Health Insurance Portability: Reform Could Ensure Continued Coverage for
Up to 25 Million Americans (Letter Report, 09/19/95, GAO/HEHS-95-257).

Pursuant to a congressional request, GAO provided information on: (1)
the protections offered by current state and federal health insurance
portability reforms; (2) the number of people who could be affected by
broader national portability standards; and (3) other issues related to
the design of national portability standards.

GAO found that: (1) although current federal and state laws have
improved the portability of health insurance, an individual's health
care coverage can still be reduced when changing jobs; (2) 40 states
enacted small group insurance regulations between 1990 and 1994 that
included portability standards, but the federal Employee Retirement
Income Security Act of 1974 prevents states from applying these
standards to the health plans of employers who self fund; (3) up to 21
million Americans a year would benefit from federal legislation that
would waive preexisting condition exclusions for individuals who have
had continuous health care coverage; and (4) as many as 4 million
Americans who have been unwilling to leave their jobs because of
concerns about losing their health care coverage would benefit from
national portability standards.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-95-257
     TITLE:  Health Insurance Portability: Reform Could Ensure Continued 
             Coverage for Up to 25 Million Americans
      DATE:  09/19/95
   SUBJECT:  Health insurance
             Health maintenance organizations
             Employee medical benefits
             Proposed legislation
             Health insurance cost control
             Employee benefit plans
             Insurance regulation
             State law
IDENTIFIER:  Census Bureau Current Population Survey
             Health Insurance Reform Act of 1995
             Working Families Health Access Act of 1995
             
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Cover
================================================================ COVER


Report to the Chairman and Ranking Minority Member, Committee on
Labor and Human Resources, U.S.  Senate

September 1995

HEALTH INSURANCE PORTABILITY -
REFORM COULD ENSURE CONTINUED
COVERAGE FOR UP TO 25 MILLION
AMERICANS

GAO/HEHS-95-257

Health Insurance Portability

(108250)


Abbreviations
=============================================================== ABBREV

  AHCPR - Agency for Health Care Policy and Research
  COBRA - Consolidated Omnibus Budget Reconciliation Act of 1986
  CPS - Current Population Survey
  ERISA - Employee Retirement Income Security Act of 1974
  HMO - health maintenance organization
  POS - point of service
  PPO - preferred provider organization

Letter
=============================================================== LETTER


B-265732

September 19, 1995

The Honorable Nancy Kassebaum
Chairman
The Honorable Edward M.  Kennedy
Ranking Minority Member
Committee on Labor and Human Resources
United States Senate

Millions of Americans face discontinuity in their health care
coverage when they change employers, and others do not change jobs
because of concerns about losing health care coverage.  In fact,
individuals with health problems may face extended periods in which
their new health plan does not cover their medical conditions because
of exclusions for preexisting conditions. 

Many states have passed health insurance reforms aimed at
portability, but federal law allows these reforms to apply only to
some health plans.  Consequently, the Congress has been considering
approaches to broaden the protections available to allow people to
change health plans without facing lapses in health care coverage. 
In particular, S.  1028 includes provisions to increase the
portability of health care coverage when individuals change health
plans.\1

Allowing individuals to receive credit for their previous health care
coverage in many cases would exempt them from having to wait before
being fully eligible under their new health plan. 

You asked us to provide information on (1) the protections offered by
current state and federal health insurance portability reforms, (2)
the number of people who could be affected by broader national
portability standards, and (3) other issues related to the design of
national portability standards.  Because this report expands on our
previous testimony\2 and is based on our work on health insurance
regulation and an analysis of the Bureau of the Census' March 1994
Current Population Survey (CPS), we did not obtain agency comments. 
It was conducted in accordance with generally accepted government
accounting standards between June and August 1995. 


--------------------
\1 S.  1028, The Health Insurance Reform Act of 1995, introduced by
Senators Kassebaum and Kennedy, was unanimously reported, as amended,
by the Senate Committee on Labor and Human Resources on August 2,
1995. 

\2 Health Insurance Regulation:  National Portability Standards Would
Facilitate Changing Health Plans (GAO/T-HEHS-95-205, July 18, 1995). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Although current federal and state laws have generally improved the
portability of health insurance, an individual's health care coverage
could still be reduced when changing jobs.  Between 1990 and 1994, 40
states enacted small group insurance regulations that include
portability standards, but the federal Employee Retirement Income
Security Act of 1974 (ERISA) prevents states from applying these
standards to the health plans of employers who self-fund.  As a
result, some in the Congress have proposed broader national
portability standards. 

