United States General Accounting Office

GAO Report to the Chairman and Ranking

Minority Member, Committee on Labor

and Human Resources, U.S. Senate

September 1995 HEALTH INSURANCE

PORTABILITY

Reform Could Ensure

Continued Coverage

for up to 25 Million

Americans

GAO/HEHS-95-257

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-265732 

September 19, 1995

The Honorable Nancy Kassebaum

Chairman

The Honorable Edward M. Kennedy

Ranking Minority Member

Committee on Labor and Human Resources

United States Senate

Millions of Americans face discontinuity in their health care coverage

when they change employers, and others do not change jobs because of

concerns about losing health care coverage. In fact, individuals with health

problems may face extended periods in which their new health plan does

not cover their medical conditions because of exclusions for preexisting

conditions.

Many states have passed health insurance reforms aimed at portability, but

federal law allows these reforms to apply only to some health plans.

Consequently, the Congress has been considering approaches to broaden

the protections available to allow people to change health plans without

facing lapses in health care coverage. In particular, S. 1028 includes

provisions to increase the portability of health care coverage when

individuals change health plans.1

 Allowing individuals to receive credit for

their previous health care coverage in many cases would exempt them

from having to wait before being fully eligible under their new health plan.

You asked us to provide information on (1) the protections offered by

current state and federal health insurance portability reforms, (2) the

number of people who could be affected by broader national portability

standards, and (3) other issues related to the design of national portability

standards. Because this report expands on our previous testimony2

 and is

based on our work on health insurance regulation and an analysis of the

Bureau of the Census’ March 1994 Current Population Survey (CPS), we did

not obtain agency comments. It was conducted in accordance with

generally accepted government accounting standards between June and

August 1995.

1

S. 1028, The Health Insurance Reform Act of 1995, introduced by Senators Kassebaum and Kennedy,

was unanimously reported, as amended, by the Senate Committee on Labor and Human Resources on

August 2, 1995.

2

Health Insurance Regulation: National Portability Standards Would Facilitate Changing Health Plans

(GAO/T-HEHS-95-205, July 18, 1995).

Page 1 GAO/HEHS-95-257 Health Insurance Portability
B-265732 

Results in Brief Although current federal and state laws have generally improved the

portability of health insurance, an individual’s health care coverage could

still be reduced when changing jobs. Between 1990 and 1994, 40 states

enacted small group insurance regulations that include portability

standards, but the federal Employee Retirement Income Security Act of

1974 (ERISA) prevents states from applying these standards to the health

plans of employers who self-fund. As a result, some in the Congress have

proposed broader national portability standards.

We estimate that up to 21 million Americans a year would benefit from

federal legislation that would waive preexisting condition exclusions for

individuals who have had continuous health care coverage. In addition,

perhaps as many as 4 million Americans who at some time have been

unwilling to leave their jobs because of concerns about losing their health

care coverage would benefit from national portability standards. Such a

change, however, could possibly increase premiums, according to

insurers.

Background Because most Americans receive their health insurance from their

employers, changing jobs can disrupt their health care coverage. If a new

employer does not offer health insurance, an individual must either

depend on another source of health care coverage (such as a spouse’s plan

or purchasing individual coverage) or become uninsured. Even if a new

employer offers coverage, the new plan’s benefits may be more limited or

more expensive than the previous plan’s.

Most private health plans have waiting periods for new enrollees and limit

coverage for preexisting conditions. These limitations allow insurers to

ensure that new enrollees have not purchased insurance just because they

have become sick. However, the risk of losing health care coverage

discourages workers from changing jobs, leading to a phenomenon known

as “job lock.”

Employer benefits surveys have found that waiting periods and preexisting

condition clauses are common, even among larger employers. KPMG Peat

Marwick in 1994 reported that, among employers with at least 200

employees, 62 percent of health plans have time periods during which an

employee must wait before getting coverage, typically lasting less than 3

months. The Peat Marwick survey also found that 59 percent of indemnity

plans, 70 percent of preferred provider organization (PPO) plans, and

56 percent of point-of-service (POS) plans have preexisting condition

Page 2 GAO/HEHS-95-257 Health Insurance Portability
B-265732 

exclusions.3 In contrast with the other plan types, health maintenance

organizations (HMO) do not typically have preexisting condition clauses. As

shown in figure 1, most of these preexisting condition exclusions last for 1

year or more.

