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NEW YORK -- New model legislation for medical records privacy could create administrative problems for workers comp insurers and self-insurers if enacted.

A majority of state insurance regulators last week voted to approve the model, the Health Information Privacy Model Act, which is intended to limit unauthorized access to patient medical records.

However, critics of the proposal contend that regulators failed to fully consider its impact on property/casualty insurance, particularly workers compensation claims.

In addition, opponents of the model act warn that provisions designed to guarantee claimants access to their medical information would increase administrative expenses for employers and create claims handling problems.

At least one regulator also opposed those provisions, arguing that the burdens they create would encourage insurers and self-insurers to deny workers compensation claims outright or immediately label them as fraudulent as a means to minimize access to claims files.

However, opponents' views were largely ignored last week as members of the National Assn. of Insurance Commissioners approved the Health Information Privacy Model Act by a vote of 37 to 13 at their fall quarterly meeting in New York.

State regulators plan to send the model to federal lawmakers as well as to states requesting it. Congress is seeking the NAIC's input because it is facing an August 1999 deadline to develop national medical records privacy legislation. If Congress misses the deadline, the U.S. Department of Health and Human Services will promulgate regulations on its own.

The new model act, including the 23 technical amendments presented at the meeting, is "a very good work product" and "a significant step in protecting individually specific health information," said Kathleen Sebelius, the Kansas commissioner. She chairs the Accident and Health Insurance Committee, which drafted the model.

The 28-page model act is designed to meet individual consumers' concerns about outsiders gaining unauthorized access to their health care information. It establishes standards to protect health information from unauthorized collection, use and disclosure by requiring insurers and self-insurers to establish procedures for the treatment of all health information.

The model also establishes the right of a person to examine his or her own protected health information and creates a limited right for people to have their protected health information amended or supplemented under certain circumstances.

In addition, the model requires entities to establish procedures for safeguarding health information and to notify consumers about their privacy rights with respect to protected health information and how they may exercise those rights.

However, unresolved ambiguities about how the model act would apply to property/casualty insurance claims, such as workers compensation claims, prompted two insurance commissioners to try and postpone the vote for further review.

During the Executive Committee meeting and Plenary voting session, South Dakota Insurance Commissioner Darla Lyon expressed concern about the model's Section 7, which allows an insurer or self-insurer to deny an employee access to health information if it was compiled "in preparation for litigation, law enforcement or fraud investigation, quality assurance or peer review purposes."

The lack of an exemption for a routine workers comp claim investigation means insurers would be encouraged to label every claim as fraudulent, so they could protect the information -- such as a witness statement -- from claimants, according to Ms. Lyon, who chairs the NAIC's Workers Compensation Task Force.

In addition, Iowa Insurance Commissioner Terri Vaughan said she was concerned that the measure would hinder the ability of one active risk manager in her state to obtain periodic workers comp loss runs he uses to analyze the safety of his operations and prevent employee injuries.

"I'm concerned that the insurer would no longer be able to share that with the risk manager," she said.

Ms. Vaughan also said she was concerned that Congress might consider the model act a reflection of unanimous NAIC thinking.

However, several commissioners voiced their support for the compromise model, including commissioners from Ohio, Montana and Nebraska. Georgia Commissioner John Oxendine said developing the act ".*.*.has taken way too long" and commissioners "look like a bunch of fools having this discussion."

NAIC President Glenn Pomeroy said he considers passage by 37-13 "a pretty strong vote." Even so, he said he agreed with Indiana Insurance Commissioner Sally McCarty's suggestion that the NAIC improve its review of proposals that affect multiple lines of coverage.

Critics of the model health privacy act generally agree with the criticisms raised by Ms. Lyon and Ms. Vaughan and cite health-oriented regulators' lack of familiarity with property/casualty issues as a root cause for the ambiguities in the model. But drafters eventually did establish an advisory group to provide property/casualty expertise (BI, March 30).

If state or federal lawmakers enact versions of the model law promoting the privacy of employees' personal medical information, it would "throw up more roadblocks" and "promote an adversarial relationship" between employers and employees over workers comp claims, said Anne Allen, director of government affairs for the Risk & Insurance Management Society Inc. in New York. In addition, "the average employer would have to add significant staff and resources in order to handle the resulting administrative workload," she said in an earlier letter to the NAIC.

Ms. Allen noted the irony of the NAIC formally adopting at the same meeting a white paper on "Regulatory Re-engineering Initiatives Related to Commercial Lines Insurance."

At the meeting in which NAIC commissioners "conceptually took away one level of oversight with passage of the white paper on commercial lines re-engineering, they added another level of oversight to risk management practices in the health area," she said.

"The fact that there is no safe harbor for routine investigation of a workers comp claim is one of the major problems with the model act," said Bruce C. Wood, assistant general counsel with the American Insurance Assn. in Washington. The model is better now than previous drafts but still represents "a lost opportunity."

"For comp, the model act is a Byzantine maze with too many open doors," said John Lennes Jr., vp of workers comp and health for the Alliance of American Insurers in Downers Grove, Ill.

"I think they have gotten themselves too balled up in the intricacies of claims handling," he said.

An employee's medical claim under workers comp coverage often receives greater review than does a typical medical claim under a benefits program because employers are responsible for paying both medical costs and wage-loss benefits, noted Mr. Lennes. The quicker that occupational and rehabilitation experts can have access to objective information about an employee's medical condition, "the faster the claim can be resolved and the employee returned to work," he said.

The model law's intention is to protect claimants' confidentiality, but "its vague definition of 'health information' actually prevents insurers from doing their job -- and ultimately will make things more difficult and costly for everyone involved in the claims process," said Donald S. Cleasby, assistant general counsel for the National Assn. of Independent Insurers in Des Plaines, Ill. The NAII actively opposed NAIC passage of the model.

In other action at the meeting, state insurance regulators:

* Adopted a formal moratorium to delay, when feasible, the implementation of any NAIC model law, regulation, accreditation standard, annual statement instructions or other initiative that could detract industry resources from Year 2000 compliance efforts. The resolution is effective from July 1, 1999 to June 30, 2000.

* Voted at the committee level to inform members of the U.S. Senate about the NAIC's latest position on financial services modernization legislation. State insurance regulators support the concept and recognize the need for legislation but cannot support the Senate Banking Committee's version of H.R. 10 because it proposes a federal-state regulatory structure "plagued by substantial gaps and confusion which could easily undermine the financial health of banking and insurance institutions" and may undermine consumer confidence.

* Heard that the Interstate Insurance Receivership Commission reaffirmed its adoption of a uniform receivership law designed to maximize uniformity and fairness in distributing a failed insurer's assets (BI, Sept. 14). The commission made only technical changes to the final document, rejecting substantive changes proposed by a few life reinsurers.