We estimate that up to 21 million Americans a year would benefit from
federal legislation that would waive preexisting condition exclusions
for individuals who have had continuous health care coverage.  In
addition, perhaps as many as 4 million Americans who at some time
have been unwilling to leave their jobs because of concerns about
losing their health care coverage would benefit from national
portability standards.  Such a change, however, could possibly
increase premiums, according to insurers. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Because most Americans receive their health insurance from their
employers, changing jobs can disrupt their health care coverage.  If
a new employer does not offer health insurance, an individual must
either depend on another source of health care coverage (such as a
spouse's plan or purchasing individual coverage) or become uninsured. 
Even if a new employer offers coverage, the new plan's benefits may
be more limited or more expensive than the previous plan's. 

Most private health plans have waiting periods for new enrollees and
limit coverage for preexisting conditions.  These limitations allow
insurers to ensure that new enrollees have not purchased insurance
just because they have become sick.  However, the risk of losing
health care coverage discourages workers from changing jobs, leading
to a phenomenon known as "job lock."

Employer benefits surveys have found that waiting periods and
preexisting condition clauses are common, even among larger
employers.  KPMG Peat Marwick in 1994 reported that, among employers
with at least 200 employees, 62 percent of health plans have time
periods during which an employee must wait before getting coverage,
typically lasting less than 3 months.  The Peat Marwick survey also
found that 59 percent of indemnity plans, 70 percent of preferred
provider organization (PPO) plans, and 56 percent of point-of-service
(POS) plans have preexisting condition exclusions.\3 In contrast with
the other plan types, health maintenance organizations (HMO) do not
typically have preexisting condition clauses.  As shown in figure 1,
most of these preexisting condition exclusions last for 1 year or
more. 

   Figure 1:  Preexisting
   Condition Limitations, 1994

   (See figure in printed
   edition.)

Note:  "No guarantee" means that the preexisting condition exclusion
is indefinite in duration. 

Source:  Health Benefits in 1994, KPMG Peat Marwick. 


--------------------
\3 Indemnity refers to plans that allow enrollees free choice of
their health care providers, who are reimbursed on the basis of
fee-for-service charges.  PPOs provide enrollees a financial
incentive to use providers that have contracted with the plan and are
generally reimbursed on the basis of discounted fee-for-service
charges; enrollees can use other providers at a higher out-of-pocket
cost.  Point-of-service plans provide enrollees with a primary care
physician to coordinate referrals to specialist care and also provide
strong financial incentives to use providers with whom the plan has
contracted.  Health maintenance organizations (HMO) require enrollees
to use only providers who have contracted with the health plan and
who may be paid on the basis of discounted fee-for-service charges,
salary, or per enrollee.  See Health Benefits in 1994, KPMG Peat
Marwick (Washington, D.C.:  1994). 


   FEDERAL AND STATE LAWS PROMOTE
   HEALTH INSURANCE PORTABILITY
------------------------------------------------------------ Letter :3

The Congress and the states have taken several initiatives to improve
the portability of health care coverage.  These include national
standards that allow some people to temporarily continue group health
care coverage despite losing their jobs and state laws providing
portability to insurance policies sold to small firms.  However,
despite these steps, many Americans still are concerned that their
health care coverage may be disrupted if they change jobs. 


      COBRA COVERAGE CONTINUATION
      REQUIREMENTS
---------------------------------------------------------- Letter :3.1

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)
required continued health care coverage for some individuals after
losing their employment.\4 The COBRA requirements generally allow
individuals who leave a job to continue their health plan for up to
18 months by paying no more than 102 percent of the premium
previously paid by the employer and employee, even if the employee
starts a new job that offers health care coverage.\5 A recent study
found that 22 percent of eligible individuals continued health care
coverage through the COBRA requirements.\6

Another study estimated that the COBRA requirements increased
mobility by 10 percent among those with health insurance.\7


--------------------
\4 29 U.S.C.  1161 et seq. 

\5 Other situations can also occur to qualify an individual for COBRA
continuation coverage.  For example, a family member who loses health
care coverage as a result of death or divorce of an insured worker
may continue coverage for up to 36 months.  Also, a disabled
individual may continue health care coverage for a total of 29 months
but may be required to pay 150 percent of the premium for the final
11 months.  COBRA continuation requirements do not apply to employers
with fewer than 20 employees. 

