Governors Continue to Support HIPAA Delay
"To Strengthen National Safety Net, Stimulate the Economy"

October 25, 2001 -- UPDATE: On October 4, the National Governors Assocation (NGA) sent a letter to key House and Senate members. The letter included a list of policy options for Congress to consider in developing its final economic stimulus plan. The NGA updated its recommendations in a second letter sent today. The NGA is continuing in its request to delay HIPAA compliance deadlines, noting that the House economic stimulus bill, if enacted, would further reduce state revenues by at least $5 billion annually. This reduction would increase existing state shortfalls, resulting in state budget cuts which will hamper the effectiveness of any federal stimulus package. Similarly, without any changes in HIPAA or new federal funding for HIPAA implementation in state-administered programs, states will have to divert funds to comply with this federal mandate. According to the NGA, "This means that significantly less state funds will be available for education, critical state services, capital investment, infrastructure improvement, and additional efforts to respond to bioterrorism and other threats to homeland security."

October 4, 2001 -- The National Governors Association (NGA) has included a request to delay HIPAA compliance deadlines in its proposals for a legislative stimulus package being considered by the Administration and Congress. In an October 4 press release, the NGA announced three categories of proposals: assistance to families affected by the recent terrorist attack, economic stimulus to accelerate state spending, and a "reduction or deferral of federal requirements that limit the states financial ability to respond to economic disruption."

The latter includes a request to extend and restructure the implementation deadline for administrative simplification provisions of HIPAA. According to the NGA, delaying HIPAA for at least two years "would save the federal government millions in Medicaid expenditures," and the extension "would prevent key state-federal programs from shifting resources away from current health and human services benefits for families." "We need to help the victims and those called into service to protect and defend our country. The best way states can do that is to provide a strong economic environment and be in a position financially to help those who need assistance," said Raymond C. Scheppach, Executive Director of the NGA.

The NGA historically has been opposed to the HIPAA implementation schedule. It has lobbied against implementation until all HIPAA regulations are finalized, stating that Congress "must allow states a sufficient and reasonable time period in which to implement this complex law and its multitude of regulations." The NGA is on record in supporting legislation introduced in the House and Senate. S. 836 sponsored by Senator Larry Craig (R-Idaho) and H.R. 1975 sponsored by Representative John Shadegg (R-Ariz.), similar pieces of legislation that would provide for a more lengthy implementation schedule for HIPAA. It should be noted that both legislative proposals deal only with regulations pertaining to administrative simplification. The legislation would not affect implementation of the medical record privacy regulations that are scheduled to go into effect in 2003.

Governors are briefing key House and Senate members (see letters below) and White House officials on the NGA proposals, which the NGA is recommending for inclusion in the economic stimulus package. Congress is expected to act on the package before it adjourns later this month.

October 25, 2001

Dear Senator Daschle and Senator Lott:

The nation's Governors appreciate the bipartisan efforts of Congress to develop an economic stimulus package. On October 4, we sent you a list of policy options to consider in developing your final plan. We are updating our recommendations to reflect the recently clarified size and focus of the options you are considering. Our recommendations also reflect the further deterioration of states' fiscal positions as detailed in the "economy.com" report sent to you earlier this week.

With respect to our fiscal position, most states have made a series of spending cuts. Many are now implementing a second round, and in some cases a third. A number of states now have revenue shortfalls in excess of $1 billion and many are scheduling special legislative sessions to address mounting fiscal problems. The cumulative states' current revenue shortfall is $10 billion and growing. Moreover, new and unprecedented state responsibilities for homeland security are exacerbating serious fiscal conditions.

The House economic stimulus bill, if enacted, would further reduce state revenues by at least $5 billion annually. This revenue eduction would dramatically increase existing state shortfalls and result in significant state budget cuts. These cuts, in turn, would hamper the effectiveness of any federal stimulus package. Similarly, absent any changes in the Health Insurance Portability and Accountability Act (HIPAA) or new federal funding for HIPAA implementation in state-administered programs, states will have
little choice but to divert scarce funds to comply with this federal mandate. This means that significantly less state funds will be available for education, critical state services, capital investment, infrastructure improvement, and additional efforts to respond to bioterrorism and other threats to homeland security.

Specifically, the Governors offer the following recommendations to Congress in the attached document to help protect health and human services for vulnerable Americans, address employment and training for dislocated workers, and stimulate the national economy through targeted capital investment.

Congress has many difficult tasks to complete before recessing for the year. As a bipartisan group of government leaders, the Governors look forward to working with you.

Sincerely,

Protections for Vulnerable Americans

• Temporary Increase in Medicaid FMAP for Children and Families. Congress should temporarily increase the federal medical assistance percentage (FMAP) in Medicaid by 10 percent for acute care services for families and children. The territories should receive comparable relief. This will lessen the pressure on states and territories to cut Medicaid health care benefits or reduce the number of people served.
• Medicaid FMAP Hold Harmless Provision. Congress should provide a "hold harmless" provision for states that were scheduled to have their Medicaid FMAP reduced for fiscal 2002. These reduced rates were based on outdated per capita income data collected at a time when state and federal economies were in much better health.
• TANF Supplemental. The Governors continue to urge Congress to approve a one-year extension of supplemental grants under the Temporary Assistance to Needy Families program (TANF). Without an extension of the TANF supplemental grants this year, 17 states will face a substantial cut in funding for programs that assist families in moving from welfare to work.
• Health Care for Dislocated Workers. As Congress considers proposals to assist dislocated workers in gaining access to health insurance, Congress must recognize that states will not have available funds for any new matching requirements or options.

