Insurance—Those With and Those Without - Health Insurance Portability And Accountability Act Of 1996

On August 21, 1996, President Bill Clinton signed the Health Insurance Portability and Accountability Act (PL 104-191). Also known as the Kennedy-Kassebaum Act (after its sponsors, Senators Edward Kennedy and Nancy Kassebaum) or HIPAA, this legislation aimed to provide better portability (transfer) of employer-sponsored insurance from one job to another. By preventing "job lock"—the need to remain in the same position or with the same employer or risk losing health care coverage—it hoped to afford American workers greater career mobility and the freedom to pursue job opportunities. Industry observers and policymakers viewed HIPAA as an important first step in the federal initiative to significantly reduce the number of uninsured people in the United States.

HIPAA stipulated that American workers who had previous insurance coverage were immediately eligible for new coverage. The law prohibited group health plans from denying new coverage based on past or present poor health and guaranteed that employees could retain their health care coverage even after they left their jobs. New employers could still require a routine waiting period (usually no more than three months) before paying for health benefits, but the new employee who applied for insurance coverage could be continuously covered during the waiting period.

The following sections describe some of the major provisions of HIPAA. In addition to these provisions discussed, the act clarified current law and stiffened penalties for fraud and abuse. The law applies to both group and individual health insurance policies.

Preexisting Medical Conditions

In the past insurers could refuse to cover treatment for a preexisting disease or medical condition—an illness or condition that had been diagnosed or treated before a person enrolled in the health insurance program. Under the new law, if the preexisting condition had been diagnosed or treated within six months of the patient's enrollment in the insurance program, the insurance company could withhold coverage for that condition for no longer than twelve months. If the preexisting condition had not been diagnosed or treated within six months of changing insurance, there was no waiting period beyond the short time an employer may require before providing benefits to a new employee.

This provision, along with the portability provision, means that insured employees are no longer trapped by the fear of losing their health insurance coverage if they lose or leave their jobs. In the past many workers stayed in unsatisfactory jobs because they

TABLE 6.5

No health insurance coverage among persons under 65 years of age, by selected characteristics, selected years 1984–2001
[Data are based on household interviews of a sample of the civilian noninstitutionalized population]
Characteristic	1984	1989	1995	1996	19971	1998	1999	2000	2001
	Number in millions
Total2	29.8	33.4	37.1	38.6	41.0	39.2	38.5	40.5	39.2
	Percent of population
Total, age adjusted2,3	14.3	15.3	15.9	16.5	17.4	16.5	16.1	16.8	16.2
Total, crude2	14.5	15.6	16.1	16.6	17.5	16.6	16.1	16.8	16.1
Age
Under 18 years	13.9	14.7	13.4	13.2	14.0	12.7	11.9	12.4	11.0
Under 6 years	14.9	15.1	11.8	11.7	12.5	11.5	11.0	11.7	9.7
6–17 years	13.4	14.5	14.3	13.9	14.7	13.3	12.3	12.8	11.7
18–44 years	17.1	18.4	20.4	21.1	22.4	21.4	21.0	22.0	21.7
18–24 years	25.0	27.1	28.0	29.3	30.1	29.0	27.4	29.7	29.3
25–34 years	16.2	18.3	21.1	22.4	23.8	22.2	22.1	22.7	22.3
35–44 years	11.2	12.3	15.1	15.2	16.7	16.4	16.3	16.8	16.7
45–64 years	9.6	10.5	10.9	12.1	12.4	12.2	12.2	12.7	12.3
45–54 years	10.5	11.0	11.6	12.4	12.8	12.6	12.8	12.8	13.0
55–64 years	8.7	10.0	9.9	11.6	11.8	11.4	11.4	12.5	11.0
Sex3
Male	15.0	16.4	17.2	17.8	18.5	17.5	17.2	17.8	17.2
Female	13.6	14.3	14.6	15.2	16.2	15.5	15.0	15.8	15.1
Race3,4
White only	13.4	14.2	15.3	15.8	16.3	15.2	14.6	15.2	14.7
Black or African American only	20.0	21.4	18.2	19.6	20.2	20.7	19.5	20.0	19.3
American Indian and Alaska Native only	#	#	#	#	#	#	38.3	38.2	33.4
Asian only	18.0	18.5	18.2	19.0	19.3	18.1	16.4	17.3	17.1
Native Hawaiian and other Pacific Islander only	—	—	—	—	—	—	*	*	*
2 or more races	—	—	—	—	—	—	16.8	18.4	18.6
Hispanic origin and race3,4
Hispanic or Latino	29.1	32.4	31.5	32.4	34.3	34.0	33.9	35.4	34.8
Mexican	33.2	38.8	36.2	37.5	39.2	40.0	38.0	39.9	39.0
Puerto Rican	18.1	23.3	18.3	15.1	19.4	19.4	19.8	16.4	16.0
Cuban	21.6	20.9	22.1	18.8	20.5	18.4	19.7	25.2	19.2
Other Hispanic or Latino	27.5	25.2	29.7	30.5	32.9	31.1	30.8	32.7	33.1
Not Hispanic or Latino	13.0	13.5	14.0	14.5	15.1	14.1	13.5	14.1	13.4
White only	11.8	11.9	12.9	13.3	13.7	12.5	12.1	12.5	11.9
Black or African American only	19.7	21.3	18.1	19.5	20.1	20.7	19.4	20.0	19.2
Age and percent of poverty level5
All ages:3
Below 100 percent	34.7	35.8	31.7	34.5	34.4	34.6	34.4	34.2	33.3
100–149 percent	27.0	31.3	31.7	33.3	36.1	36.5	35.8	36.5	32.4
150–199 percent	17.4	21.8	24.0	24.3	25.9	26.7	27.7	27.3	26.4
200 percent or more	5.8	6.8	8.6	8.6	8.8	8.0	7.7	8.7	8.4
Under 18 years:
Below 100 percent	28.9	31.6	20.0	21.0	22.4	21.5	21.6	20.4	19.8
100–149 percent	22.8	26.1	24.8	25.0	26.1	28.0	24.9	25.6	18.5
150–199 percent	12.7	15.8	18.0	16.0	19.7	17.3	18.8	16.8	16.1
200 percent or more	4.2	4.4	6.4	6.1	6.1	5.0	4.4	5.5	4.5
Geographic region3
Northeast	10.1	10.7	13.1	13.5	13.4	12.3	12.2	12.1	11.6
Midwest	11.1	10.5	12.1	12.2	13.1	11.9	11.5	12.3	11.7
South	17.4	19.4	19.2	20.0	20.7	20.0	19.8	20.4	20.0
West	17.8	18.4	17.7	18.6	20.4	19.9	18.6	20.2	18.6

