Health Insurance Portability and Accountability Act of 1996
A Summary
On Wednesday, August 21, 1996, President Clinton signed
into law the Health Insurance Portability and Accountability Act of 1996
(hereinafter referred to as the Health Insurance Reform bill), more commonly
known as the Kassebaum/Kennedy bill, named after its Senate sponsors. The new
law will establish federal regulation of private health plans. The Health
Insurance Reform bill is most valuable to individuals who are currently
insured and who change or lose their jobs. It is designed to enhance the
portability and continuity of health insurance coverage in both the group and
individual markets and to benefit employees of small firms and people who
purchase insurance polices in the individual market. The bill also increases
the deduction for health insurance costs of the self-employed.
The bill strengthens health care fraud and abuse
controls, authorizes the creation of medical savings accounts, and allows for
acceleration of death benefits, in addition to a host of other reforms. The
bill does little for the 40 million Americans who have no health insurance and
offers no protection from significant increases in insurance premiums,
potentially making insurance coverage more costly. Most provisions of the new
law take effect on July 1, 1997. The following is a summary of the key aspects
of the Health Insurance Reform bill.
The Health Insurance Reform bill increases the
portability of group health insurance for individuals moving from one health
plan to another by limiting, but not eliminating, the use of preexisting
condition exclusions. When changing jobs or insurers, an employee who has been
covered for at least 12 months by an employer's health plan could not be
subject to a preexisting condition exclusion as long as coverage has not
lapsed. Employees who change jobs or insurers after eight months of coverage,
however, would be subject to a four month pre-existing condition exclusion
under the new group policy. In addition, newborns and adopted children covered
within 30 days of birth or adoption, and all pregnancies, are exempt from any
preexisting condition exclusion period.
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The new law also includes provisions which guarantee the
availability of coverage to employees in the small group market, defined as
employers with fewer than 50 employees. Indeed, the Health Insurance Reform
bill mandates that every insurer and health maintenance organization (HMO)
offering coverage in the small group market accept every small employer that
applies for coverage as well as every employee in the employer's group.
Insurers, however, may refuse to extend group coverage to a small employer if
the insurer does not have the necessary financial reserves to offer more
policies. In this case, the bill prevents insurers from selling policies to
any company in the geographic area for a defined period of time.
Under the new law, insurance companies in both the large
and small group markets are prohibited from denying coverage or renewal of
coverage based on an eligible employee's health status, medical condition,
claims experience, receipt of health care, medical history (including both
physical and mental illness), genetic information, evidence of insurability,
or disability. A group health plan or health insurer, however, may impose
limitations on its covered benefits as well as limitations on the amount,
level, extent, or nature of coverage as long as the limitations are applied to
all similarly situated enrollees.
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The new law also requires insurers to guarantee renewal
of health insurance policies. No longer may a health plan or health insurer
refuse to renew a policy based on the claims experience of the group or any
individual within the group. The only exceptions to this requirement are cases
of fraud, nonpayment of premiums, or noncompliance with plan guidelines. A
group health plan may also terminate all coverage in a state, but if it does
so, the plan will be barred from selling additional policies in that state for
five years.
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The new legislation includes access and portability
requirements for policies sold in the individual market as well. Health
insurers offering coverage in the individual market must make available
coverage to all individuals who have been previously insured for at least 18
months, are ineligible for group coverage, Medicare or Medicaid, have not been
terminated from prior coverage due to fraud or nonpayment of premiums, and
have exhausted COBRA continuation coverage. In addition, the bill prohibits
the denial of coverage based on any preexisting condition, assuming no lapse
of coverage has occurred. The new federal requirements do not supersede state
laws that already guarantee continued coverage for:
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individuals who leave group health plans;
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health insurance coverage pools;
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mandated group conversion policies;
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the issuance of individual plans; or
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open enrollment pertaining to individual policies.
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The Health Insurance Reform bill directs the Secretary
of Health and Human Services ("HHS Secretary") and the Attorney
General to coordinate federal, state and local law enforcement efforts against
health care fraud and abuse. Revisions to the criminal laws create new
penalties for health care fraud which apply to all health care programs, not
only Medicare and Medicaid. A national health care fraud and abuse data
collection program for reporting and disclosing actions against health care
providers, suppliers, or practitioners will also be established.
