Why is HIPAA Important? A Complete Guide

Why is HIPAA Important? A Complete Guide


HIPAA protects the privacy and personal health information of patients, but that's not all that it does. Without HIPAA, the medical industry would be one big sham. Some of the other things that HIPAA can do and does well is ensure repercussions are enforced to parties who don't comply, as well as ensure that patients can acquire copies of their health data for their own benefit. In this article, we will cover everything you need to know about the importance of HIPAA for organizations and patients. However, before we can do that, we must first understand what HIPAA is and who is covered under it. Whenever you're ready to delve deep into the backbone of HIPAA and to understand the value of the Privacy Rule, keep reading.

What Is HIPAA?

The Health and Insurance Portability and Accountability Act (HIPAA) places a great emphasis on the value of its Privacy Rule. The Standards for Privacy of Individually Identifiable Health Information (Privacy Rule) employs a set of nationally-recognized standards for the security of health information. The HHS (Department of Health & Human Services) has issued this rule to address the disclosure and use of individuals' health data, which is referred to as protected health information by covered entities. However, the rule also develops standards for privacy rights to control and understand how health information is used. The Office of Civil Rights is devised with enforcing and implementing this rule concerning compliance activities of a voluntary nature, as well as civil penalties in a financial sense. The primary goal of the Privacy Rule is to ensure that health information is appropriately secured and protected while flowing through various organizations to deliver high-quality medical care. The rule permits a balance that retains the important use of PHI while protecting the peoples' privacy when seeking healing and care. Given the fact that the medical marketplace is quite varied, the Rule is developed to be comprehensive and flexible to cover many kinds of uses that must be addressed.

Who Is Covered By the Privacy Rule Under HIPAA?

The Administrative Simplification rules, as well as the Privacy Rule, apply to health care clearinghouses, health plans, and to all providers who transmitted PHI in a digital form about transactions of any kind. All of this is retained under HIPAA, to ensure the validity, flexibility, and applicability of these rules and principles that secure the very backbone of the healthcare realm. Let's take a look into each of the covered entities under HIPAA.

Health Plans

Group and individual plans that pay or provide the costs of medical care are covered under HIPAA. Health plans include vision, health, dental, health maintenance organizations, prescription drug insurers, Medicare supplement insurers, Medicaid, Medicare, long-term care insurers (not including nursing home policies). Health plans also cover government and church health plans, employer group plans, multi-employer health plans, and much more. There are some exceptions. For instance, a group plan with less than 50 people provided only by the employer that maintains and established the plan is not covered under HIPAA. Also, two government-funded programs are not considered health plans either. For the first, and which principal purpose is not covering the cost of medical care, such as food stamps. For the second, any programs whose principal purpose delivers direct health care, such as grant provisioning to medical care or community health centers. Some types of insurance entities are not health plans either, such as automobile insurance, workers' comp, casualty, and property insurance. If an insurance entity has separable business lines, one that is a health plan, the HIPAA applies to the entity about their health plan business line.

Health Care Providers

Each health care provider of any size who transmitted digitally health information about transactions is covered under HIPAA. These transactions can include but are not limited to benefit inquiries, claims, referral requests, other transactions under HHS standardization. Using digital technology, such as electronic mail, does not mean the provider is covered. The transmission must relate to a transaction. The Privacy Rule covers providers whether these transmissions are directed digitally or made with a third-party or billing service on their behalf. Health care providers are providers of services (hospitals), providers of health or medical services (dental offices, physicians, etc), and all other persons/organizations that bill, furnish, or acquires payment for health care.


Medical care clearinghouses process non-standard information that is received from other entities into standard data formats, or the other way around. In most cases, clearinghouses will acquire personal health information only when providing processing services to health care providers or health plans. In such cases, only certain parts of the Privacy Rule related to their use and disclosure of PHI. Medical clearinghouses include repricing firms, billing services, value-added networks, community management information systems, switches if they perform clearinghouse activities. Third-parties that are not identified as clearinghouses can also be covered under this category. CMS or other data management systems for online-operating organizations can be associated with clearinghouse activities. Processing of data can be pertinent to financial service providers, but reputable firms in this field will have encryption and tokenization that ensures an impenetrable bubble of digital security against all types of breaches.

