Put Your John Hancock Here - electronic signatures

HR Magazine, Sept, 2000 by Bill Roberts

Digital signature technology could cut HR's paperwork and speed transactions, such as insurance enrollment.

Joel Neilsen sees a day when his fellow employees at Morinda Inc., in Provo, Utah, will sign expense reports, benefit forms, W4s and other documents electronically.

Neilsen, chief information officer at Morinda, a health care products marketing company, knows that digital signatures on business documents are not pie in the sky. He is starting a pilot project to allow Morinda and its thousands of distributors to exchange contracts electronically--and sign them electronically. Neilsen wants to replace the paper contract with an electronic one that can be stored in a database.

The distributors are the first step. If paperless signatures work, "It makes sense to do the same thing with our 1,200 employees," Neilsen says. "I was just completing a review for one of my senior managers. It would be nice to fill it out, sign it, forward it to him and have him pass it on to HR electronically.

Neilsen's dreams put him in a tiny group of technologists and HR professionals who are thinking about electronically signed HR documents. Most companies aren't using electronic signatures on general business documents yet, let alone on HR documents.

So why should HR professionals burn any brain cells on electronic signatures now? Because the Health Insurance Portability and Accountability Act (HIPAA) of 1996 requires administrative simplification for health insurance--and that simplification includes using electronic signatures to show employee approval of certain transactions.

"Some insurance companies and the largest health care providers have started to think about this problem, but very few employers have started to think about what this means to them," says Chris Williams, an attorney in the employee benefits group at the law firm of Gordon, Feinblatt, Rothinan, Hoffberger & Hollander LLC in Baltimore.

Electronic signatures may prove to have many HR applications in the future, as Neilsen anticipates. But for now, HIPAA should be enough to prompt HR professionals to learn about the technical, legal and regulatory issues surrounding this technology.

Cutting Paper and Costs

HR professionals will most likely start encountering digital signatures and digital certificates--which secure and verify digital signatures--next year, when the regulations implementing HIPAA take effect. (For more on the technology behind digital signatures, see "What Is a Digital Signature?" on page 100.) HIPAA requires that health care providers, insurance companies and employers conduct certain transactions electronically, Williams says. Reducing paperwork also will save money. The U.S. health care industry spends an estimated $1 billion a month on paperwork.

The U.S. Department of Health and Human Services (HHS) is spelling out the regulations for HIPAA's requirements for paperwork reduction and published draft rules in the Federal Register on Aug. 12, 1998.

Currently, HHS is reviewing comments on the draft regulations, which include a set of standards for electronic transactions, such as standards for enrolling people in health plans, giving clearance for treatment and submitting payments. Many processes--such as payment for services--won't require an electronic signature of any kind. But Williams says that some transactions, including insurance enrollment and termination, will require an employee's electronic signature. "This is one area where HR people will find themselves affected," she says.

Release of the final regulations is expected by the end of this year. But once the regulations are final, the law gives everyone 26 months to get into compliance. "People who haven't started to think about it will find themselves up against the wall when it comes time to comply," Williams says.

HIPAA will provide some help for smaller employers by establishing clearinghouses to transform paper forms into standard electronic ones, Williams adds.

Can employers relax, relying on their insurers and health care providers to work out the technical details? Not if the employers be sure they're protected. HIPAA holds the insurer and "its agents responsible for fulfilling the law's requirements, Williams says, and those "agents" could include the employer.

Laws Back Digital Signatures

HR professionals seeking to learn more about digital signatures are in luck because digital signature technology has been in the news, thanks to attention from legislatures. A recent spate of new state and federal laws supports electronic commerce generally and the use of electronic and digital signatures specifically.

At the end of June, President Clinton used a digital signature on a smart card to sign a federal law that gives electronic signatures of all kinds the same validity as pen-and-ink signatures. The federal law does not specify that digital certificates must be used.

More than 40 states have spelled out some kind of e-signature model, and 16 have approved laws to govern the use of electronic signatures. These and the federal. bill will need to be harmonized. The federal e-signature law, in fact, is just a stopgap measure until a majority of the states can approve uniform electronic transactions laws, says Patty Edfor director of government operations of the U.S. office of Dublin, Ireland-based Baltimore Technologies, PLC, another provider of digital certificate technology.