\6 On the basis of a sample of individuals aged 40 through 64, 1.3
million individuals and their dependents maintained health care
coverage through COBRA's continuation requirements.  Patrice Flynn,
"COBRA Qualifying Events and Elections, 1987-1991," Inquiry, Vol.  31
(1994), pp.  215-220. 

\7 Jonathan Gruber and Brigitte C.  Madrian, "Health Insurance and
Job Mobility:  The Effects of Public Policy on Job-Lock," Industrial
and Labor Relations Review, Vol.  48, No.  1 (1994), pp.  86-102. 


      STATE INITIATIVES
---------------------------------------------------------- Letter :3.2

Recently, we reported that most states enacted small group health
insurance reforms between 1990 and 1994.\8 We found that 40 states
have included portability provisions in their small employer health
insurance legislation.  These provisions require insurance carriers
to waive preexisting condition limits or waiting periods if an
individual has been continuously enrolled in a health plan.  The
states vary in the size of groups for which these provisions apply,
the length of time allowed between health plans for coverage to be
considered continuous, and how coverage between current and prior
policies is linked for determining the effect of preexisting
conditions. 

We also reported that most state reforms have included, in addition
to portability provisions, guaranteed issue, guaranteed renewal, and
limits on preexisting condition exclusions.  For guaranteed issue,
states vary in whether insurers are required to actively offer a
single plan to all small employers, offer two or more plans, or offer
all of their plans with a guarantee that a plan would be issued. 
Every state we examined except Georgia requires insurers to guarantee
renewal of a health policy regardless of health status or claims
experience, with limited exceptions.  We found that 41 states limit
the use of preexisting conditions to deny coverage for specific
illness, with about half limiting the term of preexisting conditions
to no more than 1 year and ten states shortening the waiting period
to 6 months or less.\9 Finally, we found that, to varying degrees,
most states impose rating restrictions on health insurers.  For
example, some states have limited the factors that insurers can use
to estimate premiums, narrowed the range in rate differences among
different groups, or adopted adjusted community rating. 

State insurance reforms, however, cannot address the portability
issue for every employee.  Under ERISA,\10

health plans that are self-funded by employers are not affected by
state insurance regulation, including portability requirements.  We
estimate that about 44 million Americans are in self-funded health
plans that states cannot regulate, even indirectly.\11 States have
also generally limited their reforms to insurance policies sold to
small firms.  Furthermore, no analysis exists on the number of
individuals affected by these state reforms. 


--------------------
\8 Health Insurance Regulation:  Variation in Recent State Small
Employer Health Insurance Reforms (GAO/HEHS-95-161FS, June 12, 1995). 

\9 New Hampshire limits preexisting conditions to no more than 3
months if an individual has not had any medical expenses associated
with the condition in the last 3 months; otherwise, the preexisting
condition limit is 9 months. 

\10 Public Law 93-406, 88 Stat.  829 (classified as amended at 29
U.S.C.  1161 et seq.) (1988). 

\11 Employer-Based Health Plans:  Issues, Trends, and Challenges
Posed by ERISA (GAO/HEHS-95-167, July 25, 1995). 


      CURRENT FEDERAL LEGISLATIVE
      PROPOSALS
---------------------------------------------------------- Letter :3.3

Several bills introduced in the 104th Congress, including S.  1028,
H.R.  1604,\12 and H.R.  1610,\13 propose to reduce disruptions in
health care coverage and job lock by increasing the portability of
health insurance.  In effect, these bills would limit the length of
time that preexisting condition clauses can restrict health care
coverage by providing credit for individuals who have been
continuously enrolled by another group health plan.  Thus,
individuals with medical conditions who change health plans when they
change jobs would not have to wait before receiving full coverage. 
In addition, S.  1028 would allow individuals who have exhausted
their 18 to 36 months of COBRA continuation coverage, or who were
ineligible for COBRA continuation because their prior firm employed
fewer than 20 employees, to convert to individual coverage without
having to meet eligibility requirements such as waiting periods or
preexisting condition exclusions.  This approach provides broader
protections than existing state laws because it applies to all health
plans, including self-funded plans and those offered by larger
employers.\14 See appendix I for a comparison of state laws and S. 
1028. 


--------------------
\12 H.R.  1604, The Working Families Health Access Act of 1995, was
introduced by Representative Nancy Johnson on May 10, 1995. 

\13 H.R.  1610 was introduced by Representative Bill Thomas on May
11, 1995. 

