Most employers and employees are familiar with the term Health Insurance Portability and Accountability Act ("HIPAA"), and the so-called portability provisions that benefit employees by requiring subsequent employers to accept them into health plans and limit the coverage restrictions by health insurance carriers. However, employers may not be aware that certain HIPAA regulations, the administrative simplification provisions, contain privacy rules that will apply to most employers and will regulate their administration of health plans and disclosure of information about plan participants.

Although an employer is specifically excluded from the definition of a health plan under HIPAA, it will be necessary for most employers who sponsor health plans to comply with the privacy regulations. The extensive privacy rules limit the type of information that may be exchanged between employers and health plans or health insurers and provide civil and criminal penalties for any covered entity that fails to comply with the privacy regulations. The expansive HIPAA privacy regulations take effect on April 14, 2003, and employers who sponsor health plans and access medical or financial information of plan participants should be prepared to meet the challenge of ensuring HIPAA compliance.

Employers, while technically exempt from HIPAA's privacy regulations, will need to comply with HIPAA if they are plan sponsors of a group health plan, with limited exceptions. The "plan sponsor" is an employer in the case of a plan maintained by a single employer, the organization is the plan sponsor in the case of a plan maintained by an employee organization, and the plan sponsor is the association or other group representing the plan participants in a multi-employer plan. For purposes of this article, the term "employer" will be used in place of "plan sponsor."

A health plan is defined to mean an individual or group plan that provides or pays the cost of medical care, if the plan has 50 or more participants or is administered by an entity other than the employer that established and maintained the plan. At this time, it is not clear if the regulations mean that a plan administered by another party subjects the plan to the privacy regulations if the plan has less than 50 participants.

Under the privacy regulations, a group health plan is responsible to implement policies and procedures to protect Protected Health Information "PHI" of individuals and limit the use and disclosure of PHI to the minimum amount necessary to carry out the health plan's operations, payment and treatment functions. Generally, HIPAA's privacy regulations will prevent health plans from legally obtaining information about specific individuals for purposes other than health plan payment or plan operations, and then only under limited circumstances.

Employers who are plan sponsors and perform certain functions that are closely related to or similar to group health plan functions that often require access to individual's medical information must comply with HIPAA's privacy regulations. Generally, employers with self-insured group health plans are subject to HIPAA's privacy rules. Employers with fully insured group health plans may qualify for an exception and avoid compliance, but only if the fully insured plan maintains a completely hands-off approach to the insurance arrangement.

HIPAA Test--Are You Covered?

Because employers who sponsor health plans with more than 50 or more participants may be covered by the privacy regulations, employers should conduct an analysis of the impact of HIPAA on the employer and its dealings with a health plan. If an employer maintains a self-insured employee welfare benefit plan or performs some administrative functions regarding the plan, the employer must comply with all or some of the privacy rules under HIPAA.

Further, employers cannot use PHI for employment-related functions without an authorization from the individual employee. This means that employers may not use PHI, such as medical records relating to an individual's medical condition received in connection with the plan, to make any employment related decisions affecting the employment of the individual. The employer must protect the PHI of plan participants and enrollment and dis-enrollment information of participants, which is PHI under HIPAA. This information may not be used or disclosed for purposes other than treatment, payment or healthcare operations, without authorizations from the individuals.

In summary, the privacy regulations of HIPAA require employers who sponsor health plans to carefully examine their functions as plan sponsors and determine whether or not they must comply with the privacy regulations. The far-reaching impact of HIPAA and the implications for employers and employees will be the subject of future litigation following the April 14, 2003 compliance date. Before making final determinations concerning HIPAA coverage and compliance, employers should consult legal counsel.

On May 28, 2003, the Jobs and Growth Tax Relief Reconciliation Act of 2003 became law. Much of this federal tax law applies only to the years 2003 and 2004, after which provisions in the 2001 Tax Act will again become effective. Nonetheless, the Act contains some significant changes for individuals as well as businesses.

Individuals

The child tax credit increases from $600 to $1,000, which is an acceleration of a scheduled phase-in that was to have occurred between 2005 and 2010. In 2005, the credit will fall to $700, but will then gradually rise to $1,000 again by 2010 by virtue of the 2001 Act.

The standard deduction for married couples will double to twice the amount of the standard deduction for single taxpayers. Married taxpayers filing a separate return will claim the same standard deduction as a single person. Similarly, for 2003 and 2004, the upper limit of the 15% income tax bracket for married couples will increase to a dollar amount that is twice that for a single taxpayer.

