Publications

The Health Insurance Portability and Accountability Act (HIPAA) (1997)

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) was a significant step forward in providing additional health security for American workers and their families. However, an opt-out provision, available to state and local government self-insured plans, could exclude millions of public employees from the most important protections of HIPAA, and from two related new laws, the Mental Health Parity Act of 1996 (MHPA) and the Newborns’ and Mothers’ Health Protection Act of 1996 (NMHPA). Here is a brief description of the portions of the three laws from which a plan may be exempted:

HIPAA prevents discrimination against employees and dependents based on their health status, requires special enrollment periods for individuals who originally declined health coverage for certain specified reasons, and limits exclusions for pre-existing conditions.

MHPA requires plans that offer mental health coverage to apply the same annual and lifetime maximum coverages for treatment of mental and nervous disorders as are applied to medical/surgical benefits.

NMHPA requires that plans covering maternity hospital stays provide such coverage for at least 48 hours following a normal delivery and 96 hours following a cesarean section.

Availability of the Opt Out

Only self-insured state and local government plans can opt out of HIPAA. Governments with fully insured plans must comply with the law. Most HMOs are fully insured so they must comply. However, a large number of state and local government PPO and indemnity plans are self-insured.

Notification requirements

Governmental plans are not automatically exempted from these laws. Plans electing to be excluded from HIPAA must notify the federal Health Care Financing Administration (HCFA) on an annual basis and must also notify plan participants at the time of enrollment in the health plan and on an annual basis. If a plan does not opt out on a timely basis, or fails to provide the appropriate notifications, it is subject to the requirements of the laws for the entire plan year or, for plans that are collectively bargained, for the term of the bargaining agreement. When a plan opt outs of HIPAA, it is also exempt from the requirements of the MHPA and NMHPA.

Plans that opt out are still required to provide written certification of coverage to terminating employees, which then can be used by the employee to reduce the length of a pre-existing condition limit under a new employer’s plan, if that employer has not elected to opt out of the provisions of HIPAA.

Effective dates

For non-collectively bargained plans, most requirements of HIPAA is effective at the beginning of the first plan year starting after June 30, 1997. Notification to opt out must be made to HCFA prior to the first day of the new plan year. There is a special rule for plans covered under collectively bargained agreements ratified before Aug. 21, 1996 that delays the effective date. HIPAA applies to these plans either the first day of the plan year beginning on or after the date on which the collective bargaining agreement expires or July 1, 1997, which-ever is later. If the plan covers members of more than one bargaining unit, the opt-out date should be the date of termination of the last bargaining agreement. Notification of the opt-out election must be received by HCFA within 30 days after the date of the agreement between the employer and the union.

The MHPA and NMHPA take effect for plan years beginning on or after Jan. 1, 1998. Benefits mandated under the MHPA are for a limited duration. A "sunset" provision in the law provides that these requirements will cease to apply after Sept. 30, 2001. These effective and termination dates are the same, whether benefits are covered under a collectively bargained or non-collectively bargained plan.

What can the union do?

We are beginning to see public employers exercise their right to opt out. To date (October 1997) approximately 200 public employers have notified HCFA of their intent to opt out of the new laws. HCFA expects that number to increase significantly over the next few months.

The election to opt out of the applicable provisions of the law is typically a mandatory subject of collective bargaining. In collective bargaining states, the following is sample contract language requiring the employer to comply with the new laws:

The Employer will comply with the Health Insurance Portability and Accountability Act of 1996, the Mental Health Parity Act of 1996, and the Newborns’ and Mothers’ Health Protection Act of 1996.

Alternatively, language could simply require compliance with HIPAA, since an employer can only opt out of the MHPA and the NMHPA if they opt out of HIPAA.

State insurance commissioners may be an ally in discouraging public-sector opt outs. They are charged with enforcing HIPAA in the private sector, and their organization, the National Association of Insurance Commissioners (NAIC) strongly supports the portability provisions. Also, state and local government management level staff and other non-union staff, who would also benefit from the protections in these laws, may join forces with the union in fighting opt outs.

Arguments against the Opt Out

Following are some arguments against the opt out that can be used, whether through the collective bargaining process or in the legislative arena:

Employees in public-sector jurisdictions that elect to opt out will be denied the same protections that are available to most other working Americans. This is a basic fairness issue and we strongly encourage all public employers to "do the right thing." Public employees have the same health security concerns as other workers.