\14 S.  1028 would expressly allow state laws to continue to be
enforced if they are more generous than the national standards. 


   ESTIMATING THE NUMBER OF
   INDIVIDUALS AFFECTED BY
   NATIONAL HEALTH INSURANCE
   STANDARDS
------------------------------------------------------------ Letter :4

Overall, we estimate that as many as 21 to 25 million people per year
could be affected by national portability standards, should they be
enacted.  Individuals who could be affected include those currently
insured who change jobs and their dependents, individuals who lose
their jobs and are no longer eligible for COBRA continuation
coverage, and individuals who face job lock due to health insurance
concerns.\15 Table 1 shows each of these affected groups and our
estimates of the number of individuals that the proposed legislation
could affect. 



                          Table 1
          
           Number of People Affected by National
                 Health Insurance Standards

Affected group                          Millions of people
----------------------------------  ----------------------
Individuals with health insurance                     11.5
 who change jobs
Dependents of individuals with                         6.7
 health insurance who change jobs
Individuals no longer eligible for                 1.8-2.3
 COBRA continuation coverage
Individuals facing job lock                        1.0-3.6
----------------------------------------------------------
Insurance regulation that ensures portability could benefit people in
a variety of ways.  Without portability standards, people with
preexisting medical conditions who change health plans could be
denied coverage for their conditions and may have to pay out of
pocket for necessary medical services.  Others may have to pay for
COBRA continuation coverage in addition to paying for their new
private health plan to ensure that their medical conditions are
covered.  Some people will remain in a job or turn down job offers
because of health insurance concerns.  A few people who exhaust their
COBRA continuation coverage, or are ineligible for COBRA coverage
after leaving a job, will be unable to purchase individual coverage
at any price if they have a severe medical condition, such as
acquired immune deficiency syndrome, severe diabetes, or heart
disease.\16 Finally, individuals who change employers may find that,
even if the employer offers a choice of health plans, their choice is
limited to health plans without preexisting condition exclusions. 


--------------------
\15 Some of these individuals would already have portability because
they may change to a health plan regulated by the states or that does
not have preexisting condition exclusions. 

\16 A study by the Agency for Health Care Policy and Research (AHCPR)
found that, in 1987, 1.6 million people under age 65 had been denied
private health insurance due to poor health.  This number includes
2.5 percent of the uninsured and some individuals receiving coverage
through state-sponsored health plans, such as high-risk pools.  See
Karen Beauregard, Persons Denied Private Health Insurance Due to Poor
Health (AHCPR Pub.  No.  92-0016), National Medical Expenditure
Survey Data Summary 4, Agency for Health Care Policy and Research,
Public Health Service (Rockville, Md.:  1991). 


      PORTABILITY STANDARDS WOULD
      REDUCE DISCONTINUITY IN
      HEALTH CARE COVERAGE FOR
      PEOPLE CHANGING JOBS
---------------------------------------------------------- Letter :4.1

The largest group of people affected by the proposed legislation is
those who change jobs.  On the basis of our analysis of the CPS, over
20 million Americans changed jobs in 1993.  Nearly 12 million of
these people also maintained employer-based health care coverage.\17
Additionally, nearly 7 million nonworking dependents received
employer-based coverage through these job changers.\18 Without
portability standards, many of these individuals faced preexisting
condition exclusions or waiting periods with their new health care
coverage.  Furthermore, individuals with preexisting conditions could
face a period in which their new plan does not cover their condition. 
As an alternative, some could purchase COBRA continuation coverage if
they want to be insured for a preexisting condition, though such
coverage would be duplicative. 

The proposed legislation would benefit such individuals to the extent
that their coverage would not lapse while they are between health
plans.  Because about three-quarters of job changes are voluntary and
therefore unlikely to mean a significant gap in employment, we
estimate that S.  1028 would allow about 9 million individuals (with
5 million dependents) to change jobs without having any preexisting
condition clause exclusions.\19 Also under S.  1028, the remaining 3
million job changers (with 2 million dependents) would likely have
reduced waiting periods, if any at all, before receiving full
eligibility for coverage. 

The proposed legislation would also allow individuals to purchase
individual-based health care coverage without preexisting condition
limits if they had maintained group health care coverage for at least
18 months and are no longer eligible for COBRA continuation coverage. 
In addition, individuals employed by firms with fewer than 20
employees who lose their employer-based coverage are not eligible for
COBRA continuation coverage, but they could immediately qualify for
individual coverage through the proposed portability standards.\20 On
the basis of COBRA continuation coverage election rates and turnover
rates in small firms, we estimate that about 2 million individuals
would be able to convert from employer-based coverage to individual
coverage (although at a higher premium) without having to meet
preexisting condition exclusions. 