For 2003, income levels for the 10% tax bracket will increase to $7,000 for single taxpayers and $14,000 for joint filers. In 2004, these levels of income will be indexed for inflation. Retroactive to January 1, 2003, the new tax rates for individuals are 10%, 15%, 25%, 28%, 33%, and 35%. For transactions taking place from May 6, 2003 to December 31, 2007, the maximum capital gain tax rate has dropped from 20% to 15%, and from 10% to 5% for lower-income taxpayers.

To reduce the double taxation of corporate earnings, dividends received by an individual shareholder from a domestic or qualified foreign corporation will be taxed like capital gain income. This means a rate of 15% for most taxpayers and 5% for those at lower-income levels, assuming the stock is held for at least the holding period set by law. Dividends from certain corporations are not eligible for this new treatment, such as those from tax-exempt charities, farmers' cooperatives, and particular foreign companies.

Businesses

The Act increases the amount of investment that may be deducted immediately by small businesses from $25,000 to $100,000. The amount of this deduction is reduced by the amount that the cost of the business assets exceeds $400,000. Under prior law, this phase-out of the deduction began at $200,000.

The additional first-year bonus depreciation deduction is increased from 30% to 50% for investments acquired and put into service between May 5, 2003 and January 1, 2005. Qualifying property still must be brand new, with a class life of 20 years or less.

Longer life expectancies and the coming surge in the retirement-age population have increased the demand for long-term care, as well as for insurance as one means of paying for that care. Long-term care encompasses a broad range of services for those with a prolonged illness, disability, or mental disorder. Unlike the focus of traditional medical care exclusively on certain medical problems, the goal of long-term care is the maintenance of an individual's level of functioning.

Types of Care

The two main types of care are skilled care, provided by medical personnel for medical conditions according to a treatment plan, and personal care. Personal care, sometimes called custodial care, is assistance with the activities of daily living that can be provided in many settings, including nursing homes, adult day-care centers, or the individual's own home.

Whether the purchase of long-term care insurance makes sense for a particular individual depends on age, health status, overall retirement objectives, and income. As with any type of insurance, it is critical to understand what is and is not covered among the types of long-term care services that are available. Exclusions and limitations are common. Equally important is knowing where services are covered. Some policies cover care in any state-licensed facility, but others may specifically include or exclude particular types of facilities.

Key Features

Since the amount of coverage is dictated by the type of service, coverage amounts will vary depending on the service. Most policies have a "total lifetime benefit" for the duration of a policy. In addition, benefits are often payable up to maximum amounts per day, week, month, or year.

A provision on when benefits are payable, sometimes called a "benefit trigger," is another key feature that can vary significantly among policies. Some states have legislated benefit-trigger requirements, making it a good idea to check with state insurance departments. Typically, benefits become payable because of the insured's inability to perform a certain number of the activities of daily living. Policy language on mental incapacity also allows for benefits when the insured fails mental functioning tests. Such a benefit trigger is especially important for those afflicted with Alzheimer's, even though most states prohibit the outright exclusion of coverage for that disease.

Although they can add to the cost of a policy, there are optional policy provisions that can help to tailor a policy to individual circumstances. Third-party notification authorizes the insurer to notify a designated third party, such as a relative or friend, if the policy is about to lapse for nonpayment of the premium. A waiver of premium clause allows the insured to stop paying premiums once he or she is in a nursing home and the insurer has begun to pay benefits. Nonforfeiture benefits return some of the investment in the policy if coverage is dropped. If an insured has paid premiums for a certain number of years, some policies allow a death benefit to the estate consisting of a refund of premiums, minus any benefits the company has paid.

Tax Implications

Premiums paid for long-term care insurance are deductible as a medical expense, as long as all medical expenses exceed 7.5% of adjusted gross income. Since premiums on average increase more than tenfold between the ages of 40 and 70, this deduction increases substantially with age. The maximum long-term care premium you can add to your other deductible medical expenses is based on your age at the end of each tax year.

Employer contributions to long-term care insurance for their employees are tax deductible for the employer, and premium payments are not taxable income to the employees. Benefits from a long-term care plan are excluded from income up to the lesser of the actual costs incurred or $63,875 per year. The annual limitation will increase with inflation in future years.