Although it may come as a surprise to many members of Congress, the "portability" act (HIPAA) they voted for in 1996 actually prohibits real portability. That is, HIPAA appears to prohibit employer purchase of the only kind of insurance that is truly portable.

Background

Over the two-year period, scholars from the National Center for Policy Analysis and executives and actuaries from Blue Cross/Blue Shield of Texas devised a way to allow employers to purchase individually owned, personal and portable insurance for their employees as an alternative to traditional group insurance. After a three-year transition period, employees would be free to enroll in other competing plans. Employers would pledge a defined-contribution for each employee to be applied to that employee's insurance premium. And the insurance would travel with the employee in case of change of jobs.

Advantages of Portable Insurance

This plan promises many advantages, the most important of which is continuity of care. Under the current system, no one has insurance that is guaranteed to last more than 12 months. Employers are free to choose a new health plan every year, or cease offering health insurance altogether. And any change of jobs within the 12-month period leads to even more frequent changes in coverage. In today's health insurance marketplace, a change of health plans usually means patients are forced to change doctors as well.

Portable health insurance promises a continuing relationship with an insurer and, therefore, a continuing relationship with doctors and health facilities. It also means that people can find a health plan they like and stay in it, without worrying whether they will be forced out of the plan by an employer's decision or by a change in employment.

For employers, portable health insurance means that small groups are no longer treated as a self-contained pool and rated each year based on changes in health status of their employees. Instead, their employees will be members of very large pools in which no one can be singled out because of a sudden large medical expense, and premium increases are the same for all. Under this system, employees can be in a plan of their own choosing and employers can limit their contribution to a fixed dollar amount. New hires will know how much the employer is going to contribute to health insurance, just as they know the amount of their salary. Because the employer's role is largely financial, in a real sense employers will get out of the "business" of health insurance.

Political Attractiveness

The NCPA-Blue Cross/Blue Shield plan was presented to the Blue Ribbon Task Force on the Uninsured and was warmly received. Liberal Democrats and Conservative Republicans alike welcomed the general idea as an attractive way to solve problems in health insurance that are becoming more severe with each passing day.

How HIPAA Prevents Portability

The plan was analyzed at great length by lawyers working for the Texas Insurance Commission. They came to a surprising conclusion: not only does HIPAA appear to outlaw the NCPA-Blue Cross/Blue Shield plan; it also outlaws any plan that would create genuine portability. Specifically:

• If the employer's premium payment is excluded from the taxable income of the employee (the way it normally is with employer-provided insurance) the insurance cannot be owned by the employee.
• If the employer purchased insurance is owned by the employee, the premium payments cannot be excluded from the employee's taxable income.

In other words, you can have portability or you can have the normal tax break - but not both!

Is a Technical Amendment The Answer?

Since it took lawyers many hours pouring over the fine print of HIPAA to come to this conclusion, a natural question is: Is this what Congress really intended? We have been unable to find any member of Congress who voted for HIPAA who is willing to say that outlawing employee-owned insurance was a goal of the act. Therefore it's possible that a technical amendment is the answer.

What a Technical Amendment Would Do

An amendment by itself would not create portable insurance. Remember: HIPAA is actually implemented by the states. A technical amendment would free the states to be able to create the kind of employee-owned insurance that was contemplated in Texas. But in implementing the change, Texas would still be required to enforce the other provisions of HIPAA, including the requirement that people who lose coverage because, say, of a loss of employment would be able to obtain new insurance regardless of health status.