--------------------
\17 Employer-based coverage also includes health plans sponsored by
unions or both unions and employers. 

\18 For spouses who are both employed, we can determine from the CPS
data only whether each individual has employer-based health care
coverage but not which employer provides the coverage.  However, this
is not likely to significantly affect our results because individuals
who change jobs but elect to receive coverage through their spouse's
employer instead of their new employer could still be required to
meet preexisting condition clauses for their new health plan. 
Furthermore, although in some cases individuals who change jobs may
already be receiving coverage through their spouse and, therefore,
would not need to change health plans, in other cases, an employed
spouse who receives coverage through an individual who changes jobs
would also be required to change health plans and possibly fulfill
preexisting condition limits.  Because these two cases would largely
offset each other, they would not significantly affect our estimates. 

\19 If an individual has had group health care coverage for less than
12 continuous months prior to changing employers, he or she may still
need to fulfill a shorter preexisting condition limit. 

\20 Fewer than 18 million individuals (including self-employed
individuals) receive health care coverage from firms with fewer than
20 employees. 


      PORTABILITY PROVISIONS WOULD
      ALSO LESSEN FEAR OF LOSING
      COVERAGE FROM CHANGING JOBS
---------------------------------------------------------- Letter :4.2

The proposed legislation, however, would affect more individuals than
those who change health plans because the standards would allow those
workers who stay in their jobs out of concern over losing health care
coverage to change jobs.  Although studies of the extent of job lock
have varying conclusions, we estimate that over time between 1
million and 4 million additional workers would change jobs if
national portability standards were in effect. 

Surveys have found that between 11 and 30 percent of individuals
report that they or a family member have remained in a job at some
time because they did not want to lose health care coverage.\21
Extrapolating from a 1993 survey by the Employee Benefit Research
Institute, we estimate that the proposed portability standards would
relieve as many as 3 million or 4 million Americans of job lock. 
Twenty percent of individuals who reported job lock in their
households cited preexisting conditions as the main reason for not
changing jobs, according to this survey. 

Other estimates of the extent of job lock among those with health
insurance have varied.  Although one study found little evidence of
job lock,\22 other studies we reviewed found that job mobility was
reduced by at least 20 percent for individuals with health insurance
and more for those who could have high medical expenses.  For
example, one study estimated that job mobility for workers with
health care coverage was reduced by nearly one-third for married men,
over one-third for workers with large families (a proxy for high
medical expenses), and two-thirds for workers with a pregnant
wife.\23 Another study reported that employer-based health care
coverage reduced job mobility by 23 percent for men and over 30
percent for women.  On the basis of these results, the authors of the
latter study conservatively estimated that approximately 1 million
additional workers would have changed jobs but for job lock.\24


--------------------
\21 See "Health Benefits Found to Deter Switches in Jobs," The New
York Times, Vol.  CXL (Sept.  26, 1991), pp.  A1, B12 (survey by The
New York Times and CBS News); Public Attitudes on Health Benefits,
1993, Employee Benefit Research Institute (Washington, D.C.:  1993);
and similar surveys in 1991 and 1992. 

\22 Douglas Holtz-Eakin, "Health Insurance Provision and Labor Market
Efficiency in the United States and Germany," in Social Protection
Versus Economic Efficiency:  Is There a Tradeoff?  ed.  Rebecca Blank
(Chicago:  University of Chicago Press, 1994). 

\23 Brigitte C.  Madrian, "Employment-Based Health Insurance and Job
Mobility:  Is There Evidence of Job-Lock?" The Quarterly Journal of
Economics, Vol.  109, No.  1 (1994), pp.  27-54. 

\24 Alan C.  Monheit and Philip F.  Cooper, "Health Insurance and Job
Mobility:  Theory and Evidence," Industrial and Labor Relations
Review, Vol.  48, No.  1 (1994), pp.  68-85. 


   ISSUES IN DESIGNING NATIONAL
   PORTABILITY STANDARDS
------------------------------------------------------------ Letter :5

In addition to improving the availability of health care coverage for
many Americans, national portability standards could also affect the
affordability of coverage.  While the standards would guarantee that
individuals could change health plans without having to meet
preexisting condition exclusions, the standards' effects on price and
affordability of coverage are less clear, particularly for people
with medical conditions. 