Many experts agree that compliance with HIPAA should have only a moderate effect on health plan costs. The interim HIPAA regulations issued April 1, 1997 state the following:

Portability Provisions

The Congressional Budget Office has generally determined that there will be a negligible impact on these governmental entities, even in the event that, in their capacity as sponsors of employee health care coverage, they choose not to opt out of having certain provisions of the statute apply to them. ... If there were no opt-out entities, CBO projects that state and local governments would see an increase in health care costs of less than $50 million, or 0.1% of the $40 billion annually in state and local total health insurance expenditures.

Mental Health Parity

Common wisdom used to hold that mental health parity would create skyrocketing health care costs. However, a preliminary report to Congress from the National Advisory Mental Health Council, advisors to the National Institute of Mental Health, which is a part of the National Institutes of Health, states that: "parity in combination with managed care results in lowered costs and lower premiums (or at most, very modest cost increases) within the first year of implementation." Earlier estimates assumed 100 percent coverage under traditional indemnity plans. Since over 75 percent of workers are now covered by managed care plans, estimates were revised accordingly. Even if plans do not elect to opt out, they are not required to meet the mental health parity requirements if inclusion of those benefits would increase costs by 1 percent or more.

Minimum Maternity Stays

At this time, there seems to be no consensus on the cost of this provision. Some experts believe costs will vary by geographical area and by the method a plan uses for determining reimbursements. However, if public employers elect to opt out, they still may be required to provide a specified level of maternity care if mandated by state law. An increasing number of state legislatures have passed laws which require plans to cover minimum maternity stay that are comparable to those required under HIPAA. As of the middle of 1997, at least 28 states passed such legislation. While self-insured health plans are generally not subject to state mandated benefits, there is controversy as to whether these new state laws are mandated benefits or mandates on how benefits are delivered. Generally, this is subject to interpretation and may vary from state to state. It can be argued that if a self-insured plan already covers maternity benefits, it must comply with the state laws that dictate how those benefits are delivered.

Impact on Insured

The intent of the portability provisions of HIPAA is to help working Americans maintain health coverage when changing jobs. By allowing public-sector employers to opt out, more and more working Americans will join the ranks of the uninsured. With no other coverage available, eligible individuals will receive uncompensated care, often in hospital emergency rooms, which will further increase premiums of those with health insurance. Those that are eligible for Medicaid will receive care through that program and increase its costs.

Recruitment

Employers who opt out may have a more difficult time recruiting quality staff. Assuming all else is equal, applicants will likely choose to seek employment where full health coverage is immediately available.

Cost of Opting Out

As noted above, employers electing to opt out must provide each plan participant with written notice of the election upon enrollment and annually thereafter. The notice must describe each main HIPAA requirement, the portions of the plan subject to the opt out, and the consequences of the election. Presumably this notification would be mailed, a costly administrative function. Alternatively, the notification can be prominently displayed in the plan’s summary plan document (SPD) but even in this case the law requires annual notification. In other words, employers that choose the SPD option would be required to provide each enrollee with a copy of the SPD each year, a costly and unusual practice.

Small group markets

HIPAA includes a guaranteed availability requirement which applies to small group markets (employers with 50 or fewer employees.) Health insurers offering coverage to small groups must make that coverage available to every small employer within the state and may not exclude any eligible individual who applies for coverage when it first becomes available. This has caused problems in some small AFSCME-represented jurisdictions where members have had long-term coverage under rich indemnity plans (no or very low deductibles or co-payments). While the insurers were willing to continue such coverage for existing small groups, they are unwilling to offer these plans to other small employers. Consequently, the insurers will only renew the existing policies if new deductible and co-payment provisions are added to the plans.

Fortunately, the bargaining agreements in the affected jurisdictions that we are aware of, include language which requires that the employer offer health coverage which is at least equal to the coverage currently provided. Since the insurers were not willing to renew existing policies, employers have agreed to self-insure the deductible and co-payment portions of these plans.

For more information on HIPAA and/or the steps that a public employer must take to opt out of the law, contact the Department of Research and Collective Bargaining Services at (202) 429-1215.

Print Version