were ill or had dependents with existing medical conditions. They were afraid to change jobs for fear of losing coverage or having to wait a long time before obtaining new coverage.

Pregnancies are exempt from the twelve-month waiting period and are covered within thirty days. Newborns and adopted children are also covered within thirty days. This provision aimed to better accommodate the needs of working mothers and ensure access to, and availability of, uninterrupted prenatal care for expectant mothers.

Medical Savings Accounts

The 1996 law also authorized a pilot program—a five-year demonstration project designed to test the concept of medical savings accounts (MSAs). Beginning January 1, 1997, about 750,000 people with high-deductible health plans (high-deductible plans were defined as those that carried a deductible of $1,600 to $2,400 for an individual or $3,200 to $4,800 for families) could make tax-deductible contributions into interest-bearing savings accounts. The funds deposited into these accounts may be

#Estimates calculated upon request.
*Estimates are considered unreliable.
— Data not available.
Notes: Persons not covered by private insurance, Medicaid, State Children's Health Insurance Program (SCHIP), public assistance (though 1996), state-sponsored or other government-sponsored health plans (starting in 1997), Medicare, or military plans are included.
1In 1997 the National Health Interview Survey (NHIS) was redesigned, including changes to the questions on health insurance coverage.
2Includes all other races not shown separately and unknown poverty level.
3Estimates are for persons under 65 years of age and are age adjusted to the year 2000 standard using three age groups: under 18 years, 18–44 years, and 45–64 years.
4The race groups, white, black, American Indian and Alaska Native (AI/AN), Asian, Native Hawaiian and Other Pacific Islander, and 2 or more races, include persons of Hispanic and non-Hispanic origin. Persons of Hispanic origin may be of any race. Starting with data year 1999 race-specific estimates are tabulated according to 1997 Standards for Federal data on Race and Ethnicity and are not strictly comparable with estimates for earlier years. The five single race categories plus multiple race categories shown in the table conform to 1997 Standards. The 1999 and later race-specific estimates are for persons who reported only on racial group; the category "2 or more races" includes persons who reported more than one racial group. Prior to data year 1999, data were tabulated according to 1977 Standards with four racial groups, and the category "Asian only" included Native Hawaiian and other Pacific Islander. Estimates for single race categories prior to 1999 included persons who reported one race or, if they reported more than one race, identified one race as best representing their race. The effect of the 1997 Standard on the 1999 estimates can be seen by comparing 1999 data tabulated according to the two Standards: Age-adjusted estimates based on the 1977 Standards of the percent with no health insurance coverage are: 0.1 percentage points higher for the white group; identical for the black group; 0.1 percentage points lower for the Asian and Pacific Islander group; and 1.5 percentage points higher for the AI/AN group than estimates based on the 1997 Standards.
5Missing family income data were imputed for 15–17 percent of the sample under 65 years of age in 1994–96. Percent of poverty level was unknown for 19 percent of sample persons under 65 in 1997, 24 percent in 1998, 27 percent in 1999, and 26 percent in 2000 and 2001.
6MSA is metropolitan statistical area.
SOURCE: "Table 129. No Health Insurance Coverage among Persons under 65 Years of Age, according to Selected Characteristics: United States, Selected Years 1984–2001," in Health, United States 2003, National Center for Health Statistics, 2003, http://www.cdc/gov/nchs/data/hus/tables/2003/03hus129.pdf (accessed July 10, 2004)
	Percent of population
Location of residence3
Within MSA6	13.3	14.9	15.2	15.6	16.7	15.8	15.3	16.3	15.6
Outside MSA6	16.4	16.9	18.7	19.7	19.9	19.2	18.9	18.8	18.5

