Baseline Information for Evaluating the Implementation of the Health Insurance Portability and Accountability Act of 1996: Final Report. Other Effects

10/01/1998

Employment Effects

Some believe the main benefit of the HIPAA group market reforms is that it relieves individuals from worry about gaps in coverage as they change jobs (Clark, 1996). And many believe that such worry now impedes people from leaving current jobs—referred to as "job-lock"—and leads to an inefficient distribution of labor. The empirical evidence on the importance of job-lock is mixed, however. A number of studies have found evidence of lower job-turnover as the value of one’s own employer-provided insurance increases (Madrian, 1994; Cooper and Monheit, 1993; Buchmueller and Valetta, 1996). These studies suggest that insurance reduces turnover by about 25 percent. Gruber and Madrian examine turnover in states that do and do not have continuation of coverage mandates, and conclude that one year of continued benefits increases turnover by about 10 percent among those with employer health insurance. In contrast, several other investigators have found little evidence to support job-lock (Holtz-Eakin, 1994; Kapur, 1998).

The effects of HIPAA on job mobility and the distribution of labor are likely to be minor, however, even if job-lock exists. The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires that firms with 20 or more employees permit employees and their dependents to continue to purchase the company’s health insurance for up to 18 months after their job is terminated. Although employees must pay the premium for COBRA coverage, this coverage should have substantially eliminated job-lock for most workers and their dependents in firms of 20 or more, especially if job-lock stems from short term medical considerations such as pregnancy rather than longer horizon issues about being medically underwritten. But in addition, 40 states already have adopted group-to-group portability regulations for small groups requiring that periods of coverage under a previous employer health insurance plan be credited toward waiting periods for coverage under a new employer’s plan (GAO, 1995).

Benefit Design

HIPAA forbids discrimination based on health status. There is some uncertainty about the implications of this rule for plan benefit design. Some observers believe that the rule does not prohibit exclusions or caps on coverage of particular treatments, nor different copayments or deductibles for specific conditions, nor mandatory case management for specific health problems (Barker and O’Brien, 1997; Schwappach and Sipes-Early, 1996). However, certain wellness programs may need to be redesigned, especially those that appear to impose a premium surcharge on those in poorer health (Barker and O’Brien, 1997). But, ambiguities in the law, litigation, and subsequent case law may lead to further constraints on benefit design (Barker and O’Brien, 1997).

There are also some early indications that some issuers may be using benefit design to circumvent HIPAA’s restrictions on pre-existing condition limits for those leaving a job or losing group coverage. There is anecdotal evidence that some insurers are establishing waiting periods for coverage for certain costly conditions from all enrollees’ coverage, which effectively precludes pre-existing conditions from coverage (GAO, 1998).