that credit to fulfillment of a pre-existing condition exclusion period when an employee changes jobs.
Pre-existing condition exclusions can only be applied to medical conditions that were treated within a 6 month period ending on the enrollment date in the new plan, but exclusions cannot last more than 12 months. Once the 12 month limit expires, no new pre-existing condition limit can ever be imposed on an individual or family as long as they maintain coverage with no more than a 63 day gap--even if they change jobs or health plans. Previous "creditable coverage" allows for a reduction in the pre-existing exclusion time period. Newborns, and adopted children cannot be subject to pre-existiong conditions if they are covered within 30 days of birth or adoption, and pregnancy is not subject to pre-existing condition exclusions. HMOs may impose affiliation periods of up to two months if no other waiting period is imposed.
Special enrollment periods are also required for individuals who lose other coverage and for certain dependents. As long as the employee or dependent was already covered when he or she had a previous opportunity to join the plan, has exhausted COBRA coverage, lost coverage due to divorce, death, or reduction in hours leading to loss of coverage, and requested enrollment within 30 days of losing coverage, that employee or dependent must be permitted to join the group plan.
Timetable
Employers must begin keeping track of employees' coverage beginning October 1, 1996 in order to credit employees who may terminate employment with proof of prior coverage. Rules governing pre-existing condition clauses are effective for health plan years beginning after July 1, 1997. For group health plans covered by collective bargaining agreements ratified before August 21, 1996, the pre-existing condition and non-discrimination provisions begin on the first day after the expiration of the contract, or July 1, 1997, whichever is later.
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Non-discrimination
Health plans and insurers will be prohibited from using employees' or dependents' health status, medical condition, claims experience, genetic information, or disability as a basis for eligibility or continued eligibility for health coverage. However, there are no mandated benefits, and plans are still free to set limits on benefits or coverage, as long as it is not selectively applied. Employers can still set premiums at different levels based on the experience of group members, and offer lower premiums to enrollees who quit smoking, for instance.
Do All Employers Have to Comply?
No. While the new rules apply to both insured and self-insured health plans, state and local governments succeeded in getting themselves a loophole to opt out of the portability provisions of the new law (unfunded mandates strike again!). However, in order to opt out, nonfederal governmental group plans must notify both the U.S. Department of Health and Human Services and enrollees that they are opting out. They can only opt out in one year increments, and must notify enrollees of this on an annual basis and at the time they initially enroll. They are not free to opt out of all provisions. They must provide employees who terminate employment with written certification of coverage. AFSCME is currently talking with HHS about how this opt out will work, and will be lobbying to close this loophole in the new Congress. Clearly there is a political price to pay if nonfederal governmental plans elect to opt out while all other employers who offer health insurance must comply.
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Guaranteed Availability and Renewability
Because small employers often have trouble getting insurance renewed and issued if just one employee or dependent has a serious illness, there are new requirements on insurers offering coverage in the small group market to accept every small employer within the state that applies for coverage and accept every individual who applies for enrollment when first eligible under the plan. Also, policies must be renewable except in cases of nonpayment of premiums or fraud.
For people leaving group insurance coverage and seeking an individual policy, they are also guaranteed availability and renewability rights, but insurers may restrict the type of plans offered. Previous "creditable" coverage must first be demonstrated, with no breaks of more than 63 days. States are expected to enact individual market reforms which at least meet these new minimum federal requirements.
The portability, renewability, and availability requirements do not apply to all types of insurance offered by employers or sold by insurers. They don't apply to benefits such as dental, workers compensation, or any supplemental insurance sold under a separate contract or policy that is not integral to the group health plan.
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Medical Savings Accounts (MSAs)
The MSA pilot, or demonstration project, will be availability only to small employers of 50 or fewer employees, and self-employed individuals. It will be limited to 75,000 policies in any year. Terms of the MSAs allow people who have high-deductible "catastrophic" insurance policies to make tax deductible contributions to a MSA. The maximum amount that can be deposited into a MSA is 65% of the deductible amount for individual coverage and 75% of the deductible amount for family coverage, up to certain deductible limits. Funds withdrawn from MSAs are tax free if used for medical expenses, but can't be used to pay for premiums. If used for other purposes, withdrawals will be added back to income and taxed to the employee. During this pilot, studies will be done to determine whether MSAs have a bad effect on the insurance market and coverage.
