What Is It?
The Health Insurance Portability and Accountability Act of 1996 (HIPAA), signed into law on August 21, 1996, has far-reaching consequences for many facets of the health insurance industry and includes provisions that should prove extremely beneficial for self-employed individuals and other consumers.
What Are The Major Provisions of HIPAA?
Following is a brief summary of some of the major provisions of HIPAA:
Portability of Group Health Insurance
The portability provisions of HIPAA are among the most important to consumers. These provisions should allow workers to move freely from one employer to another without the fear of losing group health insurance coverage. If you have been covered by a group health plan for at least 18 months (with a break of no more than 63 days), HIPAA guarantees that you cannot be refused or made to wait for coverage by a new insurer on the basis of pre-existing conditions. While HIPAA applies only to those who have been covered by group plans, some states are extending this protection to those moving from one individual plan to another. The portability provisions of HIPAA are effective for plan years beginning on or after July 1, 1997.
Increased Availability of Health Insurance Coverage
With certain exceptions, HIPAA requires health insurance companies serving small groups (2 to 50 employees) to accept every small employer that applies for coverage. These insurers are also required to accept every eligible individual who applies for coverage when he or she first becomes eligible under the employer's plan. All insurers are also required to renew existing coverage for groups of any size unless one of the following conditions exists:
- Nonpayment of premiums
- Fraud or misrepresentation
- Withdrawal of the insurer from the market
- Failure by the employer to meet participation or contribution requirements
- Lack of participants living or working in the plan's service area, or
- Employer no longer a member of a sponsoring association
HIPAA established a trial program for medical savings accounts (renamed Archer MSAs in 2001). Archer MSAs allow certain individuals to contribute money to a tax-advantaged account for purposes of paying for medical expenses not covered by health insurance. Contributions to an Archer MSA are tax deductible, and withdrawals used to pay for qualified medical expenses are generally not subject to income tax. This trial program ended on December 31, 2007.
Tip: You may be able to establish a similar type of savings vehicle, called a health savings account (HSA). HSAs, created as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, expand upon the benefits offered by Archer MSAs. For more information, see Health Savings Accounts (HSAs).
Tax Treatment of Long-Term Care Insurance
Beginning January 1, 1997, the premiums paid by an employer for long-term care insurance are deductible for the employer and excludable from an employee's income. Individuals may deduct personally paid premiums to the extent they exceed the 7.5 percent threshold (when combined with other medical expenses).
Expansion of COBRA Benefits
Under HIPAA, anyone who meets the Social Security definition of disability during the first 60 days of COBRA coverage is eligible for 29 months of coverage instead of the standard 18 months.
When Can You Take Advantage of The Provisions of HIPAA?
The various provisions of HIPAA have different effective dates, many of which are listed previously. In addition, regulations must be created by the appropriate regulatory agencies before some provisions can take effect.
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