Figure 1: Preexisting Condition

Limitations, 1994 Percent

0

5

10

15

20

25

30

35

40

45

50

Indemnity Plans PPO Plans POS Plans

No Exclusion

Less Than 12 Months

12 Months or More

No Guarantee

Note: “No guarantee” means that the preexisting condition exclusion is indefinite in duration.

Source: Health Benefits in 1994, KPMG Peat Marwick.

3

Indemnity refers to plans that allow enrollees free choice of their health care providers, who are

reimbursed on the basis of fee-for-service charges. PPOs provide enrollees a financial incentive to use

providers that have contracted with the plan and are generally reimbursed on the basis of discounted

fee-for-service charges; enrollees can use other providers at a higher out-of-pocket cost.

Point-of-service plans provide enrollees with a primary care physician to coordinate referrals to

specialist care and also provide strong financial incentives to use providers with whom the plan has

contracted. Health maintenance organizations (HMO) require enrollees to use only providers who have

contracted with the health plan and who may be paid on the basis of discounted fee-for-service

charges, salary, or per enrollee. See Health Benefits in 1994, KPMG Peat Marwick (Washington, D.C.:

1994).

Page 3 GAO/HEHS-95-257 Health Insurance Portability
B-265732 

Federal and State

Laws Promote Health

Insurance Portability

The Congress and the states have taken several initiatives to improve the

portability of health care coverage. These include national standards that

allow some people to temporarily continue group health care coverage

despite losing their jobs and state laws providing portability to insurance

policies sold to small firms. However, despite these steps, many

Americans still are concerned that their health care coverage may be

disrupted if they change jobs.

COBRA Coverage

Continuation

Requirements

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

required continued health care coverage for some individuals after losing

their employment.4

 The COBRA requirements generally allow individuals

who leave a job to continue their health plan for up to 18 months by paying

no more than 102 percent of the premium previously paid by the employer

and employee, even if the employee starts a new job that offers health care

coverage.5

 A recent study found that 22 percent of eligible individuals

continued health care coverage through the COBRA requirements.6

 Another

study estimated that the COBRA requirements increased mobility by

10 percent among those with health insurance.7

State Initiatives Recently, we reported that most states enacted small group health

insurance reforms between 1990 and 1994.8

 We found that 40 states have

included portability provisions in their small employer health insurance

legislation. These provisions require insurance carriers to waive

preexisting condition limits or waiting periods if an individual has been

continuously enrolled in a health plan. The states vary in the size of groups

for which these provisions apply, the length of time allowed between

health plans for coverage to be considered continuous, and how coverage

4

29 U.S.C. 1161 et seq.

5

Other situations can also occur to qualify an individual for COBRA continuation coverage. For

example, a family member who loses health care coverage as a result of death or divorce of an insured

worker may continue coverage for up to 36 months. Also, a disabled individual may continue health

care coverage for a total of 29 months but may be required to pay 150 percent of the premium for the

final 11 months. COBRA continuation requirements do not apply to employers with fewer than 20

employees.

6

On the basis of a sample of individuals aged 40 through 64, 1.3 million individuals and their

dependents maintained health care coverage through COBRA’s continuation requirements. Patrice

Flynn, “COBRA Qualifying Events and Elections, 1987-1991,” Inquiry, Vol. 31 (1994), pp. 215-220.

7

Jonathan Gruber and Brigitte C. Madrian, “Health Insurance and Job Mobility: The Effects of Public

Policy on Job-Lock,” Industrial and Labor Relations Review, Vol. 48, No. 1 (1994), pp. 86-102.

8

Health Insurance Regulation: Variation in Recent State Small Employer Health Insurance Reforms

(GAO/HEHS-95-161FS, June 12, 1995).

Page 4 GAO/HEHS-95-257 Health Insurance Portability
B-265732 

between current and prior policies is linked for determining the effect of

preexisting conditions.