AFSCME has opposed the introduction of MSAs because of their effects on the important risk-pooling principle of group insurance. If young, healthy members of a group insurance pool are siphoned off by MSAs, remaining members of the group will see their insurance costs go up. This becomes particularly problematic as a workforce ages and groups contain more disabled members. Moreover, MSAs work against the principles of preventive health and comprehensive coverage because people may postpone important services and checkups because these are not covered by high-deductible policies. Finally, MSAs are more attractive to high income people in high tax brackets, and actually can make it more difficult for low and middle income people to afford insurance.
Other tax-related changes to health insurance include greater tax breaks for self-employed people who purchase health insurance, and more favorable tax treatment of private long-term care insurance. In addition, nonpenalized withdrawals from Individual Retirement Accounts (IRAs) will be permitted for medical expenses in excess of 7.5% of income, and withdrawals made by people who have been unemployed for at least 12 weeks.
Timetable
Rules governing MSAs will become effective January, 1997, and are extended through 2000, when Congress will revisit the issue.
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COBRA Changes
COBRA allows employees who are temporarily or permanently laid off, whose hours are reduced, or otherwise "severed" from employment to continue health coverage at their own expense for 18 months. Amendments to COBRA apply to the rights of disabled persons and coordination of COBRA coverage with the new law's pre-existing condition provisions. For disability coverage, the new law extends COBRA so that an individual who becomes disabled at any time during the first 60 days of COBRA continuation--rather than disabled only at the time of employment termination or hours reduction--may be covered for up to 29 months. Family members would also be entitled to this extension period. These changes will apply to state and local employers, with no opportunity to opt out.
The definition of "qualified beneficiary" was expanded to include a child born to or placed for adoption with the covered employee during a period of COBRA coverage.
The duration of COBRA coverage was changed so that if a beneficiary becomes insured under a new group plan, since that new group plan cannot impose pre-existing condition exclusions, the plan providing COBRA coverage can stop making it available to that beneficiary.
Timetable
Group health plans must begin notifying qualified beneficiaries beginning November 1, 1996 of the new COBRA provisions. The new provisions themselves take effect January 1, 1997.
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Fraud and Abuse Prevention
The new law establishes a fraud and abuse control program and provides a permanent source of new funding for coordinating the efforts of the Departments of Justice and Health and Human Services to fight fraud in the Medicaid and Medicare programs. It creates a new criminal statute for health care fraud, and strengthens HHS' authority to bar providers convicted of fraud from the programs.
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Mental Health Coverage and Maternity Stays
After PL 104-191 was passed and signed, it was amended in late September to include a modified "mental health parity" provision similar to one that had been dropped in the earlier bill. The language is vague, but prohibits health plans from placing more restrictive annual and lifetime limits on mental health coverage than coverage for physical illness. It does not require that mental health coverage be provided, and does not prohibit different cost-sharing between mental and physical health coverage. If a health plan can show that premiums increased by more than 1% as a result of the expanded mental health coverage, it may obtain an exemption.
Impact on Health Plan Costs
AFSCME negotiators may encounter employers who claim that these new requirements will cause their costs to go up, require higher copays and deductibles, and even force them to drop mental health coverage altogether. As with other employer claims, we will have to demand to see the actuarial analysis and decide for ourselves what is real and what is exaggeration and unrealistic assumptions. An actuary for Milliman & Robertson estimates that the mental health parity provision will not produce cost increases greater than 1%, and expects the maternity stay to raise costs by as much as 3%.
The legislation also provides new mothers with at least a 48 hour hospital stay that can be extended to 96 hours for a Cesarean delivery. Public employers do not appear able to "opt out" of these two provisions.
Timetable
The mental health and maternity stay provisions are not effective until January, 1998.
Other Changes
There are also provisions affecting the electronic transfer of health information among providers, insurers, and government, and a requirement on the Secretary of HHS and Attorney General to establish rules to protect patient confidentiality if Congress fails to act.
As federal agencies begin to write rules in 1997, more information will be available
about how this new law will be interpreted and implemented. Please contact the Public Policy Department if you have additional questions. If you would like assistance bargaining these changes in contracts, please contact the Research Department.
AFSCME Department of Public Policy
November, 1996
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