American Federalism in Practice: The Formulation and Implementation of Contemporary Health Policy

5. HIPPA: Federalism in Congress

57 chapter five HIPAA: Federalism in Congress When I tell my graduate students, “Today we will be talking about something truly fascinating [dramatic pause]: health insurance regulation,” the line never fails to elicit groans. The truth is that health insurance can be intriguing—except for the parts that are bone dry. But grasping the complexity of the issue is essential to understanding how the U.S. health care system works and how it might be shaped by national reform. The Health Insurance Portability and Accountability Act (HIPAA) of 1996—an act that passed in the wake of failed national reform at a time when conservatives controlled Congress—is an important example of health policy in action. HIPAA took aim at some of the most egregious health insurance practices. For example, health insurance companies were allowed to exclude specific body parts from coverage. If Uncle John had a heart murmur and moved from one job to the next, his new insurance company could exempt his heart from coverage; the policy would be literally heartless. That practice led to “job lock”—people staying in jobs that they disliked because changing jobs might mean losing health insurance. Further, insurance companies could drop just individual policies or small group policies to save money. If an employee at a hardware store got AIDS, cancer, or some other devastating , expensive illness, the insurance company could drop coverage for the hardware store at annual renewal. Some people know HIPAA best as the law that establishes privacy standards and protects personal health information, but it sought to accomplish many things. The focus here will be on its efforts to eliminate preexisting condition exclusions and make health insurance more available and affordable. From the beginning, portability was a key issue. In HIPAA, portability does not, as the name suggests, mean keeping the same health plan when one changes jobs; it means that one cannot be 05-2483-4 chap5.indd 57 6/25/13 5:33 PM 58 / hipaa: federalism in congress denied complete coverage when changing insurance. Studying HIPAA portability provisions and particularly intergovernmental failures to accomplish portability goals offers valuable lessons for the implementation of insurance regulations under the Affordable Care Act. HIPAA provided minimum national health insurance standards in an area traditionally regulated by the states. While governors influenced CHIP through their political connections with congressional leaders, state insurance commissioners influenced HIPAA through their expertise. For both CHIP and HIPAA, existing state activities were essential precursors to federal action. But unlike with CHIP, the legislative debate over HIPAA had less direct focus on federalism and the arguments that the parties offered ran counter to their conventional stance on states’ rights. In this so-called time of “devolution,” conservatives supported national regulations that preempted states’ rights in order to support business; they were opposed to protecting states’ rights when doing so allowed for stronger, more diverse state regulations . Meanwhile, liberals wanted states to have the ability to implement consumer protections that were stronger than the federal government’s minimum standards. Positions on federalism were more closely linked to policy interests than to the ideological notions of the “proper” division of power between the states and the federal government. State Action States traditionally have had the power to regulate the small group and individual health insurance markets. Prior to HIPAA, the majority of states had insurance regulations equal to and in most cases stronger than those that HIPAA ultimately included. But states had a problem: they could not regulate the insurance offered by most large employers. Approximately 40 percent of Americans with private insurance are in health insurance plans exempt from state regulation because of a complex labor and pension law called the Employee Retirement Income Security Act of 1974 (ERISA).1 Those plans are regulated by the federal government, which has traditionally had a far more hands-off approach to regulation than the states. The logic behind the law was that because larger companies have employees in multiple states, it would be burdensome for them to comply with multiple sets of state regulations. ERISA significantly limited the reach of state insurance regulators. For example, in the 1990s, a number of states passed regulations to prevent hospitals from discharging new mothers within forty-eight hours of birth— so-called “drive-by deliveries.” However, such regulations did not apply to 05-2483-4 chap5.indd 58 6/25/13 5:33 PM hipaa: federalism in congress / 59...