HIPAA is comprised of two major legislative actions: Health Insurance Reform and Administrative Simplification. The Health Insurance Reform provisions have been in effect for some time and require implementation of certain practices by health plans and insurers regarding portability and continuity of health coverage. Administrative Simplification mandates standards for electronic data interchange (EDI) and code sets, seeks protections for the privacy and security of patient data and establishes uniform healthcare identifiers.

Early interpretation of the act was focused on improving health insurance coverage for people who changed or had lost their jobs. The health care industry is now recognizing other important ramifications of the act, one of the most significant being the Administrative Simplification provisions (Title II, Sub-title F). The chief intent of these provisions is to streamline, standardize and secure electronic data interchange (EDI) and to further protect the confidentiality of health care information transmitted through any medium.