United States: The Affordable Care Act—Countdown To Compliance For Employers, Week 21: Self-Funded Group Health Plans, The Affordable Care Act And National Health Plan Identifier Numbers (HPIDs)

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) ushered in broad national standards aimed at improving the efficiency and effectiveness of the U.S. health care system. Referred to generically as "administrative simplification," these rules govern the areas of privacy and security of health information, electronic health care transactions and code sets, and unique health identifiers. In the years that followed, the Department of Health and Human Services (HHS) issued comprehensive rules in each of these areas. A summary of these rules is available here.

HIPAA established national standards for transmitting health data electronically and using standard code sets to describe diseases, injuries and other health conditions and problems. The statute envisioned a system that uses one identification number per employer, health plan or payer and health care provider to simplify administration when engaging in the electronic processing of certain standard transactions. Examples of standard transactions include health care eligibility benefit inquiry and responses, health care claim status requests and responses, health care services reviews, health care claim payment/advice, health care claims (medical, dental or institutional), payroll deducted and other group premium payment for insurance products, and benefit enrollment and maintenance. Compliance with the HIPAA rules governing transactions and code sets is required only where information is transmitted between two HIPAA "covered entities" (i.e., certain providers, health plans, and clearinghouses) under one of the transactions referred to above.

HHS published final regulations in 2004 establishing standards for a unique health identifier for health care providers for use in the health care system. In the intervening years, Congress became concerned that under the then current rules, health plans and other entities that perform health plan functions, such as third party administrators and clearinghouses, were able to engage in and report standard transactions with multiple identifiers that differed in length and format. The result was a host of problems that included improper routing of transactions, rejected transactions due to insurance identification errors, and difficulty in determining patient eligibility, among others.

The Affordable Care Act (Section 1104(c)) addresses the problem by requiring health plans to adopt a standard unique health plan identifier (or "HPID"). HHS issued final regulations on September 5, 2012, implementing the HPID requirement. The final regulations establish procedures that a "health plan" may follow to obtain an HPID.

Health plans must obtain an HDIP no later than November 5, 2014, except that "small health plans" have until November 5, 2015. However, the implementation date for using HPIDs in all standard transactions was deferred until November 7, 2016. From and after this latter date, any health plan identified in any standard transaction—whether by another HIPAA covered entity or a business associate—must be referred to using its HPID.

Health plans as HIPAA covered entities

Those entities that are subject to HIPAA's administrative simplification rules—so-called "covered entities" — include the following:

  • Providers

    Providers include hospitals, doctors, clinics, psychologists, dentists, chiropractors, nursing homes, and pharmacies, but only if they transmit any information in an electronic form in connection with a standard transaction.
  • Health plans

    Health plans include health insurance issuers/carriers, Health Maintenance Organizations, employer-sponsored group health plans (whether fully-insured or self-funded), and government programs that pay for health care, such as Medicare, Medicaid, and the military and veterans' health care programs.
  • Health care clearinghouses

    Health care clearinghouses are entities that process nonstandard health information they receive from another entity into a standard (i.e., standard electronic format or data content), or vice versa.

For employers, the definition of "health plan" is particularly curious. The term includes both health insurance products that are routinely and colloquially referred to as "health plans." An employee might, for example, say "my health plan is Blue Cross Blue Shield" when referring to his or her employer's group health plan. HIPAA treats the insurance policy or product and the employer-sponsored group health plan as separate legal entities. While this treatment is counterintuitive and confusing, it is nevertheless consistent with the statutory and regulatory scheme envisioned by Congress.

In the case of a fully-insured group health plan, there are two separate HIPAA-covered entities: the employer and the carrier. Under rules promulgated by HHS, covered entities that engage in joint activities (such as an employer's group health plan and a health insurance issuer or carrier) may operate as an "organized health care arrangement" (OHCA). Thus, in the case of a fully-insured plan, the issuer member of the OHCA will file for the HPID. But in the case of a self-funded plan there is no other HIPAA-covered entity and the self-funded plan must comply on its own. While the regulators readily acknowledge that self-funded group health plans routinely rely on other entities such as third-party administrators to perform health plan functions, the final regulations nevertheless require that the health plan apply for its own HPID.

