In the wake of recent breaches of personally identifiable information (PII) suffered by health insurance companies located in their states, the New Jersey Legislature passed, and the Connecticut General Assembly will consider legislation that requires health insurance companies offering health benefits within these states to encrypt certain types of PII, including social security numbers, addresses and health information.  New Jersey joins a growing number of states (including California (e.g., 1798.81.5), Massachusetts (e.g., 17.03) and Nevada (e.g., 603A.215)) that require organizations that store and transmit PII to implement data security safeguards.   Massachusetts’ data security law, for example, requires any person or entity that owns or licenses certain PII about a resident of the Commonwealth to, if “technically feasible” (i.e., a reasonable technological means is available), encrypt information stored on laptops and other portable devices and encrypt transmitted records and files that will travel over public networks.  Unlike Massachusetts’ law New Jersey’s new encryption law only applies to health insurance carriers that are authorized to issue health benefits in New Jersey (N.J. Stat. Ann. §  56:8-196) but requires health insurance carriers to encrypt records with the PII protected by the statute when stored on any end-user systems and devices, and when transmitted electronically over public networks (e.g., N.J. Stat. Ann. § 56.8-197).

At the federal level, the Health Insurance Portability and Accountability Act (HIPAA) already requires health plans, as well as other “covered entities” (i.e., health providers)  and their “business associates”(i.e., service providers who need access to a covered entity’s health information to perform their services), to encrypt stored health information or health information transmitted electronically if “reasonable and appropriate” for them to do so (45 C.F.R. §§ 164.306; 164.312).  According to the U.S. Department of Health and Human Services, health plans and other covered entities and their business associates should consider a variety factors to determine whether a security safeguard is reasonable and appropriate, including: (1) the covered entity or business associate’s risk analysis; (2) the security measures the covered entity or business associate already has in place; and (3) the costs of implementation (68 Fed. Reg. 8336).  If the covered entity or business associate determines that encryption of stored health information or transmitted information is not reasonable and appropriate, however, the covered entity or business associate may instead elect to document its determination and implement an equivalent safeguard.

The New Jersey law and the Connecticut proposal appear to reflect a legislative determination that encryption of stored or transmitted health information is always reasonable and appropriate for health plans to implement, regardless of the other safeguards that the health plan may already have in place.  As hackers become more sophisticated and breaches more prevalent in the health care industry, other states may follow New Jersey and Connecticut by expressly requiring health plans and other holders of health care information to implement encryption and other security safeguards, such as multifactor authentication or minimum password complexity requirements.  In fact, Connecticut’s Senate Democrats have indicated that their proposal will address user authentication protocol requirements, in addition to encryption.  We will continue to monitor Connecticut’s legislative proposal and track additional developments in state data security laws during this year’s legislative sessions.