The Health Law Resource
Posted here on 8-28-96
Summary of Bill, From HCFA
HHS FACT SHEET
August 21, 1996
Contact: HHS Press Office (202) 690-6343
HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996
Background: On August 21, 1996, President Clinton signed into law the
Health Insurance Portability and Accountability Act of 1996, which includes
important new protections for an estimated 25 million Americans (approximately 1
in 10) who move from one job to another, who are self-employed, or who have
pre-existing medical conditions. The legislation, which was jointly sponsored by
Sen. Edward Kennedy (D-Mass.) and Sen. Nancy Kassebaum (R-Kan.), was approved
virtually unanimously by the House and Senate. It is designed to improve the
availability of health insurance to working families and their children.
Guaranteed Access for Small Business.Small businesses (50 or fewer
employees) are guaranteed access to health insurance. No insurer can exclude
an employee or a family member from coverage based on health status.
For example, until now, the owners of the "Good Food Cafe" have been
unable to buy insurance for their 25 workers because insurance companies
wanted to exclude "Bill Smith" from the policy because he has been diagnosed
with cancer. Now all of the employees of "Good Food Cafe" will be able to
Guaranteed Renewal of Insurance.Once an insurer sells a policy to any
individual or group, they are required to renew coverage regardless of the
health status of any member of a group.
In other words, if "Mary Jones," one of the employees of "Good Food
Cafe," develops a heart condition, the insurance company must renew the Cafe's
policy without dropping "Mary" or the Cafe from coverage.
Guaranteed Access for Individuals.People who lose their group
coverage (for example, because of loss of employment or change of jobs to a
firm without insurance) will be guaranteed access to coverage in the
individual market, or states may develop alternative programs to assure that
comparable coverage is available to these people. The coverage will be
available without regard to health status, and renewal will be guaranteed.
So, if "Mary Jones" leaves her job with the "Good Food Cafe" to take a
new job with "Zenith Tool and Die," which does not provide health coverage,
Mary will be able to buy private insurance even if she is in poor health.
Pre-existing Conditions.Workers covered by group insurance policies
cannot be excluded from coverage for more than 12 months due to a pre-existing
medical condition. Such limits can only be placed on conditions treated or
diagnosed within the six months prior to their enrollment in an insurance
plan. Insurers cannot impose new pre-existing condition exclusions for workers
with previous coverage.
Finally, "Mary Jones'" new insurance company can only exclude coverage
of her heart condition for a maximum of 12 months. And, this exclusion will be
reduced for every month of coverage "Mary" previously had at the "Good Food
Enforcement.States have primary responsibility to enforce these
protection. If states fail to act, the Secretary of Health and Human Services
can impose civil monetary penalties on insurers. The Secretary of Labor will
enforce these rules for self-insured (ERISA) plans. The tax code is modified
to allow the Secretary of Treasury to impose tax penalties on employers or
insurance plans that are out of compliance.
Self-employed Individuals.The current tax deduction for insurance
costs of self-employed individuals is gradually increased from 30 percent in
1996 to 80 percent in 2002.
Medical Savings Accounts.From Jan. 1, 1997, to Jan. 1, 2000, firms
with 50 or fewer employees and self-employed individuals enrolled in a
qualified high deductible health plan can establish tax-favored medical
savings accounts, or MSAs. Annual deductibles are $1,500 to $2,250 for
individuals and $3,000 to $4,500 for families. Maximum out-of-pocket expenses
are $3,000 for individuals and $5,500 for families. The maximum number of MSAs
is limited to 750,000 for the 4-year demonstration period.
Fraud and Abuse Control.A new health care fraud and abuse control
program is created, to be coordinated by the HHS Office of the Inspector
General and the Department of Justice. Funds for this program are appropriated
from the Medicare Hospital Insurance (HI) trust fund;
- Establishes the Medicare Integrity Program to be funded through
appropriations from the HI trust fund;
- Requires exclusion from Medicare and Medicaid for felony convictions
related to health care fraud or controlled substances;
- Creates a program encouraging Medicare beneficiaries to report fraud and
abuse and offer suggestions to improve efficiency of the Medicare program,
and provides for payment to beneficiaries in certain cases;
- Requires issuance of advisory opinions, additional safe harbors, and
fraud alerts regarding the anti-kickback statute;
- Creates a new exception to the anti-kickback statute for certain
- Expands conditions under which civil monetary penalties and intermediate
sanctions can be imposed on HMOs participating in Medicare;
- Establishes a data base of final adverse actions taken against health
care providers; and
- Makes knowing and willful transfer of assets to gain Medicaid
eligibility subject to criminal penalties.
Long-Term Care Insurance.Minimum federal consumer protection and
marketing requirements are established for tax-qualified long-term care
insurance policies, including a requirement that insurers start benefit
payments when a policy-holder cannot perform at least two "activities of daily
living" (i.e., bathing, eating, toileting, transferring, dressing, and
incontinence). Subject to certain limitations, clarifies that long-term care
insurance premium payments and unreimbursed long-term care services costs are
tax deductible as a medical expense, and benefits received under a long-term
care insurance contract are excludable from taxable income. Employer sponsored
long-term care insurance is to receive the same tax treatment as health
Medigap Insurance.Revises the notices requirement for health
insurance policies that pay benefits without regard to Medicare coverage or
other insurance coverage. Long-term care policies are permitted to coordinate
with Medicare and other coverage and must disclose any duplication of
Administrative Simplification.All health care providers and health
plans that engage in electronic administrative and financial transactions must
use a single set of national standards and identifiers. Electronic health
information systems must meet security standards. This should result in more
cost-effective electronic claims processing and coordination of benefits.
Health Information Privacy.If Congress does not enact privacy
legislation within three years, health care providers, health plans, and
health care clearinghouses will be required to follow privacy regulations
promulgated by HHS for individually identifiable electronic health
Viatical Insurance Settlements.A person who is within 24 months of
death can have a portion of their death benefit of a life insurance policy
prepaid by the issuing insurance company tax free. Such a person also is
allowed to sell his or her life insurance to a viatical settlement company tax
free. A chronically-ill individual can sell their life insurance and any
long-term care insurance rider tax free; the proceeds of such a sale must be
spent on long term care.
Effective Dates.The long term care insurance provisions are effective
Jan. 1, 1997. The MSA provisions are effective Dec. 31, 1996. The insurance
reform provisions are effective July 1, 1997.
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