The final regulations also acknowledge that certain entities that are not HIPAA-covered entities, such as third-party administrators, may from time-to-time need to be identified in a standard transaction. For this purpose, it adopts a data element that will serve as an "other entity identifier" (or "OEID") for these entities. According to the preamble to the final regulations, "[a] OEID is an identifier for entities that are not health plans, health care providers, or individuals, but that need to be identified in standard transactions."

Controlling Health Plans (CHPs) and Subhealth Plans (SHPs)

The final regulations adopt the HPID as the standard unique identifier for health plans. In so doing, the rule defines the terms "Controlling Health Plan" (CHP)—a plan which must obtain an HPID—and "Subhealth Plan" (SHP) — a plan which is eligible to, but not required to, obtain an HPID.

  • CHP

    A CHP means a health plan that controls its own business activities, actions, or policies; or is controlled by an entity that is not a health plan. If a CHP has a SHP, it must exercise sufficient control over the SHP "to direct its/their business activities, actions, or policies."
  • SHP

    A SHP means a health plan whose business activities, actions, or policies are directed by a controlling health plan.

To call these newly defined terms unhelpful or perhaps even confusing is an understatement. It appears that a garden variety employer-sponsored group health plan would qualify as a CHP, since it is a "health plan" that "is controlled by an entity that is not a health plan" (i.e., the plan sponsor). What constitutes a SHP is less clear. Presumably, vision, dental or wellness plans that are wrapped together with a group health plan would qualify. SHPs may, but are not required to, obtain or use their own HPID.

(Nerdy) Comment: The idea that a group health plan may be treated as a separate legal entity is not new. The civil enforcement provisions of the Employee Retirement Income Security Act of 1974 permit an "employee benefit plan" (which includes most group health plans) to be sued in its own name. (ERISA § 502(d) is captioned, "Status of employee benefit plan as entity.") The approach taken under HIPAA merely extends this approach. Separately, there is the question of what, exactly, is an employee benefit plan? In a case decided in 2000, the Supreme Court provided a concise, if modestly counterintuitive answer, saying:

"One is thus left to the common understanding of the word 'plan' as referring to a scheme decided upon in advance . . Here the scheme comprises a set of rules that define the rights of a beneficiary and provide for their enforcement. Rules governing collection of premiums, definition of benefits, submission of claims, and resolution of disagreements over entitlement to services are the sorts of provisions that constitute a plan." (Pegram v. Herdrich, 530 U.S. 211, 213 (2000)).

The HPID application process

Self-funded plans apply for HPIDs using HHS's "Health Plan and Other Entity Enumeration System" (or "HPOES"), which is sponsored and maintained by CMS's Health Insurance Oversight System. Users are directed to the CMS Enterprise Portal. New users, which will include most self-funded plan sponsors, are required to register and to obtain a username and password. The application process is cumbersome, to say the least. The steps involved are described in a CMS presentation that may be accessed here.

Upon completion of the application process, CMS will provide an e-mail notification containing the plan's HPID.

Some closing observations

The HIPAA administrative simplification rules are primarily provider-focused. Their application to group health plans has been fraught with problems from the start. To say that an employer's group health plan is something legally separate and apart from the employer/plan sponsor is an awkward, though necessary, legal fiction. And to include both health plan policies and products offered by state-licensed insurance carriers and employer-sponsored group health plans under the common heading of "health plan" serves only to compound the confusion.

Self-funded plans are particularly challenged by the structure of the HIPAA privacy and security rules, since they can't partner with a health insurance carrier to form an organized health care arrangement. In practice, however, they often retain health insurance carriers to provide administrative services. While these two arrangements have a great deal in common, the final regulations treat them as fundamentally different. As a consequence, the vast majority of self-funded plans will need to undertake a burdensome application process to obtain an HPID that they may never use.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Alden J. Bianchi
 
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