Guest Article

Insurer Cannot Single Out Specific Conditions for Exclusion Under State's HIPAA-like Law, Court Found

(Dec. 11, 2001) A group health insurer may not exclude coverage simply by singling out specific conditions, which is contrary to an Indiana law that parallels language on pre-existing condition exclusions under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), a state appeals court ruled. Similarly, the court upheld a state law that parallel's HIPAA's nondiscrimination language that bars limiting coverage based on health status. The case is Golden Rule Insurance Co. v. McCarty, 755 N.E.2d 1104 (Ct. App. Ind., Sept. 17, 2001).

Facts of the Case

In March 1999, the Indiana insurance commissioner notified Golden Rule Insurance Co. that using indefinite exclusionary riders for its group health and accident policies violated the state's insurance law on pre-existing condition exclusions and limitations. The law provides in pertinent part that:

An August 1999 bulletin issued by the commissioner also explained that provision.

Later that month, Golden Rule issued a certificate of insurance to an Indiana resident covered under a group health plan. The certificate was subject to three exclusionary riders -- two were indefinite and one lasted for two years. When Golden Rule refused to provide benefits for a condition excluded by the rider, the Indiana resident filed a complaint with the commissioner.

Golden Rule challenged the commissioner's interpretations of the state law in state court. After a trial court ruled in the commissioner's favor, Golden Rule appealed.

The parties agreed that the pre-existing condition language in the law was unambiguous but differed on what exactly the language meant. The court noted that essentially, the law allows group health policies to have two types of exclusions:

1. "additional exclusions or limitations" that apply to everyone covered by the policy; and
2. coverage that is "otherwise excluded from the person's coverage by name or specific description," which are exclusions that apply to specific individuals under the group plan.

The commissioner noted that this language allows "those who have pre-existing medical conditions to spread the cost of their treatment across the membership of the group for which the policy has been written."

However, Golden Rule contended that adopting the commissioner's view would not increase insurance availability for persons with uninsurable medical conditions. Rather it would "force Golden Rule to decline otherwise insurable applicants in their entirety." In Golden Rule's view, the law should be interpreted to provide that:

1. uninsurable conditions that manifest themselves within six months of the coverage effective date can be excluded for 12 months; and
2. an uninsurable condition must be named in an exclusionary rider that becomes effective on the date of the covered person's loss if: (1) it manifests more than six months before the coverage effective date, or (2) the insurer wants to limit or exclude coverage for those conditions for more than 12 months.

However, the appeals court found that the statutory language unambiguously provides that the 6-, 12- and 18-month exclusionary limits only apply to individuals covered under group policies. Therefore, the court found that Golden Rule's interpretation would unacceptably render the statutory language "null and void by failing to give meaning to every word of the statute."

The court also rejected Golden Rule's argument that, based on another section of Indiana insurance law, insurers can exclude or limit the coverage of any person who fails to provide satisfactory evidence of insurability. The court found that general provision must be "harmonized with the specific requirements" of the pre-existing condition law -- and a specific statutory provision controls a general one.

Accordingly, the court affirmed the lower court's ruling in the commissioner's favor.

Implications

HIPAA amended ERISA to incorporate language on pre-existing condition exclusions and nondiscrimination, and also changed ERISA's preemption doctrine by allowing states to impose greater restrictions on insurers if a state law does not thwart HIPAA's protections.

The court's ruling is consistent with HIPAA's policy intent. Specifically, the court said that the insurer may not -- by identifying specific conditions that apply to named individuals -- have exclusions that are for periods longer than the 6-, 12- and 18-month exclusionary provisions of the state's HIPAA-like law.

Excerpted from the December 2001 supplement to Employer's Guide to the Health Insurance Portability and Accountability Act, ©Thompson Publishing Group, Inc., 2001. All rights reserved

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