August 1996

Clinton Signs Kennedy-Kassebaum Health Care Legislation

by Lisa D. Baragar, Consultant for Public Policy

On August 21 President Clinton signed groundbreaking health care legislation into law. HR 3103, the Health Insurance Portability and Accountability Act (HIPAA) of 1996, may be the closest thing to real health care reform that we will see for some time.

Most opposition to medical savings accounts (MSAs), portability, and preexisting-condition exclusions was resolved in conference committee, after the House and Senate had failed to agree on separate versions of the bill. The conference committee completely removed one contentious provision of the legislation—mental health parity. The committee report was adopted in early August with a unanimous vote in the Senate and only two dissenting votes in the House.

Sponsors of the original legislation, senators Nancy Kassebaum (R-Kan.) and Edward M. Kennedy (D-Mass.), agree that the final version of the conference report was a "historic step forward."

In Michigan, the Small Business Association of Michigan (SBAM), Blue Cross and Blue Shield of Michigan (BCBSM), and AFL-CIO all support the bill (the latter, however, does have one reservation—officials believe the legislation mostly serves to help people already benefitting from the current health care system). SBAM officials observe that most provisions place mandates on health insurers rather than employers, and BCBSM officials suggest while the legislation will bring about significant change in some states, it will have a negligible effect in Michigan.

Medical Savings Accounts

One of the legislation’s most important reforms is the establishment of medical savings accounts (MSAs). A pilot program will begin in early 1997 and end in 2000, during which a total of 750,000 tax-exempt MSAs will be allowed. The MSAs may be sponsored by small employers (2–50 employees) or self-employed individuals. To be eligible, a worker must be covered under a high-deductible health plan and, with a few exceptions, not be covered under any other health plans. If employers contribute to the MSAs, their contributions must be in equal amounts for all workers. Individuals who contribute to MSAs may deduct their annual expenses or $2,000, whichever is less; for families, the deduction limit is $4,000.

SBAM officials believe that MSAs are a good start on the road to health reform, but they caution that employers must be aware of certain potential outcomes. Barry Cargill, vice president of governmental relations, explains: "MSAs are an attractive option for young, healthy individuals. Now they can save in an IRA-style plan, get tax advantages, and have access to a catastrophic health care plan. MSAs will not likely be the answer for individuals who incur a lot of health expenses—for them there is more security in group health plans." He points out that as the number of low-risk individuals opting for MSAs rises, the ratio of high- to low-risk participants in group plans could go up as well, and the result could be that group coverage will become more expensive.

Group Health Plan Portability

Portability addresses workers’ fear that if they lose or leave their job, they will be left without coverage during the employment transition. The HIPAA ensures that workers and their dependents can receive medical coverage when they experience a break or change in employment. These provisions apply, however, only to people who have maintained continuous private coverage for 18 months prior to enrollment and exhausted their COBRA benefits; insurers are not required to provide new coverage if there is a coverage lapse of more than 63 days beyond the 18-month COBRA allowance. Waiting periods required after enrollment do not count as a break in coverage.

Cargill contends that portability provisions will help employees and small proprietors who often face "job lock." He says, "Portability makes it easier for employees to move from one job to the next."

Mary Faroni, federal advisor for BCBSM, agrees with Cargill that the legislation is a step in the right direction. Nevertheless, she maintains that it ". . . will not have a dramatic effect on Michigan. The state already comes close to complying with a majority of the bill’s provisions and has been out in front as far as portability and preexisting-condition exclusions go." Faroni points out that Michigan’s mandatory group conversion coverage was adopted approximately ten years ago, allowing individuals to assume full payment of their health premiums in order to keep the coverage they had under their previous employer; workers may choose this option regardless of whether they are eligible for COBRA.

Preexisting-Condition Exlusions

The HIPAA has several provisions regarding preexisting conditions. It prohibits insurers from denying coverage or imposing preexisting-condition exclusions for more than 12 months for any condition diagnosed or treated in the preceding six months. The 12-month waiting period is a lifetime limit, however; an insurer cannot impose a waiting period on a person ever again unless the individual has allowed coverage to lapse for more than 63 days.

Employer-based health plans cannot deny coverage to workers who are disabled, in poor health, have filed numerous claims in the past, have been victims of domestic violence, or have genetic conditions.

In addition, preexisting-condition exclusions cannot be imposed on newborns, adopted children, or pregnant women, but the children must be covered within 30 days of birth or adoption, and no coverage can have lapsed for more than 63 days.

A plan cannot be intentionally designed to exclude workers or their dependents on the basis of their health status, and no employee or self-employed person can be subjected to higher rates or denied coverage enjoyed by all others in his/her group. The legislation does not restrict, however, what an insurer may charge an employer for group coverage, and insurers are not prevented from charging an entire group more than other groups for its coverage.

Other

The HIPAA addresses many issues other than MSAs, portability, and preexisting-condition exclusions. The act (1) deals with claims fraud and makes appropriations to increase investigation of false claims; (2) phases in, from 1997 to 2006, a hike from 30 to 80 percent in self-employed insurance deductions; (3) guarantees coverage renewal, as long as individuals make their premium payments and are not involved in claims fraud; (4) seeks to expand Department of Health and Human Services inspector general offices to all 50 states; (5) prohibits health insurers and group plan providers from denying coverage to businesses with 2–50 employees; (6) provides tax incentives allowing the chronically ill to deduct on their federal return up to $175 per day for the cost of long-term care benefits; and (7) maintains state regulation of Multi-Employer Welfare Arrangements (MEWAs consist of five or more employers that finance health and other benefits).

Conclusion

With all of its provisions, the final version of HR 3103 is a big step toward genuine health care reform. However, as Senate Minority Leader Tom Daschle (D-S.Dak.) stated, "This bill is to health care as one event is to the Olympics."

Although HR 3031 is not all-encompassing, it does make one thing clear: Health care reform will take time, and consensus will remain hard to achieve. The Kennedy-Kassebaum legislation is historic, however, in that it is the first successful effort by policymakers to reach accord and effect significant change in the U.S. health care system.