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Eliminating the HIPAA Catch-22 in Clients' Estate Plans

Don't wait too long to address these crucial issues.

Helen Modly, 03/06/2008

Remember poor Klinger in the TV series M*A*S*H? He colorfully persisted in seeking a Section Eight mental exemption from military service on the basis that he was certifiably nuts. He failed because of a bureaucratic logic that maintained if he was seeking to get out of the army, he wasn't nuts, he was sane. Since he was sane, he didn't qualify for a Section Eight.

Twelve years later, and the same type of bureaucratic logic in response to the federal Health Insurance Portability and Accountability Act of 1996 is still causing a catch-22 for your clients' medical powers of attorney and other estate planning documents.

The increased use of electronic records and the ease of accessing them created a need for some type of privacy protection. HIPAA was enacted to protect your personally identifiable medical information from unauthorized uses or disclosure as it moved through the medical and insurance systems.

What HIPAA Allows
The act actually permits providers to disclose certain personal information such as name, general condition, religious affiliation, and location in a facility to family members, relatives, friends, or to others whom the patient identifies.  The providers only need to obtain informal permission from the individual, either verbally or by allowing them an opportunity to object. Providers may also make such disclosures in the event of incapacity or an emergency situation, if, in the exercise of their professional judgment, the disclosure is determined to be in the best interests of the individual.

Otherwise, HIPAA strictly prohibits the disclosure of personal information by virtually every doctor, pharmacist, nurse, therapist, etc. The penalties for unauthorized disclosure include fines of up to $250,000 and jail time for up to 10 years.  Unfortunately, this language, which requires providers to determine which disclosures are permitted and which are prohibited  and sets different standards for patient consent and patient authorization, has led to an overly conservative response from most health-care providers.

Where's the Catch?
One major problem created by HIPAA is its impact on planning for incapacity. Most clients have estate plans that provide for someone else to manage their affairs or make health-care decisions for them if they are unable to do so themselves. This would include their successor trustees of revocable or irrevocable trusts, agents under any financial powers of attorney or medical powers of attorney. A common structure is for these powers to spring into effect upon the incapacity of the individual, as determined by a physician's certification.

Unfortunately, your physician might consider making such a certification of incapacity to be a prohibited disclosure of private medical information. So, the person named to act as agent for the individual should they become incapacitated, is prevented from assuming the role, since the individual is incapacitated and therefore cannot give permission: a classic catch-22 if there ever was one.

HIPAA Compliant Authorizations
While there is often no legal obstacle for a family member to be informed of or involved in the care of another family member, everyone runs the risk of encountering an overzealous nurse, and there is only one way for your clients to plan for this. Your clients need to have HIPAA-compliant authorizations incorporated into their estate documents. Not every authorization to release medical information will comply with the HIPAA regulations. Other states, such as California, have additional privacy laws that must be met, as well.

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