Employment and Training for Dislocated Workers

• Expansion of Eligibility for Unemployment Benefits. By temporarily modifying existing Disaster Unemployment Assistance (DUA) eligibility requirements, the DUA program (already in operation or on ready standby in all states) could be used not only to provide Unemployment Insurance (UI) equivalent benefits to individuals affected by declared disasters, but also to those affected by resulting economic contraction. These UI-equivalent benefits would be particularly beneficial for those who do not qualify for UI benefits due to insufficient duration of employment or level of earnings.

• Extension of Unemployment Benefits. Congress also should temporarily extend the duration of regular UI benefits through 100 percent federal funding to ensure that unemployed workers can secure employment prior to the termination of UI benefits.

• Acceleration of Reed Act Distributions. Congress should accelerate distribution to state accounts of excess funds (as defined by the Reed Act) being held in the federal Unemployment Trust Fund. This could be achieved by retaining the 0.25 percent ceiling on the Federal Unemployment Account. The immediate transfer of an estimated $9.3 billion can be used by states only for providing UI benefits, employment services, and program administration.

• Increase Funding for Dislocated Workers Employment and Job Training Services. Fiscal 2001 funds for this Workforce Investment Act (WIA) program were rescinded by $177.5 million, while the President's proposed fiscal 2002 budget requests a reduction of $207 million. Congress should restore these funds.

Stimulate the Economy through Capital Investment

• State Match. Temporarily reduce or eliminate state match requirements for capital investment programs.

• Federal Investment. Increase federal funding for infrastructure investment critical to homeland security.

• Private Activity Volume Cap. Lift the private activity volume cap, which would accelerate housing and economic development construction activities.

Council of State Governments
International City/County Management Association
National Association of Counties
National Conference of State Legislatures
National Governors Association
National League of Cities
The U.S. Conference of Mayors

October 11, 2001

Dear Senator Daschle, Senator Lott, Speaker Hastert, and Congressman Gephardt:

We are seeking your assistance in amending the Health Insurance Portability and Accountability Act of 1996 (HIPAA) to extend the implementation schedule of provisions that would establish a uniform set of codes, transaction procedures, and data requirements for the transfer of electronic health care information. A Congress grappling with tragedy and the appropriations process could easily overlook this issue. However, since compliance deadlines are scheduled to become effective October 16, 2002, it is necessary to have new deadlines established during the current session of Congress. State and local governments fully support the administrative simplification goals of HIPAA. However, as we have begun implementation, the necessity for a longer and more coordinated HIPAA implementation period has become clear. Although not made explicit in the HIPAA statute, state and local governments have discovered that the reach of HIPAA is truly vast, ranging from public health agencies to correctional facilities to schools to child welfare programs. State and local government groups are grappling with identifying which programs, agencies, and facilities must comply with HIPAA in order to continue to serve the public. The current implementation period does not provide adequate time to identify, analyze, and address this broad range of needs.

In addition, the statute directs the U.S. Department of Health and Human Services (HHS) to develop a series of regulations, each with its own implementation deadline. Some rules that directly relate to the transaction and code set requirements have not been finalized. Since each HIPAA administrative simplification regulation is reliant upon another, it is impossible to comply in an efficient and cost-effective manner until all relevant regulations have been finalized and their implications can be assessed as a whole. We believe that a thoroughly planned and carefully coordinated process would serve the important goals established in HIPAA better than the piecemeal approach currently underway.

We urge your support for legislation amending HIPAA that would create a more workable implementation schedule and would establish a single, uniform date of compliance for required system changes after the finalization of all of the HIPAA administrative simplification regulations. Pending House and Senate bills, H.R. 1975 and S. 836, offer a promising approach that extends the deadlines for administrative simplification requirements for at least two years without affecting important privacy protections. If there are revisions that should be made to this legislation to further protect the integrity of the privacy regulations, state and local governments would strongly support such changes.

We would like to emphasize that we support the goal of the administrative simplification provisions of HIPAA and believe that over time these provisions will improve the effectiveness and efficiency of our health care system. However, the goals of HIPAA administrative simplification cannot be reached unless all participants in the health care system are ready and able to process standard transactions. State and local governments will be unable to meet the requirements of HIPAA under the current implementation schedule. Regardless of whether other covered entities - such as hospitals, health plans, providers, and clearinghouses - expect to be compliant with HIPAA under the
current system, if state and local governments are not ready, HIPAA will not work. Our request for an extension is made with no false pretenses and without an eye towards personal gain. Our need for an extension comes from our desire to make the health care system the best that it can be.

Again, we appreciate the difficult tasks ahead of the Congress and greatly appreciate the opportunity to work with you on this complicated issue. Please contact us if you have further questions.

Sincerely,

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