State officials have been heartened by statements from incoming Congressional leadership and the new President that states will gain greater authority and autonomy over their health insurance markets than they have had under the Affordable Care Act (ACA). For example, President Trump’s executive order on the ACA called for giving states “more flexibility and control to create a more free and open health care market.” Similarly, leading members of Congress have said, for example: “States, not the federal government, should have the primary responsibility for health policy,” and suggested that their replacement plans for the ACA will give “power back to the states.”
But do the specifics of the plans support these statements? In fact, the fine print in some plans to replace the ACA would take away state authority over health insurance benefit design, premium rates, marketing, and consumer complaint resolution. A close examination of these proposals shows they would turn upside down a longstanding principle of federal-state regulation of insurance, which provides that the states should be the primary source of health insurance oversight and consumer protection, with the federal government only stepping in to set minimum standards or fill gaps.
The Federal-State Framework for Insurance Regulation
Individual market health insurance has historically been regulated at the state level, with minimal federal involvement. States regulate insurance company solvency and business practices, plan premium rates and benefit design, and are the cop on the beat if a consumer has a complaint or a provider can’t get his or her bills paid.
Over time, and in response to concerns about gaps in state insurance regulation, Congress has instituted a patchwork of federal minimum standards that apply across all states. Federal laws such as the 1996 Health Insurance Portability and Accountability Act (HIPAA), the 1998 Women’s Health and Cancer Rights Act (WHCRA), and the 2008 Mental Health Parity and Addiction Equity Act (MHPAEA) established nationwide rules to expand the accessibility and comprehensiveness of health insurance coverage. States could, and did, enact stronger protections.
In 2010 Congress enacted more sweeping reforms through the ACA to address continued significant shortcomings in coverage access, affordability, and adequacy. On the eve of the ACA, close to 50 million people were uninsured and millions more were covered but lacked basic consumer protections to ensure their coverage met their health care needs.
However, the implementation of the ACA’s reforms continued to rely on the longstanding federal-state regulatory partnership, largely deferring to the states for enforcement of these federal standards, and several states have maintained or enacted standards that exceed the federal minimum. Most states elected to retain their role as the primary regulators of insurance and enforce both federal and state protections (note 1). At a minimum, most states continue to ensure that companies have sufficient financial reserves, review proposed premium rate increases, confirm that plans deliver on promised benefits, identify and stop fraudulent marketing tactics, and work to resolve consumer complaints.
New Efforts to Preempt State Authority
In spite of lip service to state authority and flexibility over insurance, pending proposals to replace the ACA, such as Speaker Ryan’s “A Better Way” plan, Health and Human Services’ Secretary Price’s “Empowering Patients First Act,” and Senator Paul’s “Obamacare Replacement Act,” would actually preempt much of that authority. They do so through two key provisions: (1) the sale of insurance across state lines and (2) individual association health plans or “insurance pools.”
A federal law to encourage the sale of insurance “across state lines” would authorize an out-of-state insurance company to sell products in multiple states without complying with all of the different insurance laws in each of those states. In other words, an insurer could set up its operations in a state with very few consumer protections or regulatory standards and bypass the requirements and standards in a state with stronger consumer protections. Specifically, under Congressional across-state-lines proposals, states would be preempted from:
- Setting benefit standards, such as requiring coverage of autism treatment, diabetes screening, or maternity services;
- Policing the marketing and sale of insurance products, such as tactics that cherry pick healthy consumers or prevent people with pre-existing conditions from enrolling;
- Limiting insurers’ ability to charge people higher premiums based on their age, health status, or gender;
- Conducting financial audits of the insurer to confirm they can pay claims in a timely manner, if the state in which the company is headquartered conducts its own audits;
- Reviewing proposed premium increases; and,
- Ensuring an internal review and response to consumer complaints.
The bills also impede a state’s ability to protect residents if and when problems arise, limiting the department of insurance’s ability to investigate complaints and pursue a remedy on behalf of the consumer. For problems such as a failure to pay claims, disputes over contracted benefits, and shady marketing tactics, consumers would have to appeal to the state in which the insurer is headquartered. Yet it is unclear what incentive or resources that state would have to attempt to resolve the problem when it doesn’t affect one of their own citizens.
Replacement proposals to establish individual association health plans or pools, such as in Secretary Price’s and Senator Paul’s bills, include similar language to broadly preempt state authority. These pools would allow groups of individuals to come together and buy health insurance that is exempt from most state insurance regulation. Just as with the across-state-line provisions, for example, states would be preempted from imposing benefit standards on these plans, such as requiring autism or maternity coverage. They also would be barred from setting marketing, pricing, or benefit standards that would prevent these plans from discriminating against people based on their health status, age, or gender.
Not surprisingly, the National Association of Insurance Commissioners (NAIC), strongly opposes the preemption of “state…consumer protections by…federal edict,” arguing that across-state-line and association health plan proposals would “strip states of the ability to protect consumers and create competitive markets.”
There is good reason why, historically, federal policymakers have deferred to the states to be the primary locus of consumer protection when it comes to health insurance. State regulators are often better able to monitor problems as they emerge, communicate directly with the companies they regulate, and respond to consumer complaints. Federal regulation has largely served to set basic minimum standards and fill in gaps where states have fallen short. But federal policy should not undermine state policies that exist to protect consumers and ensure that their coverage meets their health and financial needs.
The next time you hear a member of Congress or the new Secretary of Health and Human Services call for greater state flexibility and control over their insurance markets? Don’t take their word for it — read the fine print.
Four states—Missouri, Oklahoma, Texas, and Wyoming—chose not to enforce the ACA’s consumer protections and delegated that responsibility to federal regulators.