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Introduction to State Health Policy

Basics of Health Insurance Market Reforms

The Health Insurance Portability and Accountability Act (HIPAA) & Employee Retirement Income Security Act (ERISA)

Presenters:

Kala Ladenheim, Program Manager, National Conference of State Legislatures, Washington, DC.

Patricia Butler, J.D., Dr.P.H., Health Policy Consultant, Boulder, CO.

Len Nichols, Ph.D., Senior Research Associate, Health Policy Center, Urban Institute, Washington, DC.


Health insurance has changed dramatically in recent years, shifting from fee-for service coverage to capitated managed care arrangements. This situation has required changes to States' traditional regulatory and oversight roles.

This session was designed to:

  • Discuss payers' growing demands for managed care and the impact of moving from fee-for-service into a prospective capitated system.
  • Highlight how regulatory methods have changed over time.
  • Discuss overall changes policymakers face in trying to address the interests of various stakeholders involved in the health care field while seeking to achieve public policy goals.
  • Describe and discuss ERISA—Employee Retirement Income Security Act—and how it affects States' authority.

Kala Ladenhein, Program Manager for the National Conference of State Legislatures, opened the session by identifying some of the key features as well as potential problems within the health insurance marketplace (e.g., solvency issues, adverse selection, market segmentation). She then described the important government role in ensuring that these markets function properly, including:

  • Seeking to ensure the fiscal solvency of insurers.
  • Establishing standards for insurer behavior in the market.
  • Helping insurance purchasers navigate their way through the marketplace.

State and Federal Governments share the responsibility of health insurance regulation. Len Nichols, Senior Research Associate in the Health Policy Center of the Urban Institute, discussed the fundamentals of health insurance regulation. He explained that regulating health insurance is achieved by a process of pooling risk. Pooling forces the market to work more effectively than it would independent of regulation.

State governments continue to face health care regulation challenges including:

  • Changes in managed care regulation.
  • Tax reform.
  • Extensions of HIPAA—the Health Insurance Portability and Accountability Act.

Patricia Butler, a health lawyer and policy consultant, then explained how the provisions of the Federal ERISA statute have limited the States' purview over issues and activities of health care coverage by effectively precluding their regulation of coverage provided by "self-insured" employers. These self-insured companies, which are usually large businesses that employ a significant proportion of the American workforce, provide coverage for the majority of services available from insurance companies or managed care plans, but retain some degree of financial risk for the overall costs of the care provided. Because they did not consider these arrangements as "insurance," the courts have ruled that they are governed by Federal, rather than State, regulations.

Dr. Butler discussed the implications of this statute on States' ability to influence health care coverage issues and offered suggestions on ways in which States could craft their regulations to maximize the reach of positive policies within the market.

References

Butler P. Policy Implications of Recent ERISA Court Decisions. Washington DC: National Governors' Association. 1998.

Nichols LM, Blumberg LJ. A Different Kind of 'New Federalism'? The Health Insurance Portability and Accountability Act of 1996. Health Aff 1998 May/Jun;17(3):25-42.


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