Signed into law: August 21, 1996
Effective date: July 1, 1997


Congress passed and President Clinton Aug. 21 signed into law S. 1028, more commonly known as the Kassebaum-Kennedy bill. The new law, P.L. 104-191, is a modest -- but necessary -- step to help protect health coverage for more Americans. The law sets federal standards for the availability and portability of group and individual health care coverage, whether through self-insured employer (ERISA) plans, group health insurance or individual policies. It also gives the states broad discretion in pursuing alternatives for achieving the legislation's goals of ensuring that people who lose or switch jobs don't lose their insurance coverage and that people aren't denied coverage because of pre-existing medical conditions.

The law also will:

  • Create a four-year medical savings account experiment.
  • Increase self-employed workers' health insurance tax deduction to 80 percent over the next 10 years.
  • Make long-term care insurance tax-deductible.
  • Institute new criminal penalties and civil sanctions for fraud and abuse in both private health plans and Medicare and Medicaid.

Implications for hospitals and health systems

As employers, hospitals that self-insure cannot deny employees and their families health insurance coverage or set larger insurance premiums based on health. You can't wait more than 12 months to make coverage available to employees and dependents (18 months for employees who missed your period for enrolling in the insurance program.) These restrictions cannot be applied to newborns, newly adopted children or pregnancies. And you must give new employees a special opportunity to enroll in your insurance plan.

Hospitals that purchase group coverage should not experience large premium increases as a result of this law, since higher costs will most likely occur for individual, rather than group, health insurance programs.

As providers, the extensive fraud and abuse changes will require close attention as you manage your day-to-day operations. It's important for you to provide ongoing staff education about government reimbursement rules and to consider adopting certain compliance procedures, especially in the claims-creation and submission process. P.L. 104-191 expands the government's enforcement activities and increases penalties for health care fraud. But the law also offers you clearer compliance guidelines -- some shaped by AHA during the legislative process -- and exceptions from anti-kickback laws that remove a serious barrier to your ability to form integrated delivery networks.

The law will:

  • Make health care fraud a federal criminal offense.
  • Expand the scope of health care anti-fraud and abuse enforcement activities beyond Medicare and Medicaid to include private health care plans as well.
  • Authorize the HHS inspector general to fine and bar providers from Medicare and Medicaid, increasing the importance of effective corporate compliance programs.
  • Subject new federal health care offenses in the criminal code to a "knowing and willful" intent standard. This means that offenders who intentionally break the law are punished, while those who didn't intend to do wrong are not treated as criminals.
  • Set a "knowledge" standard for civil monetary penalties -- again, giving weight to whether someone knew their activity was illegal.
  • Provide exceptions from anti-kickback laws for risk-sharing arrangements that are often used by integrated delivery systems.
  • Prevent any direct link between enforcement funding and money collected from provider penalties, ensuring the government won't have an improper incentive to engage in a "bounty system" to boost fraud-policing funds.
  • Require the inspector general to issue binding advisory opinions. This could clear up whether an activity you're considering would violate the law, saving time and money.

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