HHS: Individual Market Health Insurance Reform--Portability from Group to Individual Coverage, Federal Rules for Access in the Individual Market, and State Alternative Mechanisms to Federal Rules

Published by the Government Accountability Office on 1997-04-24.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Office of the General Counsel


      April 24, 1997

      The Honorable James M. Jeffords
      The Honorable Edward M. Kennedy
      Ranking Minority Member
      Committee on Labor and Human Resources
      United States Senate

      The Honorable Thomas J. Bliley, Jr.
      The Honorable John D. Dingell
      Ranking Minority Member
      Committee on Commerce
      House of Representatives

      Subject:   Department of Health and Human Services: Individual Market Health
                 Insurance Reform: Portability From Group to Individual Coverage;
                 Federal Rules for Access in the Individual Market; State Alternative
                 Mechanisms to Federal Rules

      Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on
      a major rule promulgated by the Department of Health and Human Services (HHS),
      entitled "Individual Market Health Insurance Reform: Portability From Group to
      Individual Coverage; Federal Rules for Access in the Individual Market; State
      Alternative Mechanisms to Federal Rules" (RIN: 0938-AH75). We received the rule
      on April 9, 1997. It was published in the Federal Register as a final rule on April 8,
      1997. 62 Fed. Reg. 16985.

      The rule implements section 111 of the Health Insurance Portability and
      Accountability Act of 1996 (HIPAA) to improve access to the individual insurance
      market. Certain "eligible individuals" who lose group health insurance coverage are
      assured availability of coverage in the individual market, on a guaranteed issue
      basis, without preexisting condition exclusions. Also, all individual health insurance
      coverage must be guaranteed renewable. The rule also sets forth the procedures
      that apply to states that choose to implement a mechanism under state law, as an
      alternative to the federal requirements with respect to guaranteed availability for

eligible individuals and the rules that apply if a state does not substantially enforce
the statutory requirements.

Enclosed is our assessment of HHS' compliance with the procedural steps required
by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule. Our
review indicates that HHS complied with the applicable requirements.

Our Office has performed work relating to this area recently, including "Health
Insurance Portability: Reform Could Ensure Continued Coverage for up to
25 Million Americans" (HEHS-95-257).

If you have any questions about this report, please contact James Vickers, Assistant
General Counsel, at (202) 512-8210. The official responsible for GAO evaluation
work relating to the Department of Health and Human Services is William Scanlon,
Director, Health Financing and Systems Issues. Mr. Scanlon can be reached at
(202) 512-7114.

Robert P. Murphy
General Counsel


cc: The Honorable Donna E. Shalala
    Secretary of Health and Human Services

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       ANALYSIS UNDER 5 U.S.C. § 801(a)(1)(B)(i)-(iv) OF A MAJOR RULE
                                ISSUED BY
                            (RIN: 0938-AH75)

(i) Cost-benefit analysis

HHS, in conjunction with the Departments of Labor and Treasury, has prepared a
combined economic impact analysis for this interim final rule and the interim final
rule issued jointly by the three Departments, and published the same day in the
Federal Register, concerning group market provisions because the effects of the
reforms and burdens imposed overlap the same group of issuers. 62 Fed. Reg.

For the portability from group to individual coverage under this rule, HHS cites
estimates formulated by the Congressional Budget Office which shows the initial
yearly cost (direct cost to the private sector) to be $50 million with 45,000 people
covered and $200 million by the fifth year with 150,000 people covered. The
analysis also discusses social welfare effects of the rule such as freeing people from
"job lock," the inability to change jobs because of the possible loss of coverage.

(ii) Agency actions relevant to the Regulatory Flexibility Act, 5 U.S.C. §§ 603-605,
607 and 609

Since the rule was issued as an interim final rule and not as a general notice of
proposed rulemaking, the rule is not subject to the Regulatory Flexibility Act.

(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform
Act of 1995, 2 U.S.C. §§ 1532-1535

Since the rule was issued as an interim final rule and not as a general notice of
proposed rulemaking, the rule is not subject to the Unfunded Mandates Reform Act
of 1995.

(iv) Other relevant information or requirements under acts and executive orders

Administrative Procedure Act, 5 U.S.C. §§ 551 et seq.

Section 2792 of the Public Health Service Act (42 U.S.C. § 300gg-92) provides that
the Secretary of HHS may promulgate any interim final rules determined to be
appropriate to carry out the provisions of Part B of the act. The Secretary has
determined that there is good cause under section 553(b) of the Administrative
Procedure Act to not issue a notice of proposed rulemaking because it would be
impracticable, unnecessary, or contrary to the public interest. The Secretary has
found that without prompt guidance, some members of the regulated community
would have difficulty complying with the requirements of the HIPAA and insured
individuals will not understand the benefit to them of having a certificate of prior
coverage to present upon entering the individual health insurance market.

However, HHS is accepting comments on the interim final rule for a 90-day period
for consideration in the development of the final rules to be issued implementing
the HIPAA.

Paperwork Reduction Act, 44 U.S.C. §§ 3501-3520

The interim final rule contains information collections subject to review and
approval by the Office of Management and Budget under the Paperwork Reduction

HHS has requested emergency review of the collections because the collection of
the information is needed before the expiration of the normal time limits of the act
to assure guaranteeing availability of individual health insurance coverage to certain
individuals with prior group coverage. HHS is requesting that OMB provide a 30-
day comment period with OMB approval by June 1, 1997, for a 180-day period.
During the 180-day period, HHS will publish a notice in the Federal Register
initiating a 60-day agency review and public comment period with submittal to OMB
for review and an extension of the emergency approval to follow.

The notice contained in the preamble to the interim final rule complies with the
requirements of the Paperwork Reduction Act by explaining the need for the
information, the parties affected, and the burden estimate related to the collection.

HHS estimates that the total annual responses will be 3.5 million in 1997 and
3 million in 1998 and 1999 with the total annual burden hours estimated to range
from 335,000 to 586,000 hours in 1997; 384,000 to 882,000 hours in 1998; and 377,000
to 882,000 in 1999. The total annual cost of complying with the information
collection is estimated to range from $4.9 million to $6.8 million in 1997; $5.1 million
to $8.7 million in 1998; and $5.4 million to $8.7 million in 1999.

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Statutory authorization for the rule

The rule is promulgated under authority of sections 2741 through 2763, 2791, and
2792 of the Public Health Service Act (42 U.S.C. §§ 300gg-41 through 300gg-63,
300gg-91, and 300gg-92).

Executive Order No. 12866

The interim final rule was found to be an "economically significant" regulatory
action by OMB under Executive Order No. 12866 and as such was reviewed by OMB
based on the information supplied by HHS, including a planned regulatory action
document describing the reason for the rule and an assessment of the costs and
budgetary impact of the rule. OMB approved the rule on March 27, 1997.

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