Since the cost of health insurance coverage is often cited as the
most critical determinant of whether firms or individuals purchase
coverage, the expected effects on premiums are crucial in determining
the net impact of state and federal insurance reforms on the level of
coverage.  High expected costs for an individual can mean a high
premium, particularly for individual and small group policies.  If
government restrictions constrain premiums for individuals or a
group, then insurers may be forced to raise premiums for all other
workers.\25

Although empirical evidence is sparse, the possible price effects
relate more directly to other health insurance reforms, such as
guaranteed issue, than to portability.  In fact, for the entire
market, portability should little affect prices because the cost of
these individuals would merely be shifted among health plans.  Raised
premiums could occur when a potentially high-cost individual
transfers into a very small firm or the individual health insurance
market.  With no restrictions on ratings, the small firm's or the
individual's premium could be significantly raised, which could lead
to a decision to forego coverage. 

For this reason, some insurers have opposed provisions in state and
federal legislation to extend portability standards to
individual-based health plans.  They believe that high-cost
individuals are the ones most likely to convert from a group health
plan to an individual health plan, leading to increased premiums. 
Insurers disagree, however, about the extent to which national
portability standards would cause higher premiums.  Premium
increases, if any, would depend upon the size of the covered group,
rating restrictions imposed by state laws, and the extent to which
the insurer uses medical underwriting to set premiums. 

Federal and state legislators have tried to respond to these concerns
to some extent.  Several states, for example, explicitly recognize
the greater uncertainties in the individual market by applying some
reforms only to employers with at least two or three workers or only
to self-employed individuals.  In response to these concerns, S. 
1028 as approved by the Senate Committee on Labor and Human Resources
includes a provision that requires anyone converting to an individual
health plan to have had continuous group health care coverage for the
preceding 18 months for the portability standards to be effective. 
Furthermore, the bill would leave intact state laws that provide some
price protection for individuals and small firms purchasing insurance
in the private market. 


--------------------
\25 Although the proposed federal bills do not contain rating
restrictions, most states have enacted rating restrictions that would
apply to health plans sold by third-party insurers. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

Despite past state reforms and the COBRA continuation of coverage
requirements, the lack of health insurance portability still concerns
many Americans, particularly those with costly health conditions. 
Although many states have enacted portability standards for insurance
carriers, ERISA preemption prevents states from applying the
standards to self-funded employer-based health plans.  We estimate
that as many as 21 million to 25 million Americans a year could
possibly benefit from proposed national portability standards.  The
extent to which insurers would respond to these reforms with
increased premiums, however, is uncertain. 


---------------------------------------------------------- Letter :6.1

Please call me on (202) 512-7125 if you or your staff have any
questions about this report.  Michael Gutowski, Assistant Director,
and John Dicken, Senior Evaluator, were major contributors to this
report. 

Mark V.  Nadel
Associate Director,
National and Public Health Issues


COMPARISON OF PROPOSED NATIONAL
HEALTH INSURANCE REGULATIONS AND
EXISTING STATE INSURANCE
REGULATIONS
=========================================================== Appendix I

Most states have enacted health insurance reforms similar to those
proposed by S.  1028; they are limited, however, to regulating
insurance products sold to small employers.  Thus, the national
insurance reforms would apply to more health plans--including
self-funded plans and those offered by larger employers--than
existing state regulations.  S.  1028 and most state regulations
address four common areas:  guaranteed issue, guaranteed renewal,
portability, and limits of preexisting condition exclusions.  The
specifics of how these regulations would apply, however, vary.  To
the extent that state regulations are more restrictive than the
proposed national standards, S.  1028 would allow the states to
continue to enforce their regulations.  Table I.1 summarizes current
state regulations in these four areas.\26



                         Table I.1
          
           State Small Employer Health Insurance
                          Reforms

                                                  Preexist
                              Guarante                 ing
          Employer  Guarante  ed        Portabil  conditio
          size      ed issue  renewal   ity\a         ns\a
--------  --------  --------  --------  --------  --------
Alabama

Alaska    2-25      Two       X         90 Link       6/12
                    plans

Arizona   3-40      One       X         31 No        12/12
                    plan\b              link

Arkansas  25 or               X
          less

Californ  3-50      All       X         30\d No        6/6
ia                  plans\c             link

Colorado  2-50\e    Two       X         90 Link        6/6
                    plans

Connecti  Less      All       X         30 Link       6/12
cut       than 50   plans

