Employee Health Insurance

Both COBRA and HIPPA are amendments to a previous piece of legislation on retirement and pensions, the Employee Retirement Income Security Act of 1974 (ERISA). As was discussed above, one concern about having health insurance tied to employment is that workers may lose their insurance coverage if they change jobs, retire, or lose their job for any reason. In response to this, COBRA was enacted in 1986 to help workers and their families continue to receive group health care coverage even if they are no longer at the same job.

There are conditions for eligibility for both the employer and the worker. The employer must offer health insurance benefits as a part of the worker benefit package and employ more than twenty employees. The worker or family member must have lost coverage of employee-provided group health insurance for one of the following qualifying events: voluntary or involuntary termination of employment for any reason other than gross misconduct; a reduction of hours of work for the employee, the employee became eligible for Medicare but wants to continue coverage for a spouse or dependent, a divorce or legal separation from a covered employee, death of a covered employee, or an individual is no longer a dependent child of the employee.

Individuals who meet the employer and employee requirements above may choose to purchase the group health insurance the employer had provided for a period of eighteen months if the qualifying event is a change in employment, or thirty-six months if the qualifying event is a change in family structure. The individual may be required to pay the entire premium for coverage plus a 2 percent administrative fee (a total of 102 percent of the premium price) as well as paying whatever deductibles or co-insurance that are part of the insurance plan. Individuals who want to use COBRA must notify their employer within sixty days of becoming eligible for coverage.

COBRA provides an opportunity for workers to continue to receive health insurance as the bridge between jobs, or to retire prior to age sixty-five. Despite this, studies find that only a small proportion of the near-elderly use COBRA—only 21 percent of those who become eligible for COBRA enroll. However, the rate is higher for those who become eligible because a spouse became eligible for Medicare, with 60 percent electing to participate in COBRA. In addition, only 10 percent of the near-elderly who use COBRA use it for the entire eighteen (or thirty-six) month period, with the average length of use being only one year. Part of the reason for the low take-up rates may be the cost of coverage. While COBRA limits that the premiums for a policy be at the same price as the employer pays, there is no longer an employer subsidy of premiums. The General Accounting Office reports that the average total annual premium for employer-provided health coverage is $3,820, a potentially large financial strain for a retiree or someone between jobs. (For more information on the regulations for COBRA, see the U.S. Department of Labor publication Health Benefits Under the Consolidated Omnibus Budget Reconciliation Act; for more information on the use of COBRA see chapter five of the General Accounting Office publication Insurance Access for 55- to 64-Year Olds.)

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is designed to make it easier for people to change jobs without losing health coverage. HIPAA limits exclusions for pre-existing conditions, prohibits discrimination in enrollment and in premiums charged to employees in group health plans (such as employer-provided health care) based on their health status, and guarantees renewability and availability of individual health insurance plans for people not covered by group plans— provided they have exhausted their other insurance options.

Many individuals may be hesitant to switch jobs or insurance plans for fear that current health problems will not be covered due to preexisting conditions clauses in insurance policies. HIPAA seeks to reduce this constraint by limiting health insurance exclusions for pre-existing conditions. If an individual has had prior medical problems but has not received medical advice, diagnosis, care, or treatment for the condition during the six months prior to enrollment in a health insurance plan, the plan cannot exclude coverage for the condition. In addition, if there is a pre-existing condition during the six months prior to enrollment, the insurance company can only exclude coverage for the condition for a maximum of twelve months if an individual enrolled in a plan as soon as he or she was eligible for the plan, or for eighteen months if the individual enrolled in the plan at a date later than the eligibility date. The twelve (or eighteen) month period can be shortened if an individual is switching from one insurance plan to another insurance plan, since the length of time the individual received the earlier insurance coverage counts towards the twelve (or eighteen) month time limit, provided that there is not a break in insurance coverage of more than sixty-three days. (For example, if someone has been receiving employer-provided health insurance for the previous eight months and then decides to purchase a different insurance policy, as long as the new policy is purchased within sixty-three days of when the earlier policy ended, then the waiting period for preexisting conditions with the new policy will only be four months because the individual will receive eight months of credit toward the twelve-month limit.)

The nondiscrimination requirements in HIPAA prevent an individual from losing group health insurance coverage, being denied coverage, or having to pay higher premiums because of health-related factors. For example, a group health-insurance policy cannot require an individual to pass a physical before becoming eligible for coverage, as this would be considered discriminating on eligibility based on health-related factors. Nor can a group insurance policy require that individuals who have certain health conditions, such as diabetes or HIV, pay a higher premium. (However, insurance companies are able to determine what types of coverage they will provide for various health problems. For example, a health insurance company can have a policy that they will not provide coverage for heart transplants or experimental drugs, provided these benefit restrictions apply to all individuals covered by the insurance policy.)

The final primary area HIPAA seeks to address is the availability of individual health insurance policies for those who do not have access to group policies. If an individual has had coverage for at least eighteen months, has exhausted COBRA coverage or is not eligible for COBRA, has no other insurance coverage and is not eligible for any government health plan such as Medicare or Medicaid, and did not lose group coverage eligibility because of fraud or nonpayment of premiums, then the individual cannot be denied the purchase of an individual insurance policy. However, while HIPAA guarantees access to an individual policy, it does not limit the premium that insurance companies can charge. Some have considered this to be a drawback of the law, since individual policies may be offered at premiums that make them prohibitively costly. (For further information on HIPAA see the U.S. Department of Labor publications Questions and Answers: Recent Changes in Health Care Law and Pension and Health Care Coverage. . .Questions and Answers for Dislocated Workers. In addition, a good Internet source for government information on health-related questions and relevant issues is www.healthfinder.gov)