We also reported that most state reforms have included, in addition to

portability provisions, guaranteed issue, guaranteed renewal, and limits on

preexisting condition exclusions. For guaranteed issue, states vary in

whether insurers are required to actively offer a single plan to all small

employers, offer two or more plans, or offer all of their plans with a

guarantee that a plan would be issued. Every state we examined except

Georgia requires insurers to guarantee renewal of a health policy

regardless of health status or claims experience, with limited exceptions.

We found that 41 states limit the use of preexisting conditions to deny

coverage for specific illness, with about half limiting the term of

preexisting conditions to no more than 1 year and ten states shortening

the waiting period to 6 months or less.9

 Finally, we found that, to varying

degrees, most states impose rating restrictions on health insurers. For

example, some states have limited the factors that insurers can use to

estimate premiums, narrowed the range in rate differences among

different groups, or adopted adjusted community rating.

State insurance reforms, however, cannot address the portability issue for

every employee. Under ERISA,

10 health plans that are self-funded by

employers are not affected by state insurance regulation, including

portability requirements. We estimate that about 44 million Americans are

in self-funded health plans that states cannot regulate, even indirectly.11

States have also generally limited their reforms to insurance policies sold

to small firms. Furthermore, no analysis exists on the number of

individuals affected by these state reforms.

Current Federal Legislative

Proposals

Several bills introduced in the 104th Congress, including S. 1028, H.R.

1604,12 and H.R. 1610,13 propose to reduce disruptions in health care

coverage and job lock by increasing the portability of health insurance. In

9

New Hampshire limits preexisting conditions to no more than 3 months if an individual has not had

any medical expenses associated with the condition in the last 3 months; otherwise, the preexisting

condition limit is 9 months.

10Public Law 93-406, 88 Stat. 829 (classified as amended at 29 U.S.C. 1161 et seq.) (1988).

11Employer-Based Health Plans: Issues, Trends, and Challenges Posed by ERISA (GAO/HEHS-95-167,

July 25, 1995).

12H.R. 1604, The Working Families Health Access Act of 1995, was introduced by Representative Nancy

Johnson on May 10, 1995.

13H.R. 1610 was introduced by Representative Bill Thomas on May 11, 1995.

Page 5 GAO/HEHS-95-257 Health Insurance Portability
B-265732 

effect, these bills would limit the length of time that preexisting condition

clauses can restrict health care coverage by providing credit for

individuals who have been continuously enrolled by another group health

plan. Thus, individuals with medical conditions who change health plans

when they change jobs would not have to wait before receiving full

coverage. In addition, S. 1028 would allow individuals who have exhausted

their 18 to 36 months of COBRA continuation coverage, or who were

ineligible for COBRA continuation because their prior firm employed fewer

than 20 employees, to convert to individual coverage without having to

meet eligibility requirements such as waiting periods or preexisting

condition exclusions. This approach provides broader protections than

existing state laws because it applies to all health plans, including

self-funded plans and those offered by larger employers.14 See appendix I

for a comparison of state laws and S. 1028.

Estimating the

Number of Individuals

Affected by National

Health Insurance

Standards

Overall, we estimate that as many as 21 to 25 million people per year could

be affected by national portability standards, should they be enacted.

Individuals who could be affected include those currently insured who

change jobs and their dependents, individuals who lose their jobs and are

no longer eligible for COBRA continuation coverage, and individuals who

face job lock due to health insurance concerns.15 Table 1 shows each of

these affected groups and our estimates of the number of individuals that

the proposed legislation could affect.

Table 1: Number of People Affected by

National Health Insurance Standards Affected group Millions of people

Individuals with health insurance who change jobs 11.5

Dependents of individuals with health insurance who

change jobs 6.7

Individuals no longer eligible for COBRA continuation

coverage 1.8-2.3

Individuals facing job lock 1.0-3.6

Insurance regulation that ensures portability could benefit people in a

variety of ways. Without portability standards, people with preexisting

medical conditions who change health plans could be denied coverage for

their conditions and may have to pay out of pocket for necessary medical

services. Others may have to pay for COBRA continuation coverage in

14S. 1028 would expressly allow state laws to continue to be enforced if they are more generous than

the national standards.

15Some of these individuals would already have portability because they may change to a health plan

regulated by the states or that does not have preexisting condition exclusions.