Delaware  1-50      Two       X         60 Link       6/12
                    plans\f

Florida   50 or     All       X         30 No         6/12
          less      plans               link

Georgia   1-50

Hawaii\g

Idaho     1-49      Two       X         30 Link       6/12
                    plans\h

Illinois  3-25                X         30 Link      12/12

Indiana   3-25                X\i

Iowa      2-50      Two       X         90 Link       6/12
                    plans

Kansas    1-50      Two       X         31 Link       6/90
                    plans                             days

Kentucky  100 or    One plan  X         60 No          6/6
          less                          link

Louisian  3-35                X         60 No        12/12
a                                       link

Maine     Less      All       X         90\j         12/12
          than 25   plans               Link

Maryland  2-50      One plan  X         N/A\k         None

Massachu  25 or     All       X         30 Link        6/6
setts     less      plans\l

Michigan

Minnesot  2-49      All       X         30 No         6/12
a                   plans               link

Mississi  1-35      One       X         30 Link      12/12
ppi                 plan\m

Missouri  3-25      Two       X         30 Link       6/12
                    plans\n

Montana   3-25      Two       X         30 Link   5 years/
                    plans\n                             12
                                                    months

Nebraska  3-25      Two       X         90 Link       6/12
                    plans\n

Nevada

New       1-100     All       X\        Yes\o      3/3/9\p
Hampshir            plans
e

New       2-49      Five      X         90 Link      6/6\q
Jersey              plans

New       2-50      \r        X         31 Link        6/6
Mexico

New York  3-50      All       X         60 Link       6/12
                    plans

North     1-49      Two       X         60 No        12/12
Carolina            plans               link

North     25 or     Two       X         90 Link       6/12
Dakota    less      plans

Ohio      2-50      Two       X         30 No         6/12
                    plans               link

Oklahoma  50 or     Two       X         0\s No        6/12
          less      plans\f             link

Oregon    3-25      One plan  X         30 No         6/12
                                        link

Pennsylv
ania

Rhode     50 or     Two       X         30 Link       6/12
Island    less      plans\t

South     50 or     Two       X         30 Link      12/12
Carolina  less      plans\f

South     25 or               X
Dakota    less

Tennesse  3-25      Two       X         30 No        12/12
e                   plans\n             link

Texas     3-50      All       X         60 No         6/12
                    plans               link

Utah      1-50                X         90 Link       6/12

Vermont   1-49      All       N/A\u     0\v Link     12/12
                    plans

Virginia  2-49      Two       X         30 No        12/12
                    plans\w             link

Washingt  25 or     All       X         90 Link        3/3
on\x      less      plans

West      2-60                X         30 No        12/12
Virginia                                link

Wisconsi  2-25      One plan  X         30 Link       6/12
n

Wyoming   2-25      Two       X         90 Link       6/12
                    plans\y
----------------------------------------------------------
\a States vary in the number of days that they allow between health
plans for coverage to be considered continuous.  The number in the
"portability" column represents the maximum number of days each state
allows.  States also generally limit both the length of time an
insurer may retroactively review an enrollee's medical experience to
determine that a condition was preexisting and the length of time the
insurer may deny coverage for any preexisting conditions.  This is
annotated in the table such that, for example, 6/12 means that the
state limits the insurer to examining no more than the previous 6
months of an enrollee's medical experience and can apply the
preexisting condition exclusion for no more than 12 months. 


\b This provision applies to groups of 25-40.  Beginning on 7/1/96,
this provision will apply to groups of 3-40. 

\c This provision applies to all groups of three or more. 

\d This may be extended to 180 days in cases where an individual
changes employers but still maintains employer-based coverage. 

\e As of 1/1/96, the small group definition will include a business
group of one. 

\f This provision applies to groups of 2-50. 

\g Hawaii was the first state to attempt universal coverage with its
passage of the Prepaid Health Care Act in 1974.  With the act's
employer mandate and public programs to ensure coverage, the state
comes closer to having universal coverage in place than any other
state.  Because this act was passed before the federal ERISA law,
Hawaii is the only state granted an exemption under ERISA. 

\h This provision applies to groups of 2-49. 

\i Expressly refers to and limits cancellations. 

\j The services covered under the portability provision differ on the
basis of whether an employee changes jobs or an employer changes
coverage. 

\k Preexisting condition limitations are generally prohibited. 

\l A carrier has the option to deny issue to a group of five or fewer
eligible persons if the group does not enroll through an
intermediary. 

