The specific provisions of HIPAA related to the reform of the group market and the individual market are summarized below.
Group market reforms. The group market reform provisions that apply to all group plans, including self-insured plans, limit pre-existing condition exclusions and prohibit exclusion of individuals from a group health plan based on health status. In addition, health insurance issuers are required to guarantee renewability of coverage for all groups and guarantee issue all products for small groups.
Preexisting conditions exclusions for all group plans (including insured and self-insured plans) are limited to 12 months (18 months for late entrants) for conditions treated or diagnosed in the prior 6 months. Moreover, group health plans must credit prior public or private insurance coverage toward preexisting condition periods, provided the coverage has not lapsed for more than 63 days (group-to-group portability).
HIPAA prohibits all group health plans (insured or self-insured) from denying coverage or charging higher prices based on health status. It requires that health insurance companies guarantee renewal of all group plans, to both large and small groups. It also requires insurance companies that offer health coverage in the small group market (2-50 employees) to make all products available to all applicants (guaranteed issue). All small groups must be accepted and all eligible members of a group must be accepted.
Individual Market Reforms. Unless the state implements an "acceptable alternative mechanism," insurers in the individual market are required to guarantee issue and apply no preexisting condition exclusions to individuals who had 18 months of continuous coverage, the most recent under a group plan, within 63 days of obtaining new coverage (group-to-individual portability). The individual also must have exhausted all other sources of coverage (including COBRA coverage, other group coverage, Medicare or Medicaid). Individual health insurers must guarantee issue at least two different individual insurance products. These products may be either a) the two highest volume products, or b) a low and high policy option that represent individual policies offered by the insurer in the state that are subsidized, risk-adjusted, or covered by a risk-adjustment mechanism. The guaranteed renewal provisions of the law for plans issued to groups also apply to plans in the individual market.
State Implementation. HIPAA provides for substantial state flexibility in implementing the intent of the individual market reforms to ensure that those who leave a group health insurance plan are able to maintain coverage and are not denied individual insurance if that is the only coverage option available. States may adopt an "acceptable alternative mechanism" to the federal provisions outlined above. To meet the requirements of an "acceptable alternative mechanism", a state program must provide all eligible individuals with a choice of coverage, including one providing comprehensive benefits, and not impose pre-existing condition exclusions on them. For example, 22 states will use high risk pools to meet the requirements, in most cases expanding on an existing risk pool (IHPS, 1998). Other state alternative programs include mandatory group conversion policies, or guaranteed issue of designated individual policies.