Health Insurance Reform: Changes In The Private Market Under H.R. 3103

The conference report for H.R. 3103, the Health Insurance Portability and Accountability Act of 1996, provides for changes in the private heath insurance market. The bill guarantees the availability of private heath insurance coverage for certain groups and restricts the use of preexisting condition restrictions. Renewal of coverage will be guaranteed with limited exceptions. Although H.R. 3103 creates federal standards for insurers, health maintenance organizations (HMOs), and employers who self-insure, the bill permits substantial state flexibility for compliance. This report examines the major features of H.R. 3103 regarding heath insurance.

H.R. 3103 regulates the availability of private heath insurance coverage by requiring health insurance issuers to :

Guaranteed issue and restrictions on preexisting condition provisions combine to create portability. Each of these features is discussed below. H.R. 3103 does not limit the premiums that issuers can charge for coverage in any market. The provisions generally will become effective for plan years beginning after June 30, 1997.

Under guaranteed issue, a health plan or health insurance issuer is required to cover any group or individual who applies, without regard to health status or claims experience. [NOTE: H.R. 3103 guarantees issue without regard to health status, medical condition (including both physical and mental illnesses), claims experience, receipt of health care, medical history, genetic information, evidence of insurability (including conditions arising out of acts of domestic violence), or disability.] H.R. 3103 requires each issuer that offers general coverage in the state's small group market to offer coverage to every small employer (defined as 2 to 50 employees) that applies. The bill also requires that group health insurance issuers, and employers who self-insure, offer coverage to all employees within the group, regardless of group size, without regard to their health status or the health status of their dependents.

In addition, federal guaranteed issue requirements will apply to insurance sold to certain individuals in the individual market where states do not currently have, or fail to implement, access programs that meet certain criteria. In states without such programs, all issuers in the nongroup market will be required to offer individual coverage to all eligible individuals moving from group to individual coverage. To be eligible for this guarantee, the individual:

1. must have been covered under one or more health plans for coverage;
2. must not be eligible for group health coverage;
3. must not have lost group coverage due to nonpayment of premiums or fraud; and
4. if eligible for continuation coverage under COBRA* or similar state programs, must have elected and exhausted this coverage. [*NOTE: Title of the Consolidated Omnibus Budget Reconciliation Act of 1985 requires employers with 20 or more employees to offer continued group health insurance coverage to employees and their dependents after certain events, including job termination or death of the worker. The employer is not required to pay for this coverage, which may last up to 36 months. H.R. 3103 makes some changes to COBRA.]

The bill also provides for special enrollment periods under group coverage for employees who experience a change in family composition, employment status, or employment status of a family member. During these periods, employees must be offered the opportunity to enroll in the plan if they previously declined coverage or to change the individual or family basis of coverage.

H.R. 3103 requires all health insurance issuers or heath plans to continue coverage for any group or individual, regardless or heath status or use of services, if the group or individual (in the case of nongroup coverage) requests renewal. An issuer may drop coverage in cases of nonpayment of premium, fraud, or similar reasons unrelated to health status, or for violation of participation or contribution rules.

Many plans or issuers today impose preexisting condition limitations or exclusions on individuals when they first become covered by the plan or issuer. Coverage of a medical condition may be limited for a certain period, typically 12 months or longer, or may be excluded for the entire life of the policy. Plans and issuers use these provisions to limit their risk during the first period of coverage, by removing the incentive individuals may have to delay purchase of heath insurance until medical care is needed. Currently, individuals facing preexisting condition restrictions may experience periods without coverage for particular conditions or treatments.

H.R. 3103 limits the ability of group heath plans and health insurance issuers offering group health insurance coverage to use preexisting condition restriction in the group market. The bill permits limits for no more than 12 months after the enrollment date (18 months for late enrollees). To qualify for limits, the preexisting condition, whether physical or mental, must have been diagnosed or treated within 6 months prior to the enrollment date. Benefit limits or exclusions may not be imposed for newborns, newly adopted children, children newly placed for adoption, or for benefits for pregnancy. Genetic information may not be treated as a preexisting condition unless there is a diagnosis of the condition related to the information.

The bill does not limit the used of preexisting condition restrictions in the individual market, except for eligible people who move from group to individual coverage, who are exempt from any preexisting condition provisions. It also does not limit waiting periods that plans in any market may impose before an individual is eligible to be covered for benefits under the terms of the plan, although any waiting period must run concurrently with any preexisting condition exclusion period.

Use of preexisting condition restrictions has contributed to "job lock," which is one of the most frequently cited failures of the current system of heath insurance coverage in the United States. Many argue that employees are locked into their current jobs because changing jobs might subject them to periods without comprehensive coverage while preexisting condition restrictions are met. For an employee with a medical condition or a dependent with such a condition, loss of coverage during a limitation period or exclusion of coverage of the condition forever could mean significant out-of-pocket health care expenditures or failures to seek timely care.

Guaranteed issue and limits on the use of preexisting condition restrictions provide portability of coverage. H.R. 3103 ensures portability for individuals moving from group to group coverage, and from group to individual coverage, if certain conditions, described below, are met. These portability provisions do not guarantee that an individual currently insured in the group market will be covered in the group market after a job change; the new employer must offer coverage for this guarantee to exist. Nor do they guarantee that an individual can keep his or her current coverage. The job changer is guaranteed access to coverage in the individual market, however, if conditions required for guaranteed issue are met.