Business Associates

Business associates are an organization or person, other than part of the covered entity's workforce, which performs certain activities or functions on their behalf, or provide services to a covered entity that involves the disclosure or use of PHI. Business association activities or functions on behalf of the entity include data analysis, claims processing, billing, utilization review, and much more. Business associate services to covered entities are limited to actuarial, legal, consulting, accounting, management, data aggregation, accreditation, financial services, and administrative. But, organizations and persons are not defined as a business association if their services and functions do not make use of protected health information, and where any access to such information would purely be incidental, if at all. A covered entity can be an association of business with a different covered entity. When a covered entity uses non-workforce members or contractors to perform "business association" activities or services, the Rule requires that they include certain defenses for the PHI in their agreement with the other party. In this contract with the business association, the covered entity must place written specified safeguards on the personal health information disclosed or used by the associates. Not to mention, a covered entity cannot contractually authorize the association to disclose or make use of the protected health information which would violate the Rule. Covered entities that already have an existing agreement of contract with their association before 2002, October 15, and did not have it modified or renewed before 2003, April 14, are permitted to operate under this contract until the contract is renewed or 2004, April 14 happens.

Why Is HIPAA Important for Organizations?

As mentioned earlier, HIPAA introduces a lot of benefits to the medical industry to assist the transition from paper to electronic records of health data. HIPAA assists in streamlining the healthcare administrative functions ensure PHI is transmitted securely and improves the efficiency of the industry altogether. The standards for storage of electronic transactions and health data ensure everybody is on the same page. Since all HIPAA-covered entities have to use the same nationally recognize identifiers and code sets, this ensures that the transfer of electronic health information between health plans, providers, and other entities is secure.

Why Is HIPAA Important for Patients?

Besides the benefits for organizations, where HIPAA really shines is with patients. HIPAA is very important because it pushes health plans, providers, business associations of covered entities, and clearinghouses to implement specific safeguards to defend sensitive health and personal information. While no medical organization wants to have health information stolen or to expose sensitive information, without HIPAA there would be no way to enforce the healthcare industry to protect data. Furthermore, there would be no penalties or repercussions for failing to do so. HIPAA establishes rules that require organizations to control and restrict who has health data access and how this data is shared with other parties. HIPAA assists in ensuring that all disclosed information to health plans and providers, or that information created by, stored by, or transmitted by are subject to stringent security methods. Patients are also provisioned with full control over how their data is transmitted and how is it is stored. HIPAA is critical to patients who want to be active in their own healthcare, especially if they want to acquire copies of their health data. Even with the greatest compliance and care, medical organizations can make mistakes when storing or making use of health information. If patients can acquire copies, they should check for errors and ascertain mistakes are corrected if found. Acquiring copies of health data helps patients when they seek healing from other medical providers. Information can be shared, tests are not be repeated, and be providers can review the total health history of the patient. Before the invention of the HIPAA Privacy Rule, there were no existing requirements for organizations to share and release copies of PHI with patients.

Benefits of HIPAA

If the importance of HIPAA is not enough, why not find out about the benefits of HIPAA as a whole. HIPAA should not comply with the sake of compliance, HIPAA provisions many advantages to all parties involves. For instance, HIPAA fosters a common understanding of the appropriate way to handle patient information. But it also ensures that all members of medical organizations comprehend the practices behind protecting the security and privacy of patients. This creates a very sturdy and capable human firewall against breaches of data. It also teaches staff that protecting PHI is part of protecting patients. It's as important as fall-prevention, infection control, medication safety measures, etc. HIPPA promotes the cautious handling of PHI, which improves patient satisfaction. Thus, improving the Hospital Consumer Assessment of Healthcare Providers and Systems score. HIPAA also improves the awareness of providers and includes very detailed instructions on how records are to be kept safe. It eliminates the need to choose between legal risk and speed of communication through pursuit and compliance with HIPAA regulations. HIPAA also reduces organizational and executive liability. Moreover, it protects the staff from personal liability. HIPAA allows positive differentiation between competitors because HIPAA practices are more secure than all others that relate to personal information. HIPAA also encourages the development of a foundation for technological advancements. It reduces medical errors, improves the quality of care, creates operates efficiency, and increases patients' trust and satisfaction. Not to mention, it helps organizations avoid expensive security measures that come as add-ons. As you can see, HIPAA is not just a blanket compound of regulations. It's a full-fledged system that involves and educates all parties involved in the medical process. And as a result, it dedicates itself to the improvement of the whole world in a total sense.

HIPAA Compliance Ensured

Now that you have discovered why is HIPAA important, you have come that much closer to understanding how the medical industry operates, as well as how to avoid the very real pitfalls of non-compliance. Failing to follow HIPAA as a covered entity comes with great risk, especially from a financial standpoint. If you're not sure about your organizations or your own compliance with HIPAA, you might find great benefit in compliance training. At HIPAAexams, we have a variety of specialized courses that cover HIPAA from top to bottom. If you're interested in this, get in touch with us and we will happily accommodate your needs.