Page 6 GAO/HEHS-95-257 Health Insurance Portability
B-265732 

addition to paying for their new private health plan to ensure that their

medical conditions are covered. Some people will remain in a job or turn

down job offers because of health insurance concerns. A few people who

exhaust their COBRA continuation coverage, or are ineligible for COBRA

coverage after leaving a job, will be unable to purchase individual

coverage at any price if they have a severe medical condition, such as

acquired immune deficiency syndrome, severe diabetes, or heart disease.16

Finally, individuals who change employers may find that, even if the

employer offers a choice of health plans, their choice is limited to health

plans without preexisting condition exclusions.

Portability Standards

Would Reduce

Discontinuity in Health

Care Coverage for People

Changing Jobs

The largest group of people affected by the proposed legislation is those

who change jobs. On the basis of our analysis of the CPS, over 20 million

Americans changed jobs in 1993. Nearly 12 million of these people also

maintained employer-based health care coverage.17 Additionally, nearly

7 million nonworking dependents received employer-based coverage

through these job changers.18 Without portability standards, many of these

individuals faced preexisting condition exclusions or waiting periods with

their new health care coverage. Furthermore, individuals with preexisting

conditions could face a period in which their new plan does not cover

their condition. As an alternative, some could purchase COBRA continuation

coverage if they want to be insured for a preexisting condition, though

such coverage would be duplicative.

The proposed legislation would benefit such individuals to the extent that

their coverage would not lapse while they are between health plans.

Because about three-quarters of job changes are voluntary and therefore

16A study by the Agency for Health Care Policy and Research (AHCPR) found that, in 1987, 1.6 million

people under age 65 had been denied private health insurance due to poor health. This number

includes 2.5 percent of the uninsured and some individuals receiving coverage through state-sponsored

health plans, such as high-risk pools. See Karen Beauregard, Persons Denied Private Health Insurance

Due to Poor Health (AHCPR Pub. No. 92-0016), National Medical Expenditure Survey Data Summary 4,

Agency for Health Care Policy and Research, Public Health Service (Rockville, Md.: 1991).

17Employer-based coverage also includes health plans sponsored by unions or both unions and

employers.

18For spouses who are both employed, we can determine from the CPS data only whether each

individual has employer-based health care coverage but not which employer provides the coverage.

However, this is not likely to significantly affect our results because individuals who change jobs but

elect to receive coverage through their spouse’s employer instead of their new employer could still be

required to meet preexisting condition clauses for their new health plan. Furthermore, although in

some cases individuals who change jobs may already be receiving coverage through their spouse and,

therefore, would not need to change health plans, in other cases, an employed spouse who receives

coverage through an individual who changes jobs would also be required to change health plans and

possibly fulfill preexisting condition limits. Because these two cases would largely offset each other,

they would not significantly affect our estimates.

Page 7 GAO/HEHS-95-257 Health Insurance Portability
B-265732 

unlikely to mean a significant gap in employment, we estimate that S. 1028

would allow about 9 million individuals (with 5 million dependents) to

change jobs without having any preexisting condition clause exclusions.19

Also under S. 1028, the remaining 3 million job changers (with 2 million

dependents) would likely have reduced waiting periods, if any at all,

before receiving full eligibility for coverage.

The proposed legislation would also allow individuals to purchase

individual-based health care coverage without preexisting condition limits

if they had maintained group health care coverage for at least 18 months

and are no longer eligible for COBRA continuation coverage. In addition,

individuals employed by firms with fewer than 20 employees who lose

their employer-based coverage are not eligible for COBRA continuation

coverage, but they could immediately qualify for individual coverage

through the proposed portability standards.20 On the basis of COBRA

continuation coverage election rates and turnover rates in small firms, we

estimate that about 2 million individuals would be able to convert from

employer-based coverage to individual coverage (although at a higher

premium) without having to meet preexisting condition exclusions.

Portability Provisions

Would Also Lessen Fear of

Losing Coverage From

Changing Jobs

The proposed legislation, however, would affect more individuals than

those who change health plans because the standards would allow those

workers who stay in their jobs out of concern over losing health care

coverage to change jobs. Although studies of the extent of job lock have

varying conclusions, we estimate that over time between 1 million and

4 million additional workers would change jobs if national portability

standards were in effect.

