Health Insurance Standards

In 1996, Congress passed the Health Insurance Portability and Accountability Act, considered by some to be the most significant federal health insurance legislation in more than a decade. The act guarantees people losing group health coverage, through retirement or other termination of employment, continued access to coverage in the individual market regardless of health status. But consumers attempting to exercise this right have been hindered by carrier practices and pricing or by their own misunderstandings of the law. Many have had difficulty obtaining individual market coverage with guaranteed access rights or faced significantly higher premiums for such coverage; some carriers charge premiums as much as 600 percent higher than standard rates. Other consumers do not realize that the access guarantee applies only to those losing group coverage who meet other eligibility requirements. For example, an individual must apply within 63 days of losing group coverage or the right to coverage is lost. Insurers believe that the act poses an excessive administrative burden, unanticipated consequences, and the potential for consumer abuse. State insurance regulators have encountered their own difficulties in attempting to implement and enforce the act's provisions where they found federal guidance to lack sufficient clarity or detail. Finally, federal regulators face an unexpectedly large regulatory role under the act. In states that have not yet passed legislation to implement the act, the Health and Human Services Department must step in to perform functions similar to those of a state insurance regulator, such as approving insurance products and responding to consumer complaints. GAO summarized this report in testimony before Congress; see: Health Insurance Standards: Implications of New Federal Law for Consumers, Insurers, and Regulators, by William J. Scanlon, Director of Health Financing and Systems Issues, before the Senate Committee on Labor and Human Resources. GAO/T-HEHS-98-114, Mar. 19 (17 pages).

GAO noted that: (1) although HIPAA provides people losing group coverage the right to guaranteed access to coverage in the individual market regardless of health status, consumers attempting to exercise their right have been hindered by carrier practices and pricing and by their own misunderstanding of this complex law; (2) among the 13 states where this provision first took effect, many consumers who had lost group coverage experienced difficulty obtaining individual market coverage with guaranteed access rights, or they paid significantly higher rates for coverage; (3) some carriers have discouraged individuals from applying for the coverage or charged them rates 140 to 600 percent of the standard premium; (4) carriers charge higher rates because they believe individuals who attempt to exercise HIPAA's individual market access guarantee will, on average, be in poorer health than others in the individual market; (5) many consumers do not realize that the access guarantee applies only to those leaving group coverage who meet other eligibility criteria; (6) individuals must have previously had at least 18 months of coverage, exhausted any residual employer coverage available, and applied for individual coverage within 63 days of group coverage termination; (7) consumers who misunderstand these restrictions are at risk of losing their right to coverage; (8) issuers of health coverage believe certain HIPAA regulatory provisions result in: (a) an excessive administrative burden; (b) unanticipated consequences; and (c) the potential for consumer abuse; (9) although issuers appear to be generally complying with the requirement to provide a certificate of coverage to all individuals terminating coverage, some issuers continue to suggest that the process is burdensome and costly and that many of these certificates may not be needed; (10) these issuers, as well as many state regulators, believe that issuing the certificates only to consumers who request them would serve the purpose of the law for less cost; (11) state insurance regulators have encountered difficulties in their attempts to implement and enforce HIPAA provisions where they found federal guidance to lack sufficient clarity or detail; (12) federal regulators face an unexpectedly large regulatory role under HIPAA that could strain the Department of Health and Human Services' resources and impair its oversight and effectiveness; and (13) partly in response to health insurance issuers' and state regulators' concerns, federal agencies issued further regulatory guidance intended to clarify current HIPAA regulations.