The new law provides for additional funding to combat
health care fraud and abuse nationwide. Civil monetary penalties, fines, and
forfeitures collected through the fraud and abuse enforcement program will be
deposited into a newly created Health Care Fraud and Abuse Control Account
within the Medicare Hospital Insurance Trust Fund. These new monies will be
earmarked to finance efforts to control fraud and abuse. Cash rewards will be
made to individuals for reporting incidents of Medicare and Medicaid fraud or
abuse that lead to criminal or civil convictions and to beneficiaries who
provide suggestions that generate savings for these programs.
The new law provides for the publication of special
fraud alerts by the Justice Department and the issuance of advisory opinions
by the Office of HHS Inspector General ("OIG") when a health care
provider requests government review of proposed business plans and practices.
These opinions will be legally binding on the HHS Secretary and the entity
requesting the opinion. Providers may request such advisory opinions for
guidance on anti-kickback issues, inducements to refer or reduce services, and
safe harbor regulations. These advisory opinions, which will be available from
the OIG only for a four year period, will allow providers to obtain better
information about particular activities that may be subject to penalties.
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The new law stiffens criminal penalties and fines for
Medicare and Medicaid program violations and extends certain Medicare fraud
and abuse sanctions to all federal health care programs (except the Federal
Employee Health Benefits Program (FEHBP)). The law requires the HHS Secretary
to exclude from program participation anyone who has been convicted of a
felony related to health care fraud, even if there is no evidence that the
fraud occurred in a publicly financed program. Similarly, any provider
convicted of a controlled substance felony may be excluded from participation
in Medicare and Medicaid.
Individuals with an ownership or control interest in a
company which has been sanctioned for fraud and abuse may be excluded from
participation in Medicare and Medicaid. Providers will need to enhance their
reliance on corporate compliance programs to minimize exposure. In addition,
minimum suspension periods (ranging from one to three years) from federal and
state health care programs are established for various misdemeanor health care
fraud offenses, including accepting kickbacks or obstructing investigations.
A criminal penalty of five years in prison and a $25,000
fine may also be imposed where a potential beneficiary fraudulently disposes
of assets to obtain Medicaid benefits. In addition, the new law revises
criminal law by increasing the number of federal health care offenses in the
areas of fraud, theft or embezzlement, false statements, obstruction of
criminal investigations of health care offenses, and health care fraud-related
money laundering. The new law also permits injunctive relief, the freezing of
assets, and forfeiture of real and personal property in connection with health
care fraud.
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Civil monetary penalties for filing false Medicare and
Medicaid claims are increased from $2,000 to $10,000 per claim and damages are
increased from two to three times the amount of the false claim. These and
other sanctions are also extended to all federally-funded health care
programs. Individuals sanctioned under these laws who retain an investment or
management role in a health care business will now be subject to fines as high
as $10,000 for each day the business relationship is maintained.
Penalties may also be imposed on providers who offer
inducements to Medicare or Medicaid patients that the provider knows or should
know will influence a patient to seek services from a particular provider.
Finally, a new penalty may be imposed on physicians who certify the need for
home health services if such care is found to be unnecessary. The civil
penalty for this offense is the greater of $5,000 or three times the amount of
payments for the home health care.
The new law imposes a higher burden on the government to
show that a party knew or should have known a claim was false in order to be
held liable under the civil monetary penalties. The "know or should have
known" standard is now defined as "deliberate ignorance or reckless
disregard of the truth or falsity of the information," rather than the
lesser standard of failing to exercise "reasonable diligence" when
filing a claim. No proof of specific intent to defraud is required.
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The new law creates an exception to the anti-kickback
statute for managed care plans which allows payment under certain risk
arrangements (e.g., withholds, capitation, incentive pools). A special
provision is included for negotiated rulemaking that relates to the new
anti-kickback exception.