used to purchase health insurance policies, and pay copayments and deductibles. Persons using MSAs also may deduct any employer contributions into the accounts as tax-deductible income. Any unspent money remaining in the MSA at the end of the year is carried over to the next year, allowing the account to grow.

MSAs are similar to individual retirement accounts (IRAs). To be eligible to create a MSA, individuals must be less than sixty-five years old, self-employed and uninsured, or must work in a firm with fifty or fewer employees that does not offer health care coverage. Withdrawals to cover out-of-pocket medical expenses are tax-free and the money invested grows on a tax-deferred basis. Using MSA funds for any purpose unrelated to medical care or disability results in a 15% penalty. However, when MSA users reach age sixty-five, the money may be withdrawn for any purpose and is taxed at the same rate as ordinary income.

Supporters of MSAs believed that consumers would be less likely to seek unnecessary or duplicative medical care if they knew they could keep the money left in their accounts for themselves at the end of the year. Experience has demonstrated that MSAs can simultaneously help to contain health care costs, allow consumers greater control and freedom of choice of health care providers, enable consumers to save for future medical and long-term care expenses, and improve access to medical care.

Critics felt that the HIPAA legislation created unnecessarily complicated MSAs. They blamed Congress for simply renaming MSAs (they are now known as "Archer MSAs" to honor Bill Archer, the Texas legislator who advocated their enactment) and failing to simplify MSAs when in December 2000 it renewed the MSA program through December 31, 2002.

In February 2001 President George W. Bush advocated more liberal rules governing MSAs and proposed making them available to all eligible Americans permanently. Congress reviewed the president's proposed reforms and during its 2001–02 session lowered the minimum annual deductible to increase the number of eligible Americans, allowed annual MSA contributions up to 65% of the maximum deductible for individuals and 75% for families, and extended the availability of the Archer MSA through December 31, 2003.

The Medicare Modernization Act of 2003 included provisions to establish Health Savings Accounts (HSAs) for the general population. Like their MSA predecessors, these accounts offer a variety of benefits, including more choice, greater control, and individual ownership. Specific features of HSAs include:

• permanence and portability
• availability to all individuals with a qualified high-deductible plan
• minimum deductible of $1,000 per individual plan and $2,000 per family plan
• allowing annual contributions to equal 100% of the deductible

FIGURE 6.4

• allowing both employer and employee contributions
• not placing a cap on taxpayer participation
• allowing tax-free rollover of up to $500 in unspent Flexible Spending Accounts. These balances are currently forfeited at the end of each year.

Tax Benefits of HIPAA

HIPAA also changed several tax provisions involving health expenses:

• The allowable tax deductions of health-insurance premiums for the self-employed increased. Formerly, self-employed persons could deduct only 30% of their premiums from their taxes. The new law set up a graduated increasing scale of deductions—45% in 1998, 60% in 1999–2001, 70% in 2002, and 100% thereafter.

FIGURE 6.5

• Long-term care plan contributions. When an employer contributes to a long-term health care plan for a worker, a spouse, and dependents, those contributions will not be counted as taxable employee income. Long-term care includes rehabilitative care and personal care, such as feeding, bathing, and dressing, for a chronically ill person, defined as a person who has been unable for twelve months to perform the activities of daily living, such as eating and bathing.
• Individual retirement account (IRA) withdrawals. Ordinarily, withdrawals from an IRA before age fifty-nine carry a 10% penalty. If medical expenses, however, exceed 7.5% of a person's annual income, he or she may withdraw funds from an IRA without penalty. This provision also allows persons who have collected federal or state unemployment benefits for at least twelve weeks to withdraw money from their IRAs without penalty.