Surveys have found that between 11 and 30 percent of individuals report

that they or a family member have remained in a job at some time because

they did not want to lose health care coverage.21 Extrapolating from a 1993

survey by the Employee Benefit Research Institute, we estimate that the

proposed portability standards would relieve as many as 3 million or

4 million Americans of job lock. Twenty percent of individuals who

19If an individual has had group health care coverage for less than 12 continuous months prior to

changing employers, he or she may still need to fulfill a shorter preexisting condition limit.

20Fewer than 18 million individuals (including self-employed individuals) receive health care coverage

from firms with fewer than 20 employees.

21See “Health Benefits Found to Deter Switches in Jobs,” The New York Times, Vol. CXL (Sept. 26,

1991), pp. A1, B12 (survey by The New York Times and CBS News); Public Attitudes on Health

Benefits, 1993, Employee Benefit Research Institute (Washington, D.C.: 1993); and similar surveys in

1991 and 1992.

Page 8 GAO/HEHS-95-257 Health Insurance Portability
B-265732 

reported job lock in their households cited preexisting conditions as the

main reason for not changing jobs, according to this survey.

Other estimates of the extent of job lock among those with health

insurance have varied. Although one study found little evidence of job

lock,22 other studies we reviewed found that job mobility was reduced by

at least 20 percent for individuals with health insurance and more for

those who could have high medical expenses. For example, one study

estimated that job mobility for workers with health care coverage was

reduced by nearly one-third for married men, over one-third for workers

with large families (a proxy for high medical expenses), and two-thirds for

workers with a pregnant wife.23 Another study reported that

employer-based health care coverage reduced job mobility by 23 percent

for men and over 30 percent for women. On the basis of these results, the

authors of the latter study conservatively estimated that approximately

1 million additional workers would have changed jobs but for job lock.24

Issues in Designing

National Portability

Standards

In addition to improving the availability of health care coverage for many

Americans, national portability standards could also affect the

affordability of coverage. While the standards would guarantee that

individuals could change health plans without having to meet preexisting

condition exclusions, the standards’ effects on price and affordability of

coverage are less clear, particularly for people with medical conditions.

Since the cost of health insurance coverage is often cited as the most

critical determinant of whether firms or individuals purchase coverage,

the expected effects on premiums are crucial in determining the net

impact of state and federal insurance reforms on the level of coverage.

High expected costs for an individual can mean a high premium,

particularly for individual and small group policies. If government

restrictions constrain premiums for individuals or a group, then insurers

may be forced to raise premiums for all other workers.25

22Douglas Holtz-Eakin, “Health Insurance Provision and Labor Market Efficiency in the United States

and Germany,” in Social Protection Versus Economic Efficiency: Is There a Tradeoff? ed. Rebecca

Blank (Chicago: University of Chicago Press, 1994).

23Brigitte C. Madrian, “Employment-Based Health Insurance and Job Mobility: Is There Evidence of

Job-Lock?” The Quarterly Journal of Economics, Vol. 109, No. 1 (1994), pp. 27-54.

24Alan C. Monheit and Philip F. Cooper, “Health Insurance and Job Mobility: Theory and Evidence,”

Industrial and Labor Relations Review, Vol. 48, No. 1 (1994), pp. 68-85.

25Although the proposed federal bills do not contain rating restrictions, most states have enacted rating

restrictions that would apply to health plans sold by third-party insurers.

Page 9 GAO/HEHS-95-257 Health Insurance Portability
B-265732 

Although empirical evidence is sparse, the possible price effects relate

more directly to other health insurance reforms, such as guaranteed issue,

than to portability. In fact, for the entire market, portability should little

affect prices because the cost of these individuals would merely be shifted

among health plans. Raised premiums could occur when a potentially

high-cost individual transfers into a very small firm or the individual health

insurance market. With no restrictions on ratings, the small firm’s or the

individual’s premium could be significantly raised, which could lead to a

decision to forego coverage.

For this reason, some insurers have opposed provisions in state and

federal legislation to extend portability standards to individual-based

health plans. They believe that high-cost individuals are the ones most

likely to convert from a group health plan to an individual health plan,

leading to increased premiums. Insurers disagree, however, about the

extent to which national portability standards would cause higher

premiums. Premium increases, if any, would depend upon the size of the

covered group, rating restrictions imposed by state laws, and the extent to

which the insurer uses medical underwriting to set premiums.

