HIPAA/AHIP: Notice to Employees of Cancellation

DATE: October 6, 2000 RE: HIPAA / AHIP: Notice to Employees of Cancellation This bulletin replaces the bulletin issued April 26, 2000. The following has been submitted to the Commissioner for a response: A small employer providing health insurance to its employees is subject to the requirements of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The employees have paid premiums to the employer to be remitted to the insurance carrier. However, for several months, the employer has failed to remit the premiums to the insurer. On March 27, 2000, the insurer sent notice of cancellation which stated that the cancellation was to be effective as of January 1, 2000. Individual employees are precluded from obtaining coverage under the Alabama Health Insurance Plan (AHIP) if a break in coverage has occurred of 63 or more days. Are these employees ineligible for coverage under AHIP? In 1996, Congress enacted HIPAA to provide for, among other things, improved portability and continuity of health insurance coverage in the group and individual insurance markets, including health coverage connected with employment. The provisions of HIPAA are designed to help individuals, including employees, to find health coverage when other coverage is cancelled. AHIP was created to "provide health insurance coverage to eligible individuals as an alternative to federal oversight required in the Health Insurance Portability and Accountability Act of 1996." See Section 27-52-1 et seq., Code of Alabama 1975. Pursuant to the authority under Section 27-52-3, the Commissioner adopted Regulation No. 115. Pursuant to the federal and state statutes and regulations, employees who lose their health coverage provided through employment may seek coverage through AHIP. Under both HIPAA and AHIP, eligibility for coverage is based upon the prerequisite of 18 months of prior continuous coverage, which is defined as having no break in coverage lasting 63 or more days. 1 In the above fact situation, the insurer provided notice of cancellation of coverage on March 27, 2000, but retroactively put the date of cancellation as of January 1, 2000. If the effective date of cancellation is January 1, then the employees are ineligible for AHIP as more than 63 days passed without coverage. This retroactive cancellation defeats the very purpose of HIPAA and the intent of Congress. Obviously, the employees must have adequate notice and an opportunity to locate other health coverage prior to the running of the 63 day limitation. Under HIPAA, the above employees are entitled to receive within a reasonable time a certificate indicating prior creditable coverage. Under the above facts, the certificate could not, in my opinion, be issued within a reasonable time. In order to implement the basic purpose of HIPAA and AHIP, it is the Commissioner's opinion that the employees are entitled to reasonable notice of cancellation so as to have an opportunity to seek other coverage. "Reasonableness" relating to the employees must necessarily take into account the 63 day limitation. Notice of cancellation shall be considered "reasonable" if such notice is provided to the small employer not later than one month subsequent to the date of coverage termination. In the above scenario, the "retroactive" date of cancellation exceeding one month is unacceptable. As the notice of cancellation was dated March 27, 2000, the employees were entitled to a reasonable notice at that point. To be reasonable, the date of cancellation can be no earlier than February 27, 2000. Further, it is recommended that insurers include in the notice to employer groups that federal law requires the employer to give notice to the covered employees that their coverage has been cancelled and that they will only be entitled to certain HIPAA protections if there is a break in coverage of less than 63 days. 1 There are other criteria which must be satisfied to obtain coverage by AHIP. This bulletin addresses only the 63 day limitation.