| [Previous] | [Table of Contents] | [Next] |
At the time HIPAA was enacted, many of its provisions related to guaranteed issue and guaranteed renewal, preexisting condition exclusions and portability were already in place in at least some states. The following sections review state regulation of these features of both small-group and individual insurance plans.
The information presented here is the result of a 50-state survey of state insurance department officials that Alpha Center fielded in Summer 1999 with separate funding from the National Association of Insurance Commissioners. That survey effort is described in the research design and methods section of this report.
At the time HIPAA was enacted in 1996, 35 states had enacted and implemented guaranteed issue in the small group market (see Table 1). In general, these states defined small groups as groups of 2 to 50 employees (as does HIPAA). Most (22 states) required guaranteed issue of only some products – typically a standard product devised by the state in part to encourage price competition in the small group market, at least for that product. Only thirteen states required guaranteed issue of all products, as did HIPAA when it became effective in July 1997.
Prior to HIPAA, guaranteed renewal in the small group market was far more common than guaranteed issue – reflecting insurers’ acceptance of guaranteed renewal as less restrictive regulation, allowing them still to deny coverage at first issue. In 1996, 43 states required guaranteed renewal of small-group products. By 1999, all states except California had complied with HIPAA’s small- group guaranteed issue and renewal provisions. In California, the federal government (specifically, the Health Care Financing Administration, HCFA(now known as CMS)) is charged with enforcement of HIPAA’s small- group provisions.
HIPAA’s provisions in the individual market are much less extensive than its small-group market provisions. Specifically, HIPAA requires only that insurers guarantee issue to individuals who have had significant (and continuous) coverage in the small group market immediately prior to applying for individual coverage. At the time HIPAA was enacted, only 10 states had any provision requiring guaranteed issue in the individual market. Seven of those states required guaranteed issue of all products, and three required guaranteed issue of only a basic and standard product as defined by the state. By 1999, 16 states required guaranteed issue of at least some product in the individual market.
HIPAA also requires guaranteed renewal in the individual market (as it does in the group market). In 1996, 10 states had implemented guaranteed issue of individual products. By 1999, all but three states (Missouri, Michigan and California) had implemented guaranteed renewal of individual products; in those three states, HCFA(now known as CMS) is charged with enforcement of HIPAA’s individual-market provisions.
At the time HIPAA was passed, 43 states limited the extent to which insurers could consider preexisting conditions in small-group plans; 45 states limited the length of time that insurers could exclude coverage for preexisting conditions in small-group plans (see Table 2). HIPAA limited the duration of preexisting conditions in small-group plans to 12 months for conditions that exist within 6 months before coverage, and most states with laws in place met HIPAA’s provisions related to preexisting condition exclusions. By 1999, 3 states had more restrictive laws than HIPAA requires prohibiting lengthy look-back periods in the small-group market (not more than 1 or 3 months), and 8 states had more restrictive laws limiting waiting periods (most often, to 6 months or less).
HIPAA does not restrict either look-backs or waiting periods for coverage of preexisting conditions in the individual market. However, in 1999, 34 states restricted look-backs in the individual market, usually to 6 months or 12 months. Limits on waiting periods for preexisting condition exclusions are also common. In 1999, 35 states limited waiting periods for individual coverage of preexisting conditions, typically to 12 months.1
Most states restrict either the factors that insurers may consider in setting health insurance rates in either the small group or individual health insurance markets, and also the extent to which insurers can vary rates for allowable factors. HIPAA does not speak directly to the issue of rate setting in either statute or regulation, although many consumer advocates have sought guidance on whether various provisions of HIPAA (e.g., requiring “risk spreading” for eligible high-risk individuals) implies that the states need to limit insurers’ rating practices for those persons. The following sections consider three common rating restrictions in state law: rating on health status and age, respectively, and limits on insurers’ composite rates.
Health status. In 1999, 45 states limited the degree to which insurers could rate up small groups for health status (see Table 3). Of these states, 21 states prohibited rate variation on health status of more than 2:1; 13 states required pure or modified community rating – that is, they prohibited insurers from considering health status at all in setting rates.
Fewer states restrict insurers’ use of health status to rate in the individual health insurance market, although a significant number of states enacted and implemented such legislation between 1995 and 1999. In 1999, 16 states limited rating on health status in the individual market; eight required pure or modified community rating in this market.
Age. States are much less likely to restrict age as a rating factor than they are to constrain health rating. In 1999, 16 states limited the degree to which insurers could use age as a rating factor in the small group market (see Table 4), while 11 states did so in the individual market. Only New York prohibits the use of age as a factor entirely in the small group market, while other states impose constraints on age ranging from 1.5:1 to 5:1 (the latter being a “constraint” that probably approximates and may even exceed an unconstrained actuarially justified age slope). In the individual market, New York and New Jersey prohibit the use of age as a rating factor, while other states specify limits ranging from 1.5:1 to 5:1.
Composite rate bands. Rather than (or in addition to) constraining the use of specific factors such as health and age, some states have implemented composite rate bands that impose limits on the total rate variation among groups or individuals taking into account all allowable rating factors. In 1999, 15 states had composite rate bands in the small group market, while 10 had them in the individual market (see Table 5).
1 - In lieu of requiring waiting periods for coverage of preexisting health problems, insurers may exclude coverage for selected conditions altogether. Permanent exclusions of coverage for specific health conditions are called exclusion riders; for other conditions, the insured group or individual coverage has full coverage under the terms of the contract. While most states (in 1999, 37 states) prohibit insurers from using exclusion riders in small-group contracts, only 13 states prohibit exclusion riders in the individual market. However, in at least one state which does not otherwise prohibit exclusion riders, state law banning discrimination effectively prohibits insurers from excluding maternity coverage.
| [Previous] | [Table of Contents] | [Next] |