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The law establishes new standards and requirements for
the electronic transmission of health care information to be implemented
within 18 months after enactment. The Secretary of Health and Human Services
is required to adopt standards for the electronic exchange of financial and
administrative information which include the creation of unique health
identifiers for each individual, employer, health plan, and health care
provider. Within 12 months of enactment, the Secretary is required to make
recommendations to Congress for the development of standards and safeguards to
protect against the unauthorized use or disclosure of patient records. Absent
Congressional action, such standards must be implemented by the Secretary
within 42 months after the date of enactment of the new law. Where state laws
are more restrictive than the proposed federal standards, state law will
prevail.
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The Health Insurance Reform bill also amends the
anti-duplication provisions of the 1990 Budget Reconciliation Act. As long as
the coordination of coverage has been disclosed to the purchaser of the
policy, the new law allows insurance policies offering long-term care, nursing
home coverage, home health services, or community based care (or any
combination thereof) to be coordinated with Medicare benefits and not be
considered duplicative.
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The Health Insurance Reform bill includes provisions
that permit the establishment of medical savings accounts for individuals with
high deductible, catastrophic health care coverage. For the period 1997
through 2000, firms with fewer than 50 employees covered under high deductible
plans and self-employed individuals may make tax-exempt contributions to
medical savings accounts (MSAs). To receive tax favored benefits, eligible
individuals must be covered under a qualified high deductible health plan and
not be covered under any other health plan (with limited exceptions).
Contributions to MSAs can be made annually by either the employer or the
employee. Once eligible, small employers remain qualified until they have more
than 200 employees.
During the four-year period, the number of MSA policies
issued to individuals who convert their current insurance to MSA plans will be
limited to 750,000. However, individuals uninsured for six months who elect to
establish an MSA will not be counted in the total. After December 31, 2000,
contributions may be made only by or on behalf of self-employed individuals or
employers who previously made MSA contributions. A high deductible plan is
defined as a health plan with an annual deductible of between $1,500 and
$2,250 for an individual and $3,000 to $4,500 for a family. Maximum
out-of-pocket expenses (including the deductible) are limited to $3,000 for an
individual and $5,500 for a family.
Individual contributions to MSAs are tax deductible. In
the case of a self-employed individual, however, that person cannot deduct
more than his or her earned income from the business. The maximum annual
contribution to an MSA is 65 percent of the deductible under a small
employer's high deductible plan, or 75 percent of the deductible for family
coverage. Early withdrawals from an MSA prior to age 59.5 or due to death or
disability are subject to tax. In addition, amounts withdrawn but not used for
medical expenses are includible in taxable income and subject to an additional
10 percent penalty.
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Under the new law, the deductible percentage of the cost
of health insurance for self-employed individuals will increase incrementally
from the current level of 30 percent to 80 percent by the year 2006. In
addition, the new law excludes from income for the self-employed certain
payments made for personal injury or sickness. This provision equalizes the
tax treatment of payments under commercial insurance and arrangements that
have the effect of commercial insurance. Self-employed individuals may exclude
these payments from taxable income.
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The Health Insurance Reform bill clarifies the tax
treatment of long-term care insurance. That is, the new law provides a medical
expense deduction for payment of qualified long-term care insurance premiums
and expenses. Long-term care includes diagnostic, preventive, therapeutic,
curing, treating, mitigating, and rehabilitative services, and maintenance or
personal care services required by a chronically ill individual. In addition,
the new law allows for favorable tax treatment of accelerated death benefits
under life insurance contracts for individuals with terminal illnesses.
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Enforcement of the new coverage and portability
requirements will be accomplished through the tax system. A tax is imposed on
group health plans for noncompliance. However, small employers that provide
health care benefits through contracts with an insurer or HMO are not subject
to this tax. In addition, group health requirements are inapplicable to
government plans (e.g., coverage of State and local government employees) and
plans which cover fewer than two employees.
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Under the new legislation, the COBRA coverage period of
29 months in the case of persons with disabilities is extended to qualified
disabled beneficiaries of covered employees. In addition, COBRA rules are
modified to allow plan participants to change their coverage on the birth or
adoption of a child.
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