Employers with Group Health Plans: Have You Notified State Regulators of the Breach?
Data security breaches affecting large segments of the U.S. population continue to dominate the news. Over the past few years, there has been considerable confusion among employers with group health plans regarding the extent of their responsibility to notify state agencies of security breaches when a vendor or other third party with access to participant information suffers a breach. A critical concern to employers facing these challenges is: “Assuming we comply with our obligations under HIPAA, do we have to notify U.S. state regulators under state data breach notification laws? Can we rely on the notifications provided by the breached insurer or vendor?”
The following set of frequently asked questions and answers is designed to help employers with group health plans (data owners) navigate the challenging regulatory maze.
Q: If our group health plan is a HIPAA covered entity, do we still have to notify our state regulators about a security breach?
A: In many circumstances, yes. This determination requires a state-by-state analysis. In addition to Washington, D.C., and three territories (Guam, Puerto Rico and the Virgin Islands), 47 states have breach notification laws. The first task is to identify all the states where affected individuals reside, because those state laws will govern the employer’s notification obligations.
Many state laws provide an exemption for data owners subject to and in compliance with the Health Insurance Portability and Accountability Act of 1996 (HIPAA), but the scope of the exemption varies with each state’s approach. Some states provide that if the data owner maintains its own disclosure procedures as part of a compliance plan under HIPAA, the data owner is either exempt from, or deemed to be in compliance with, the state law. Other states, however, do not deem a data owner’s compliance with HIPAA security breach notification requirements as sufficient under state law. These states require the data owner to notify the state regulator even if it has met its HIPAA security breach notification requirements.
As a practical matter, therefore, entities that comply with HIPAA and the Health Information Technology for Clinical and Economic Health Act (HITECH), §§ 13400, 13402 and regulations promulgated at 64 Fed. Reg. 42,740 (Aug. 24, 2009), may still need to send notification letters to one or more state regulators informing them of the incident.
Q: What is the timing of notification to regulators under state law when the breach involves a service provider?
A: The timing varies by state. When a security breach involves a service provider, state breach notification laws typically require the service provider to notify the data owner of the incident, and the data owner is then responsible for reporting the incident pursuant to state law. The triggering date for the notice period typically is “discovery of the incident,” but this can vary by state. The challenge with service provider breaches that become highly publicized is that the data owner may know generally that an incident has occurred with a service provider, but not whether the data owner’s data were actually affected or which individuals were involved.
In this scenario, the data owner is left with two options:
Option 1: The data owner could choose to wait for the service provider to inform the data owner that its data were affected. Essentially, the data owner would treat this notification by the service provider as the “discovery of the incident.”
Option 2: If the nature of the relationship with the service provider is such that the data owner can make a determination that it is more likely than not that its data were affected, then the data owner could elect to proceed with its own notification to regulators as required by the applicable state law.
With Option 1, the data owner runs the risk that a regulator may argue later that the data owner had sufficient information to determine that it was more likely than not that a breach of security occurred, and that such breach affected the data owner’s data. The regulator may then calculate the triggering date for reporting to be much earlier than is beneficial to the data owner.
With Option 2, the data owner avoids the regulator’s potential argument that it waited too long to provide the notice. The challenge with Option 2, however, is that the data owner may not yet have access to sufficient information from the service provider to provide a compliant notice to the state agency. For example, many states require the data owner to submit information about how many individuals were affected, the cause of the incident and more. As a potential solution, the data owner could submit a notification to the appropriate state regulator by mail that indicates (1) the nature of the relationship with the service provider, (2) that the data owner has been informed generally of the incident through the media and other channels, (3) that the data owner does not yet know the extent of the impact on its data or whether residents of the state are affected, (4) that the data owner will continue to work with the service provider to make that determination, and (5) that the data owner will update the notification if and when it determines that residents of the state are affected.
With Option 2, the data owner has arguably met its obligation to notify the state agency within what may be a very tight timeline (see the following FAQ). Electing to proceed with Option 2 and notifying regulators preemptively, however, should be reserved for those cases where the data owner has enough information to determine that it is more likely than not that the incident involves its data and that the affected data subjects more likely than not include residents of the particular state to be notified.
Q: If we are required to notify a state agency of the incident, what are the time periods?
A: The following is a short-hand list of timelines for notification to state agencies required under state law. This list should not be used as a substitute for legal advice applied to your particular facts.
Five days (from the date the incident is identified) to the Connecticut Department of Insurance Commissioner (but only if regulated by the Department of Insurance).
10 days (from detection of the incident) to Puerto Rico’s Department of Consumer Affairs.
10 business days to the California Attorney General (AG) (if more than 500 individuals in the state are affected). The statute requires notice “in the most expedient time possible and without unreasonable delay,” but subsequently published AG guidance explains that this means 10 business days. In cases of service provider breaches, the data owner would seem to have a good argument that this 10-day period begins running from the date that the data owner has sufficient information to determine its data were involved in the incident.
14 business days (from discovery) to the Vermont AG.
30 days (from determining a breach occurred) to the Florida AG (if more than 500 individuals in the state are affected).
HIPAA exemption: If the data owner notifies the U.S. Department of Health and Human Services, it need only forward a copy of the federal notice to the Florida AG; there is no separate notice letter required. Florida also allows the data owner to delegate notification responsibility to a third party, but the data owner remains liable for reporting violations.
Maryland, New Hampshire and New Jersey require notice to the AG before the data owner notifies affected consumers.
The rest of the states with agency notice requirements require notice either contemporaneous with, or within a certain time period after, provision of notice to consumers. These states include Connecticut, Hawaii (if more than 1,000 in the state are affected), Indiana, Louisiana, Maine, Maryland, Missouri (if more than 1,000 in the state are affected), New York, North Carolina and South Carolina.
HIPAA exemption: If the data owner complies with HITECH, it need not notify the Hawaii AG or the Indiana AG.
Q: Can we rely on the entity that suffered the breach (for example, a vendor or downstream subcontractor) to meet our obligations to notify state regulators?
A: In most circumstances, no. Most states requiring notice to state regulators do not permit the data owner to delegate this compliance obligation to a vendor or to any other third party. The compliance obligation stays with the data owner. Florida law provides an interesting example on this point. It permits the data owner to delegate its notice obligation by contract to its vendor, but the data owner will remain liable if the vendor fails to provide the required notice in accordance with law.
In some cases, a vendor may suffer a breach compromising its personal information and the personal information of the data owner. In such a case, the vendor may decide to provide required state regulator notices to meet its own compliance obligations. Those notices, however, do not meet the data owner’s obligations under these referenced laws. As a result, the data owner will need to ensure that it meets its regulatory obligations applicable to the personal information that the data owner disclosed to the vendor.
Q: If our plan is governed by ERISA, do we still need to worry about state data breach notification requirements?
A: Yes. ERISA itself does not regulate federal or state data breach notifications. As it prepares its data breach response plan, an employer that sponsors a group health plan governed by ERISA should take into account the U.S. state data breach notification requirements as well as the HIPAA breach notification requirements.