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71 chapter six HIPAA: Federalism and Rulemaking The rulemaking process that turned HIPAA legislation into policy should serve as a cautionary tale for national reform through the Patient Protection and Affordable Care Act. The HIPAA rule used the threat of a federal takeover of a state regulatory function to enforce the insurance portability provisions. However, because the federal government did not have the resources, staff, expertise, or desire to back up the threat, it capitulated to the states during the rulemaking process, thereby weakening the law. Similarly, if the states refuse to create health care exchanges under the ACA, the only recourse is for the federal government to step in and run the exchanges. Indeed, the federal government seemed to follow this pattern in drafting the early ACA rules governing health care exchanges, bending over backward to cajole the states into participating by designing weak and flexible rules.1 This approach weakens federal efforts to achieve uniformity, but it may increase state engagement, which is critical for success. The federal government is in a difficult position with respect to the ACA, in contrast to its experience with CHIP, when it was dealing from a position of strength. With CHIP it had the expertise, resources, and staff—along with financial incentives and penalties—to compel the states to act and to work with them to achieve program goals. HIPAA was signed into law on August 21, 1996. As with CHIP, Congress wanted the program up and running as quickly as possible. The Centers for Medicare and Medicaid Services (CMS), the Department of Labor Pension and Welfare Benefits Administration (PWBA), and the Department of the Treasury issued joint regulations to speed up the process. As with CHIP, federal-state relations helped shape the HIPAA rule. This time, however, the 06-2483-4 chap6.indd 71 6/25/13 5:33 PM 72 / hipaa: federalism and rulemaking states ended up dominating the rulemaking process; in fact, they literally wrote large sections of the law. Many factors contributed to the near-collapse of federal authority over the HIPAA rulemaking process. In the end, the feds were sunk by overly ambitious deadlines, dispersed rulemaking responsibilities, limited federal expertise, staff and resource shortfalls, and lack of state reporting requirements or any other way to hold states and insurance companies accountable. Conversely, states gained leverage through their historical expertise in regulating insurance. It is not surprising, when one looks back, that any ambiguity in the law was settled in favor of the states. While the law reads like federal encroachment on state responsibility, the rulemaking process revealed a toothless federal government. On one hand, given diverse state insurance markets and the ambiguity regarding what an efficient exchange looks like, considerable flexibility might be a good thing. On the other, “anything goes” exchanges could lead to news exposés about inefficient exchanges that waste taxpayers’ money, reducing the credibility of reform. Time Frame HIPAA was passed with remarkably ambitious timelines. According to the legislation, health plans and health insurance carriers had to comply with the new law just one year after passage, but before that could happen, each state had to enact new laws to make compliance possible. For states with legislatures that meet only once or twice a year, the schedule was unrealistic.2 States wanting to create alternative programs in the individual insurance market had to submit a letter of intent within the first eight months, even before federal guidance outlining program parameters was issued.3 Furthermore, less than a year after passage, health issuers were required to issue certificates to employees documenting continuous coverage. That required making changes in information technology systems before the federal or state governments issued any guidelines—a risky proposition since much can be invested in vain if requirements change, as they often do. Issuance of federal HIPAA insurance regulations was fast-tracked in a manner known as “interim and final.” It sounds like a contradiction in terms, but that’s just business as usual. Rules are usually released first as “a notice of proposed rulemaking” to give interested parties the opportunity to comment; this first release requires a response from federal agencies. In contrast , interim and final rules have the immediate force of law, and Congress had authorized issuing the rules as final if a longer comment period would be “impracticable.”4 Because of the tight deadlines, the federal government 06-2483-4 chap6.indd 72 6/25/13 5:33 PM [3.17.154.171] Project MUSE (2024-04...

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