\m This provision applies to groups of 1-25. 

\n Each insurance carrier must sell a basic and standard plan as a
guaranteed issue product. 

\o Time an individual was covered under a prior health plan must be
credited toward any preexisting condition exclusion period of the new
plan if coverage did not lapse.  However, if coverage lapsed because
of unemployment, carriers must treat the unemployment period as
continuous coverage. 

\p A waiting period for preexisting conditions may be no more than 3
months if individuals incur no medical treatment expense in
connection with the preexisting condition during those 3 months. 
Otherwise, the waiting period may be no longer than 9 months for a
preexisting condition diagnosed or treated up to 3 months before the
effective date of coverage. 

\q Preexisting condition limitations apply only to groups of five or
fewer eligible employees and may not be imposed on larger groups. 

\r Related provisions exist under state Health Alliance Act. 

\s Time an individual was covered under a prior health plan must be
credited toward any preexisting exclusion period of the new plan if
coverage did not lapse.  The act does not specify that previously
covered services must have been comparable to current coverage. 

\t This provision applies to groups of 3-50. 

\u State has continuous open enrollment. 

\v Preexisting condition period must be waived if substantially
similar coverage under a prior policy was in effect for the previous
9 months.  Does not provide for a lapse in coverage. 

\w This provision applies to groups of 2-25. 

\x Washington passed the Health Services Act in 1993 to create a
universal coverage program for all residents through an employer
mandate.  Although key provisions of this act have been repealed, the
insurance reform components remain. 

\y This provision applies to groups of two or more. 


--------------------
\26 See Health Insurance Regulation:  Variation in Recent State Small
Employer Health Insurance Reforms (GAO/HEHS-95-161FS, June 12, 1995)
for more details on state insurance regulations and a comparison with
the National Association of Insurance Commissioners' model acts. 


   GUARANTEED ISSUE
--------------------------------------------------------- Appendix I:1

S.  1028 would require guaranteed issue of all group insurance
policies; that is, insurance carriers would be required to sell
health insurance to all groups wishing to purchase it, and employers
who offer health care coverage would be required to offer coverage to
any qualifying employee.  In our review of state small group health
insurance reforms enacted between 1990 and 1994, we found that 36
states have guaranteed issue requirements that apply to small
employers.  However, only 11 states require that all insurance plans
sold in that market have guaranteed issue; most states require that
one or two plans be available as a guaranteed issue product. 


   GUARANTEED RENEWAL
--------------------------------------------------------- Appendix I:2

S.  1028 would also guarantee renewal of health insurance products by
not allowing insurers to terminate or fail to renew a group policy. 
Between 1990 and 1994, 43 states enacted laws for guaranteed
renewability of group insurance policies. 


   PORTABILITY
--------------------------------------------------------- Appendix I:3

S.  1028 would provide credit for prior group health care coverage to
reduce or eliminate preexisting condition limits when a person
enrolls in a new group plan.  The bill would reduce the preexisting
condition exclusion by 1 month for each month that an individual was
in a period of continuous coverage.  Continuous coverage would be
defined as coverage with a lapse of 30 days or less.  However, a
group health plan may impose a preexisting condition exclusion for
services or benefits offered by the previous health plan. 

We reported that 40 states have also enacted portability regulations
for the small employer market.  These laws vary in the period of time
that they allow between enrollment in a new plan and whether they
link the services provided in the former and current plans for
enrollees to receive credit for a preexisting condition.  In
particular, 19 states allow for more than a 30-day lapse between
enrollment in the two plans for coverage to be considered continuous. 
Furthermore, 14 states do not require a link between the services
provided in the former and current plans for the preexisting
condition limit to be reduced or eliminated. 


   PREEXISTING CONDITION EXCLUSION
--------------------------------------------------------- Appendix I:4

S.  1028, which defines preexisting conditions as those for which
care was recommended or received within the previous 6 months, would
limit preexisting condition exclusions to no more than 12 months.  We
found that 41 states limit the duration of preexisting condition
exclusions, with 10 states having shorter limits than proposed by S. 
1028. 


   RATING RESTRICTIONS
--------------------------------------------------------- Appendix I:5

We found that at least 44 states included premium rate restrictions
as part of reforms passed between 1990 and 1994.  However, the extent
to which the states narrow the range of premiums that insurers may
charge varies greatly.  S.  1028 does not include rating restrictions
but would allow states to impose rating restrictions on insurers.