The U.S. Congress ordained the Health Insurance Portability and Accountability Act (HIPAA) in 1996. Title I of HIPAA protects health insurance coverage for workers and their families when they lose or change their jobs. According to title II of HIPAA, the Administrative Simplification (AS) provisions, requires the establishment of national standards for electronic health care transactions and national identifiers for providers, health insurance plans, and employers. The AS provisions also address the security and privacy of health data. The purpose of all these standards is to improve the efficiency and effectiveness of the nation's health care system by encouraging the widespread use of electronic data interchange in health care.

The AS provisions are applicable to only ‘covered entities’. Covered entities are those health care providers (e.g. doctors offices and hospitals) which engage in electronic transactions as per the HIPAA/EDI rules, health plans (which includes health insurance companies and employer-sponsored ‘group health plans’), and health care clearing houses.

Applying HIPAA Provisions

Certain key provisions need to be followed for HIPAA compliance. Individuals should be able to access their records and request correction of errors. Also, they should be informed about how their personal information will be used. The ‘protected health information’ (PHI) indicates that the information cannot be used for marketing purposes without the explicit consent of the patients in question. People should be able to ask their covered entities (which maintain PHI about them), to ensure that their communications with the patient are confidential. It should be possible for people to file formal privacy-related complaints to the Department of Health and Human Services (HHS) Office for Civil Rights. Covered entities should document their privacy procedures, however, they have discretion on what to include in their privacy procedure. Covered entities are required to designate a privacy officer and train their employees. Covered entities can use an individual's information without the individual's consent if the purposes is to provide treatment, obtain payment for services and to perform the non-treatment operational tasks of the provider's business.