Reprint permission from the May, 1997 issue of Crain's Small Business.
Once the Clinton Administration's massive health reform program was unceremoniously laid to rest, Congress began to nibble away at the social ills which prompted the ambitious initiative in the first place.
Among these is the sad fact that health insurance hasn't been "portable."
Employees covered by group plans are often forced to remain at jobs only because they have suffered reversals in health. Were they to leave, they fear that they and their families might lose insurance benefits and new employers might be unwilling to cover them.
Since 1985, when the Consolidated Omnibus Budget Reconciliation Act (COBRA) brought some relief, most employer-sponsored group health plans have been obliged to offer employees and their dependents the option of purchasing continued health coverage in case of termination or reduction in hours of employment, death, divorce or legal separation, enrollment in Medicare or the end of a child's dependency under a parent's health plan.
COBRA's maximum coverage period is 18 months. And, other than COBRA, no federal requirements apply to group health plans, insurers or health maintenance organizations (HMOs) fostering the portability of coverage.
But now all of that has changed. The Health Insurance Portability and Accountability Act of 1996 will impose portability requirements on group health plans in three ways.
- It will prohibit excluding individuals from coverage based on health and related factors that have traditionally been taken into account. Thus, medical underwriting will be outlawed.
- The new law will require that coverage offered by health insurers and HMOs generally be guaranteed renewable at the plan sponsor's option. Health insurers in the small-group market must also provide coverage to employees on a "guaranteed issue" basis.As a result, employers with two to 50 employees will be able to secure coverage without any underwriting at all.
- The new will law place limits on exclusions of preexisting conditions. A preexisting condition is one for which medical advice, diagnosis, care or treatment was recommended or received within the past six months.
When the laws take effect, health plans will be able to exclude coverage for such conditions for no more than 12 months (or 18 months for late enrollees). HMOs are permitted to substitute a two-month waiting period (three months for late enrollees) for a preexisting-condition limitation.
The new limits on preexisting-condition exclusions mean some administrative hassle. For one thing, the law mandates that health plans credit any prior group coverage toward preexisting-condition exclusion periods and a health plan will now need to provide a certificate of coverage to a former enrollee, documenting the length of coverage under the plan.
In addition, health plans must enroll individuals who initially decline health coverage because of other coverage if they seek to enroll within 30 days of losing their other coverage. And individuals who become dependents because of marriage, birth or adoption will also be entitled to special enrollment periods.
Not surprisingly, there is a price for all of this, and prudent employers will begin to assess the new law's impact on them and how best to control that impact before the portability rules take effect -- for plan years beginning after June 30.
They will need to consider whether the potential cost savings of applying a limited preexisting-condition exclusion outweigh the added administrative expense. They will need to assess whether market conditions still warrant providing extended health coverage until age 65 for early retirees, who may have an easier time securing affordable individual coverage in light of new "guaranteed issue" requirements benefiting individuals.
In addition, employers will need to review contractual arrangements with service providers. And they will need to see that health plan documents and disclosures are revised to reflect any changes before they take effect.
Marc J. Lane (firstname.lastname@example.org) is a Chicago lawyer and financial planner and an adjunct professor of law at Northwestern University School of Law.