Federal and state legislators have tried to respond to these concerns to

some extent. Several states, for example, explicitly recognize the greater

uncertainties in the individual market by applying some reforms only to

employers with at least two or three workers or only to self-employed

individuals. In response to these concerns, S. 1028 as approved by the

Senate Committee on Labor and Human Resources includes a provision

that requires anyone converting to an individual health plan to have had

continuous group health care coverage for the preceding 18 months for the

portability standards to be effective. Furthermore, the bill would leave

intact state laws that provide some price protection for individuals and

small firms purchasing insurance in the private market.

Conclusions Despite past state reforms and the COBRA continuation of coverage

requirements, the lack of health insurance portability still concerns many

Americans, particularly those with costly health conditions. Although

many states have enacted portability standards for insurance carriers,

ERISA preemption prevents states from applying the standards to

self-funded employer-based health plans. We estimate that as many as

21 million to 25 million Americans a year could possibly benefit from

proposed national portability standards. The extent to which insurers

Page 10 GAO/HEHS-95-257 Health Insurance Portability
B-265732 

would respond to these reforms with increased premiums, however, is

uncertain.

Please call me on (202) 512-7125 if you or your staff have any questions

about this report. Michael Gutowski, Assistant Director, and John Dicken,

Senior Evaluator, were major contributors to this report.

Mark V. Nadel

Associate Director,

National and Public Health Issues

Page 11 GAO/HEHS-95-257 Health Insurance Portability
Contents

Letter 1

Appendix I 

Comparison of

Proposed National

Health Insurance

Regulations and

Existing State

Insurance Regulations

14

Guaranteed Issue 17

Guaranteed Renewal 17

Portability 17

Preexisting Condition Exclusion 18

Rating Restrictions 18

Tables Table 1: Number of People Affected by National Health Insurance

Standards

6

Table I.1: State Small Employer Health Insurance Reforms 14

Figure Figure 1: Preexisting Condition Limitations, 1994 3

Abbreviations

AHCPR Agency for Health Care Policy and Research

COBRA Consolidated Omnibus Budget Reconciliation Act of 1986

CPS Current Population Survey

ERISA Employee Retirement Income Security Act of 1974

HMO health maintenance organization

POS point of service

PPO preferred provider organization

Page 12 GAO/HEHS-95-257 Health Insurance Portability
Page 13 GAO/HEHS-95-257 Health Insurance Portability
Appendix I 

Comparison of Proposed National Health

Insurance Regulations and Existing State

Insurance Regulations

Most states have enacted health insurance reforms similar to those

proposed by S. 1028; they are limited, however, to regulating insurance

products sold to small employers. Thus, the national insurance reforms

would apply to more health plans—including self-funded plans and those

offered by larger employers—than existing state regulations. S. 1028 and

most state regulations address four common areas: guaranteed issue,

guaranteed renewal, portability, and limits of preexisting condition

exclusions. The specifics of how these regulations would apply, however,

vary. To the extent that state regulations are more restrictive than the

proposed national standards, S. 1028 would allow the states to continue to

enforce their regulations. Table I.1 summarizes current state regulations in

these four areas.26

Table I.1: State Small Employer Health

Insurance Reforms Employer

size

Guaranteed

issue

Guaranteed

renewal Portabilitya

Preexisting

conditionsa

Alabama

Alaska 2-25 Two plans X 90 Link 6/12

Arizona 3-40 One planb X 31 No link 12/12

Arkansas 25 or less X

California 3-50 All plansc X 30d No link 6/6

Colorado 2-50e Two plans X 90 Link 6/6

Connecticut Less than 50 All plans X 30 Link 6/12

Delaware 1-50 Two plansf X 60 Link 6/12

Florida 50 or less All plans X 30 No link 6/12

Georgia 1-50

Hawaiig

Idaho 1-49 Two plansh X 30 Link 6/12

Illinois 3-25 X 30 Link 12/12

Indiana 3-25 Xi

Iowa 2-50 Two plans X 90 Link 6/12

Kansas 1-50 Two plans X 31 Link 6/90 days

Kentucky 100 or less One plan X 60 No link 6/6

Louisiana 3-35 X 60 No link 12/12

Maine Less than 25 All plans X 90j Link 12/12

Maryland 2-50 One plan X N/Ak None

Massachusetts 25 or less All plansl X 30 Link 6/6

Michigan

(continued)

26See Health Insurance Regulation: Variation in Recent State Small Employer Health Insurance

Reforms (GAO/HEHS-95-161FS, June 12, 1995) for more details on state insurance regulations and a

comparison with the National Association of Insurance Commissioners’ model acts.