TABLE 6.6

Health insurance coverage for persons age 65 and older, by type of coverage and selected characteristics, selected years 1989–2001
(Data are based on household interviews of a sample of the civilian noninstitutionalized population)
	Private insurance1						Private insurance obtained through workplace1,2
Characteristic	1989	1995	1998	1999	2000	2001	1989	1995	1998	1999	2000	2001
	Number in millions
Total3	22.4	23.5	21.5	20.8	20.6	20.6	11.2	12.4	12.0	11.3	11.7	11.9
	Percent of population
Total, age adjusted3,4	76.1	74.5	66.7	64.0	63.1	62.7	37.3	38.9	37.1	34.6	35.6	36.0
Total, crude3	76.5	74.6	66.7	64.1	63.1	62.7	38.4	39.5	37.3	34.9	35.8	36.1
Age
65–74 years	78.2	75.1	66.6	64.5	62.7	63.0	43.7	43.3	40.4	38.6	39.4	39.7
75 years and over	73.9	73.9	66.8	63.5	63.6	62.4	30.2	34.1	33.5	30.3	31.4	31.9
75–84 years	75.9	75.7	68.1	64.6	64.6	63.9	32.0	36.0	35.7	32.3	33.1	33.3
85 years and over	65.5	67.3	61.8	59.6	59.5	57.0	22.8	27.3	25.3	23.2	24.7	26.7
Sex4
Male	77.4	76.6	68.5	64.5	64.3	63.8	42.1	43.3	41.4	38.6	39.7	40.1
Female	75.4	73.2	65.5	63.8	62.2	61.9	34.0	35.8	34.0	31.8	32.5	33.0
Race4,5
White only	79.8	78.3	70.3	67.6	66.9	66.4	38.7	40.4	38.5	35.8	37.2	37.4
Black or African American only	42.3	40.3	40.3	39.9	35.6	37.6	23.7	24.6	27.4	27.5	25.0	27.9
American Indian and Alaska Native only			37.9	35.2		31.8				33.3
Asian only			40.8	33.1	43.3	40.9			28.3	21.4	23.2	23.5
Native Hawaiian and Other Pacific Islander only	—	—	—				—	—	—
2 or more races	—	—	—	56.0	63.1	50.0	—	—	—	26.9	48.4	32.3
Hispanic origin and race4,5
Hispanic or Latino	42.3	39.8	29.1	26.9	23.4	24.0	22.2	18.4	17.9	17.4	15.1	16.2
Mexican	33.5	31.8	26.5	27.4	20.3	24.8	20.2	15.9	17.5	16.9	12.8	16.8
Not Hispanic or Latino	77.2	76.2	68.7	66.2	65.5	65.2	37.7	39.9	38.2	35.7	36.8	37.2
White only	81.0	80.3	72.3	69.7	69.1	68.8	39.3	41.7	39.5	36.8	38.3	38.6
Black or African American only	42.4	40.1	40.5	40.1	35.6	37.6	23.7	24.4	27.6	27.6	25.0	28.0
Percent of poverty level4,6
Below 100 percent	46.1	40.0	32.8	28.3	29.9	27.8	11.6	13.8	10.2	8.8	10.8	11.9
100–149 percent	67.7	67.6	48.7	44.6	44.2	45.7	22.2	26.7	19.3	14.7	16.1	20.6
150–199 percent	81.1	76.0	65.6	62.0	63.1	63.1	39.0	38.7	31.4	27.2	29.8	28.1
200 percent or more	85.5	85.3	78.6	75.5	74.4	74.2	49.4	49.3	49.8	45.4	47.3	46.8
Geographic region4
Northeast	76.1	76.2	72.0	66.0	66.7	66.1	42.2	44.6	43.9	39.7	38.7	38.8
Midwest	81.9	82.3	78.3	77.0	75.9	72.4	40.0	44.7	41.6	38.5	41.2	40.5
South	73.0	70.7	62.0	60.2	58.4	60.2	32.0	33.7	33.3	31.0	31.9	34.1
West	74.7	68.8	54.9	51.5	51.5	51.7	37.1	33.6	30.9	30.6	31.7	30.6
Location of residence4
Within MSA7	76.6	74.7	65.5	62.8	61.4	61.2	39.9	40.9	38.7	36.0	36.9	36.5
Outside MSA7	74.8	73.9	70.6	68.2	68.5	68.1	30.2	32.2	31.8	30.0	31.5	34.1