Insurers believe that restrictions on sharing certain health information could lead to a flood of litigation in the workers compensation market, resulting in a dramatic increase in costs and premiums.

The controversy centers on a proposed rule developed by the U.S. Department of Health and Human Services aimed at protecting the privacy of individually identifiable health information. The rule was first released on Dec. 28, 2000, and then reissued in revised form on March 27, 2002, pursuant to the Health Insurance Portability and Accountability Act of 1996.

Pursuant to a HIPAA mandate, the Clinton-era HHS developed a rule governing individually identifiable health information after Congress failed to enact legislation. Many industry groups decried the rule as unworkable.

The new Bush administration modified the proposed rule somewhat, but it did not resolve the industrys concerns.

The proposed rule is the primary health privacy concern facing the insurance industry right now, according to Maria Berthoud, senior vice president of federal government affairs for the Independent Insurance Agents and Brokers of America in Alexandria, Va.

The insurance industry, Ms. Berthoud said, will have to try to resolve its concerns within the regulatory process. It would be impractical, she said, to seek legislation until a final rule is issued.

Regarding agent concerns, Ms. Berthoud stated that “if [the rule] is not fixed, agents will find it hard to sell health policies to employers.”

The rule as written would make it impossible for a broker to shop a policy for a client to get a better rate or better coverage, according to Nicole Allen, director of government affairs for the Washington-based Council of Insurance Agents and Brokers.

With increased expenses and an inability to move their health policies, employers might decide to scale back or drop health coverage, she cautioned.

Specifically, agents are concerned with a provision in the proposal allowing one entity covered by the rule to disclose protected health information to another entity covered by the rule only if two conditions are met:

First, both entities must have a relationship with the affected individual.

Second, the disclosure must be necessary to detect healthcare fraud, or must be specifically mentioned in a particular section of the rule.

But in comments filed with HHS, agents said these conditions would disrupt key functions performed by agents and brokers. In fact, they said, agents and brokers will not be able to obtain the information needed to, for example, amend, supplement and replace group policies.

Moreover, agents said that neither they nor insurers will have a “relationship” with the affected individual. “That is simply not how the group health market works,” they declared.

Instead, agents and brokers, as well as potential new insurers, have a relationship with the employer, while the affected individual has a relationship with the current insurer, the comments said.

In effect, agents say, the “relationship” condition means that a plan sponsor, through its agents or broker, will not be able to obtain from the existing insurer the claims information needed for quotes on supplemental or replacement coverage.

Regarding the second condition, agents are asking HHS to revise the rule to specifically allow disclosure of personally identifiable health information for underwriting and premium rating activities.

For p-c insurers, the concern is the so- called “minimum necessary” standard. Under this standard, under pain of fines and other penalties, a doctor who examines or treats a worker who has been injured on the job may disclose only the “minimum amount of information necessary” to the workers comp insurer.

According to a joint statement filed with HHS by more than 50 insurance and business groups, the standard “effectively prevents workers compensation insurers from obtaining information needed to pay injured workers the benefits guaranteed under the state workers compensation system. This regulatory roadblock will override the existing system of state workers compensation protections and procedures.”

Along with numerous individual companies, the statement was filed by the four major insurance trade associations: the American Insurance Association, the Alliance of American Insurers, the National Association of Independent Insurers, and the National Association of Mutual Insurance Companies.

Risk management and general business groups signing the statement included the Risk and Insurance Management Society, the Self-Insurance Institute of America, the National Association of Manufacturers, and the U.S. Chamber of Commerce.

The groups say the “minimum necessary” standard is unworkable because physicians are not in a position to know the legal requirements of a states workers comp system. “How will a physician know that a workers compensation payer is entitled to partial reimbursement from a second injury fund?” the statement asks. “Would a physician even know what a second injury fund is?”

In addition, the statement pointed out that states vary as to the kinds of medical conditions considered compensable.

Because of these variations, a federal test is not flexible enough to address what is actually necessary in different state systems, the statement said.

Faced with uncertainties about the extent of information they are receiving, workers comp payers will be forced to seek court orders to obtain all medical information relevant to workers comp claims, the statement warned.

“The minimum necessary test will thus foster attorney involvement, contrary to the intent of this no-fault system, which is specifically designed to reduce disputes between workers and employers over compensation for work injuries and to take compensation determinations out of court,” the statement declared.

Therefore, the statement asked HHS to eliminate application of the “minimum necessary” standard to disclosures made to workers comp insurers or to self-insured employers.

“Failure to make this change will impose on the states a federal standard that will create a dual system of workers compensation claims adjudication, ignoring over a quarter century of Congressional intent to preserve the state workers compensation system,” the statement declared.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, May 27 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.