For individuals moving within the group market, and from individual to group coverage, any preexisting condition restrictions in the new group plan will be reduced by one month for every month that the individual had creditable coverage under a previous plan, provided that the individual enrolls when first eligible and has no break in previous coverage greater than 63 days. Pregnancy services and services to newborns and adopted children cannot be limited.

The plan or issuer may choose one of two alternatives when determining creditable coverage:

1. it can disregard specific benefits covered and include all periods of coverage from qualified sources; or
2. it can examine prior coverage on a benefit-specific basis, and exclude from creditable coverage any specific benefits not covered under the most recent prior plan.

For example, if an individual's prior plan did not cover prescription drugs, and the new plan includes this benefit, the new plan may exclude coverage of prescription drugs for the new enrollee for up to 12 months under this second method. If the second method is chosen, plans or issuers must disclose its use at the time of enrollment or sale of the plan and apply it uniformly.

In states without federally approved access programs (as described below), H.R. 3103 requires all issuers in the individual market to guarantee group to individual coverage portability, without preexisting condition provisions, to all individuals who have continuous coverage for 18 months prior to the loss of group coverage, and meet the requirements for guaranteed issue, such as exhaustion of COBRA continuation coverage. The individual cannot have breaks in coverage greater than 63 days. Issuers can refuse to cover individuals seeking portability from the group market if financial or provider capacity would be impaired. No federal requirements are placed on premiums that issuers can charge.

Individuals establish eligibility for waiver of preexisting condition restrictions by presenting certifications that document prior creditable coverage. Health plans and health insurance issuers must supply these written certifications of: the period of creditable coverage of the individual under the plan; coverage (if any) under COBRA continuation provisions; and any waiting or affiliation periods imposed on the individual. The certification must be provided:

1. when the individual is no longer covered under the plan or otherwise becomes covered under a COBRA continuation provision;
2. after termination of COBRA coverage, if applicable; and
3. upon a request that is made not later than 24 months after coverage ends.

H.R. 3103 provides for state enforcement of the group heath insurance reforms applicable to heath insurance issuers. Federal enforcement would apply only if the Secretary of Health and Human Services (HHS) determined that a state had failed to substantially enforce a provision or provisions related to the issuance, sale, renewal, or offering of heath insurance coverage in connection with group health plans in the state. Provisions with respect to group health plans will be enforced under Title I or the Employee Retirement Income Security Act of 1974 (ERISA) as under current law. The Secretary of Labor will not enforce the group health insurance reform provisions applicable to health insurance issuers.

Federal provisions for group to individual market portability become effective only if states do not have programs meeting federal requirements for access. H.R. 3103 provides for state flexibility for compliance with federal provisions. A state mechanism must:

1. provide a choice of heath insurance coverage to all eligible individuals;
2. not impose any preexisting condition restrictions; and
3. include at least one policy form of coverage that is comparable to either comprehensive health insurance coverage offered in the individual market in the state or a standard option of coverage available under the group or individual heath insurance laws in the state.

In addition to these requirements, a state may implement one of the following mechanisms:

1. certain National Association of Insurance Commissioners Model Acts;
2. a qualified high-risk pool that meets certain specified requirements; or
3. (a) other mechanisms that provide for risk adjustment, risk spreading, or a risk-spreading mechanism,

Examples of potential alternative mechanisms include health insurance coverage pools or programs, mandatory group conversion policies, guaranteed issue of one or more plans of individual health insurance coverage, open enrollment by one or more health insurance issuers, or a combination of such mechanisms.

If the Secretary of HHS finds that a state is not implementing an acceptable alternative mechanism, federal rules would apply. Each health insurance issuer would be required to offer coverage to eligible individuals under all policy forms. However, an issuer could elect to limit the policy forms, both of which are designed for, made generally available and actively marketed to, and enroll both eligible and other individuals. Further restrictions are placed on the two policy forms. The future actions states may take to comply with federal provisions are unknown.

The group health insurance reforms described above are effective for group heath plan years beginning after June 30, 1997. (Figure 1). The individual, nongroup reforms are not effective before July 1, 1997; the effective date depends on state action (figure 2). All group health plans and health insurance issuers offering group health coverage must guarantee coverage to all small employers and to all group members, regardless of group size, under the terms of the plan; renew health insurance coverage for those requesting it (with limited exceptions); and limit use of preexisting condition restrictions as described above. Unless the state implements an acceptable alternative mechanism, all issuers of individual health insurance coverage must renew coverage for individuals who request renewal, with certain exceptions, and guarantee coverage to eligible individuals.

Health insurance plans and health insurance issuers must provide certification of creditable coverage to former plan participants beginning on June 1, 1997. These certifications must include any health insurance coverage received after June 30 1996. The bill provides for transition processes. Individuals who need to establish creditable coverage for a period before July 1, 1996 may be given credit through the presentation of documents or other means as established by the Secretaries of Labor, HHS, and Treasury.