The Impact of the Health Insurance Portability and Accountability Act of 1996

March 19, 1998

The National Association of Health Underwriters is an association of insurance professionals involved in the sale and service of health insurance, long term care insurance, and related products, serving the insurance needs of over 100 million Americans. We have more than 14,000 members around the country. We appreciate this opportunity to present our comments regarding technical corrections to the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

HIPAA has provided many new protections for health insurance consumers. As with any legislation of this magnitude, however, there are certain aspect of the legislation which should be clarified.

The first such issue relates to the provisions on preexisting conditions limitations on pregnancy. We support this provision of HIPAA, however, we would like to see a clarification which states that the waiver of the preexisting conditions limitation applies only to pregnancy for TIMELY ENTRANTS. This would prevent someone from "gaming the system" by delaying coverage for pregnancy until the 8th or 9th month of pregnancy and then coming on the plan as a late entrant, but with full coverage for the pregnancy. Without such a clarification, this is the ultimate form of adverse selection, and can only result in higher health plan expenses, which will result in higher premiums to health insurance consumers.

Our next concerns center around the break in coverage period. First, the Family Medical Leave Act allows a twelve week (84 days) break in coverage period without a loss of time already served toward preexisting conditions limitations. We would like to see language inserted in HIPAA to clarify the 63 day allowed break in coverage period as follows: "except for Family Medical Leave, in which case the break in coverage may be 84 days."

Also relating to the break in coverage period, a clarification should be made that waiting periods do not count toward the 63 day break in coverage period, even if the person’s employment terminates prior to the end of the waiting period.

Many of the HIPAA questions our members encounter are centered around the late enrollee provisions of HIPAA. There have been some interpretations of late enrollee provisions that say that HIPAA does not require plans to have a late enrollee provision, and that the extended (18 month) preexisting conditions limitations period applies only IF the plan offers an opportunity for late enrollees to enter the plan. Other intrepretations say the statute allows ALL coverage to be deferred for 18 months for late enrollees, not merely imposition of an eighteen month versus a twelve month preexisting conditions exclusionary period. NAHU questions both of these interpretations in light of the fact that late enrollees and provisions relative to them are so clearly defined in the legislation. We suggest that a provision be added to HIPAA to clarify that all plans must have an annual enrollment period during which time late enrollees may enter the plan, subject to the eighteen month late enrollee preexisting conditions limitation period. Coverage could not be deferred during the eighteen month period, but would be limited only for preexisting conditions.

The break in coverage period for individuals applying for coverage under the group to individual portability provisions of HIPAA has been confusing for some individuals and carriers. An individual may wish to try to obtain coverage in the less expensive non-HIPAA individual insurance market before applying for coverage under the group to individual provisions of HIPAA, yet may be fearful of losing the guarantees provided under HIPAA. We suggest that the date an individual applies for individual coverage should "stop the clock" for purposes of calculating the allowed break in coverage period, in the event that the coverage is subsequently declined or rated above standard rates. This process should be allowed to be repeated one additional time without penalty to the allowed break in coverage period. This is essential to allow the individual adequate time to obtain the best possible rate for the needed coverage. If coverage can be obtained on a favorable basis through the normal underwriting process, the overall rate to the individual should be lower.

Prior to the passage of HIPAA, NAHU expressed concerns regarding the potential impact of higher risk individuals on rates in the individual market. At that time, we strongly supported High Risk Pools and other state initiatives designed for the demographics of the citizens in individual states. We made suggestions relative to retaining risks in the group market, which is more suited to higher risks. Unfortunately, not all of these suggetion were incorporated into the final legislation. The anecdotal information on the rate fluctuations in the group to individual market appear not to have occurred among states which have exercised the individualized alternative mechanisms allowed under HIPAA, but under those who have used some form of federal fallback provisions. NAHU strongly believes that a one size fits all approach to this section of HIPAA, such as a specified premium cap, will not provide a permanent solution to the rate fluctuation, and will, in fact, have just the opposite effect by eliminating competition and forcing insurance carriers to exit states where the cap is inappropriate. We would appreciate the opportunity to work with members of the committee on an approach which will allow state flexibility and keep coverage affordable for consumers.