Page 14 GAO/HEHS-95-257 Health Insurance Portability
Appendix I 

Comparison of Proposed National Health

Insurance Regulations and Existing State

Insurance Regulations

Employer

size

Guaranteed

issue

Guaranteed

renewal Portabilitya

Preexisting

conditionsa

Minnesota 2-49 All plans X 30 No link 6/12

Mississippi 1-35 One planm X 30 Link 12/12

Missouri 3-25 Two plansn X 30 Link 6/12

Montana 3-25 Two plansn X 30 Link 5 years/ 12

months

Nebraska 3-25 Two plansn X 90 Link 6/12

Nevada

New

Hampshire

1-100 All plans X Yeso 3/3/9p

New Jersey 2-49 Five plans X 90 Link 6/6q

New Mexico 2-50 r X 31 Link 6/6

New York 3-50 All plans X 60 Link 6/12

North Carolina 1-49 Two plans X 60 No link 12/12

North Dakota 25 or less Two plans X 90 Link 6/12

Ohio 2-50 Two plans X 30 No link 6/12

Oklahoma 50 or less Two plansf X 0s No link 6/12

Oregon 3-25 One plan X 30 No link 6/12

Pennsylvania

Rhode Island 50 or less Two planst X 30 Link 6/12

South Carolina 50 or less Two plansf X 30 Link 12/12

South Dakota 25 or less X

Tennessee 3-25 Two plansn X 30 No link 12/12

Texas 3-50 All plans X 60 No link 6/12

Utah 1-50 X 90 Link 6/12

Vermont 1-49 All plans N/Au 0v Link 12/12

Virginia 2-49 Two plansw X 30 No link 12/12

Washingtonx 25 or less All plans X 90 Link 3/3

West Virginia 2-60 X 30 No link 12/12

Wisconsin 2-25 One plan X 30 Link 6/12

Wyoming 2-25 Two plansy X 90 Link 6/12

aStates vary in the number of days that they allow between health plans for coverage to be

considered continuous. The number in the “portability” column represents the maximum number

of days each state allows. States also generally limit both the length of time an insurer may

retroactively review an enrollee’s medical experience to determine that a condition was

preexisting and the length of time the insurer may deny coverage for any preexisting conditions.

This is annotated in the table such that, for example, 6/12 means that the state limits the insurer to

examining no more than the previous 6 months of an enrollee’s medical experience and can

apply the preexisting condition exclusion for no more than 12 months.

Page 15 GAO/HEHS-95-257 Health Insurance Portability
Appendix I 

Comparison of Proposed National Health

Insurance Regulations and Existing State

Insurance Regulations

bThis provision applies to groups of 25-40. Beginning on 7/1/96, this provision will apply to groups

of 3-40.

cThis provision applies to all groups of three or more.

dThis may be extended to 180 days in cases where an individual changes employers but still

maintains employer-based coverage.

eAs of 1/1/96, the small group definition will include a business group of one.

f

This provision applies to groups of 2-50.

gHawaii was the first state to attempt universal coverage with its passage of the Prepaid Health

Care Act in 1974. With the act’s employer mandate and public programs to ensure coverage, the

state comes closer to having universal coverage in place than any other state. Because this act

was passed before the federal ERISA law, Hawaii is the only state granted an exemption under

ERISA.

hThis provision applies to groups of 2-49.

i

Expressly refers to and limits cancellations.

j

The services covered under the portability provision differ on the basis of whether an employee

changes jobs or an employer changes coverage.

k

Preexisting condition limitations are generally prohibited.

l

A carrier has the option to deny issue to a group of five or fewer eligible persons if the group

does not enroll through an intermediary.

mThis provision applies to groups of 1-25.

nEach insurance carrier must sell a basic and standard plan as a guaranteed issue product.

oTime an individual was covered under a prior health plan must be credited toward any

preexisting condition exclusion period of the new plan if coverage did not lapse. However, if

coverage lapsed because of unemployment, carriers must treat the unemployment period as

continuous coverage.

pA waiting period for preexisting conditions may be no more than 3 months if individuals incur no

medical treatment expense in connection with the preexisting condition during those 3 months.