Our concerns about the long term care provisions in HIPAA can be expressed in one word: choice. Whereas recent legislation has allowed more choice for seniors in the Medicare arena, HIPAA has inadvertently taken away choice for policyholders and purchasers of long term care (LTC) policies.

Our primary area of concern deals with the taxation of benefits received from non-qualified plans. Under HIPAA, insurance carriers must report to the IRS the aggregate amount of benefits paid to any individual during the calendar year who has received nursing home or home health care insurance dollars. The IRS requires that a statement of earnings (or 1099) be issued to the patient. It does not matter if the patient owns a qualified plan or a non-qualified plan. Everyone who receives convalescent care in a nursing home or at home will be issued a statement of wages from their insurance carrier for dollar amounts during their confinement.

The statute is clear about how the expenses of qualified plans will be treated, but it is silent on the tax treatment for non-qualified plans. Tax experts are warning non-qualified insurance purchasers that the patient will receive an income statement that must be reported to the IRS, and that the expenses will not be deductible. NAHU does not believe that it was the intent of Congress or the President to punish seniors for purchasing such plans.

There are differences between the qualified and non-qualified plans. The qualified policy benefit triggers are restrictive. First, there is the requirement that the insured needs substantial human assistance for at least 90 days in order to qualify for benefits. This leaves the many claims that are for less than 90 days uncovered, even though they can typically run into several thousand dollars. The second is the trigger for severe cognitive impairment where a doctor must issue a certificate which states that 90 days of actual (vs. expected) care is necessary for the senior’s claim to be paid. Both of these triggers for claim payment must accompany a doctor’s certification that the individual receiving LTC must need substantial or continual human assistance or supervision, versus the user friendly term, regular or routine human assistance. The qualified policy lacks a "medically necessary" benefit trigger, which provides that benefits can be paid when the insured does not require help with 2 or more Activities of Daily Living (ADLs), but does need long term care. In a nursing home or assisted living facility, many seniors fit into the category of being sick enough to need care but not sick enough to obtain a qualified policy’s benefits. We must not forget our seniors and push them into living without proper care which puts their welfare in jeopardy. Furthermore, they should not become destitute paying for the care themselves when they are able and willing to buy a private policy to cover potential expenses. If their claims are left uncovered it will force many to rely on Medicaid. This is a cruel fate to those whom we have asked to provide for their final years by protecting themselves with long term care insurance. Some seniors may be forced to delay care to the point where their health has seriously deteriorated, and, as a result, need more care and a more intensive, more costly setting than would have been necessary had they purchased a policy providing earlier intervention in the form of adequate benefits. In qualified plans, the money received from the insurance carrier to pay the Nursing Home or Home Health Agency can be as little as 50% of some of the non-qualified plans. Would it not be simpler and more cost effective to consider the HIPAA long-term care plan as a minimum standard policy and allow individual states to address the riders and additional benefits best suited to the needs of their seniors? The differences in the plans are significant enough that most seniors would likely choose a non-qualified plan. Older Americans should be given that choice.

Taxing the benefits of a policy that does nothing more than reimburse for legitimate long term care expenses incurred is not fair and will be harmful to their plight as elderly Americans. Taxation will cause the extinction of the non-qualified policies and restrict seniors from better plans. What will be sold will be only the qualified policy which will be a standardized, inflexible, benefit-deficient policy. NAHU, therefore, strongly urges that non-qualified benefits not be taxed.

In summation, it does not seem logical that the same Congress and President that agreed to more choice within the framework of Medicare benefits would support less choice for long-term care. We hope the committee will work with us and other consumer groups to address the concerns we all have for our senior population.

Thank you for this opportunity to share our views. We are available for any questions or clarifications that would be useful to the committee.

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