Otherwise, the waiting period may be no longer than 9 months for a preexisting condition

diagnosed or treated up to 3 months before the effective date of coverage.

qPreexisting condition limitations apply only to groups of five or fewer eligible employees and may

not be imposed on larger groups.

r

Related provisions exist under state Health Alliance Act.

s

Time an individual was covered under a prior health plan must be credited toward any

preexisting exclusion period of the new plan if coverage did not lapse. The act does not specify

that previously covered services must have been comparable to current coverage.

t

This provision applies to groups of 3-50.

uState has continuous open enrollment.

v

Preexisting condition period must be waived if substantially similar coverage under a prior policy

was in effect for the previous 9 months. Does not provide for a lapse in coverage.

Page 16 GAO/HEHS-95-257 Health Insurance Portability
Appendix I 

Comparison of Proposed National Health

Insurance Regulations and Existing State

Insurance Regulations

wThis provision applies to groups of 2-25.

x

Washington passed the Health Services Act in 1993 to create a universal coverage program for

all residents through an employer mandate. Although key provisions of this act have been

repealed, the insurance reform components remain.

y

This provision applies to groups of two or more.

Guaranteed Issue S. 1028 would require guaranteed issue of all group insurance policies; that

is, insurance carriers would be required to sell health insurance to all

groups wishing to purchase it, and employers who offer health care

coverage would be required to offer coverage to any qualifying employee.

In our review of state small group health insurance reforms enacted

between 1990 and 1994, we found that 36 states have guaranteed issue

requirements that apply to small employers. However, only 11 states

require that all insurance plans sold in that market have guaranteed issue;

most states require that one or two plans be available as a guaranteed

issue product.

Guaranteed Renewal S. 1028 would also guarantee renewal of health insurance products by not

allowing insurers to terminate or fail to renew a group policy. Between

1990 and 1994, 43 states enacted laws for guaranteed renewability of group

insurance policies.

Portability S. 1028 would provide credit for prior group health care coverage to

reduce or eliminate preexisting condition limits when a person enrolls in a

new group plan. The bill would reduce the preexisting condition exclusion

by 1 month for each month that an individual was in a period of

continuous coverage. Continuous coverage would be defined as coverage

with a lapse of 30 days or less. However, a group health plan may impose a

preexisting condition exclusion for services or benefits offered by the

previous health plan.

We reported that 40 states have also enacted portability regulations for the

small employer market. These laws vary in the period of time that they

allow between enrollment in a new plan and whether they link the services

provided in the former and current plans for enrollees to receive credit for

a preexisting condition. In particular, 19 states allow for more than a

30-day lapse between enrollment in the two plans for coverage to be

considered continuous. Furthermore, 14 states do not require a link

Page 17 GAO/HEHS-95-257 Health Insurance Portability
Appendix I 

Comparison of Proposed National Health

Insurance Regulations and Existing State

Insurance Regulations

between the services provided in the former and current plans for the

preexisting condition limit to be reduced or eliminated.

Preexisting Condition

Exclusion

S. 1028, which defines preexisting conditions as those for which care was

recommended or received within the previous 6 months, would limit

preexisting condition exclusions to no more than 12 months. We found

that 41 states limit the duration of preexisting condition exclusions, with

10 states having shorter limits than proposed by S. 1028.

Rating Restrictions We found that at least 44 states included premium rate restrictions as part

of reforms passed between 1990 and 1994. However, the extent to which

the states narrow the range of premiums that insurers may charge varies

greatly. S. 1028 does not include rating restrictions but would allow states

to impose rating restrictions on insurers.

(108250) Page 18 GAO/HEHS-95-257 Health Insurance Portability
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