Throughout the summer of 2017, Republicans in the Senate tried and failed to assemble 50 votes to repeal or weaken the Affordable Care Act (ACA). In end of-the-year tax legislation Congress repealed the ACA’s individual shared responsibility requirement as of 2019, but the rest of the ACA remains firmly in place as the law of the land.
This has not, however, stopped some states from trying to take the law into their own hands. On January 5, Idaho Governor Butch Otter issued an executive order directing the Idaho Department of Insurance to authorize the issuance of “state-based health benefit plans” that comply with state insurance requirements that existed before the ACA — but not with the ACA itself. On January 24, the Idaho Insurance Department director issued an insurance bulletin recognizing such plans, in violation of the ACA.
How Would State-Based Plans Differ from ACA-Compliant Plans?
To begin, the bulletin would allow an individual insured under an ACA-compliant plan to switch at any time to a “state-based” plan, disregarding ACA special enrollment periods. State-based plans could, however, exclude coverage for up to a year for preexisting conditions for anyone who could not show continuous qualifying coverage within 63 days of when state-based coverage would take effect.
State-based plans would not have to cover the essential health benefits required by the ACA, including maternity care, habilitative services and devices, pediatric oral and vision care, and possibly some preventive services. State-based plans may impose annual limits of $1 million and are apparently not subject to the ACA’s out-of-pocket maximum limits, since the ACA limits apply only to essential health benefits. The Idaho bulletin does not clarify how other ACA requirements, such as network adequacy, actuarial value metal requirements, or medical loss ratio requirements would apply to state-based plans.
In a nod toward maintaining some ACA market regulations, the bulletin would require insurers that offered state-based plans to also offer an ACA marketplace-certified plan in the same service areas. They would have to consider enrollees in their state-based and ACA plans part of the same risk pool and offer a single basic premium rate that would apply to all plans. But while the premium could not be adjusted for a particular plan based on the health status of the enrollees of that particular plan, premium rates could vary (up to 50 percent) from plan to plan based on other plan-specific factors, such as covered benefits and cost-sharing design. Insurers could also vary the base premium of a state-based plan for specific applicants based on age (using up to a 5:1 ratio), tobacco use (no apparent limit), and health status (with a 3:1 limit). An older enrollee with a preexisting condition could be charged up to 15 times as much as a young, healthy, enrollee.
Finally, the bulletin requires insurers to disclose on the face-page of the policy (though not, apparently, in marketing materials), that the plan is not compliant with federal law and only has to cover preexisting conditions if there has been continuous coverage.
The bulletin does not state whether state-based plans would participate in the ACA risk adjustment program. Indeed, it is not clear how they would do so given the fact that a number of the ACA risk adjustment parameters assume ACA-compliant insurance plan designs. State-based plans that offer fewer benefits and health-status underwritten premiums and that do not cover preexisting conditions would obviously attract young and healthy enrollees away from ACA-compliant plans. If state-based plans are not required to participate in a risk adjustment program, however, insurers that do not offer state-based plans would not be compensated for taking on higher-risk enrollees and would clearly BE disadvantaged financially.
The ACA Preempts State Law
The Supremacy Clause of the United States Constitution provides that federal law is the supreme law of the land. And the ACA itself provides that its terms preempt any state law that would prevent the application of its terms, including its consumer protections. The individual market provisions of the ACA are enforced through the Public Health Services Act, or PHSA. The PHSA provides that states may, but are not required to, enforce its requirements. Four states (Texas, Oklahoma, Wyoming, and Missouri) currently do not. If a state fails to enforce the ACA, however, the U.S. Department of Health and Human Services is required to do so. Insurers that fail to comply with the law face penalties of up to $100 per day per member.
Presumably, insurers that offer state-based plans could be sued by enrollees harmed by violations of the ACA, such as refusal to cover an essential health benefit or preexisting condition. Any insurer that accepted Idaho’s invitation to offer illegal health plans would be assuming potentially massive liability, conceivably threatening its solvency as an insurer. The state of Idaho could itself also be sued for authorizing the violation of federally protected rights.
The ACA Should Be Enforced in Idaho and Every State
The Trump administration is considering revising current rules that apply to association health plans and short-term coverage, which will inevitably segment the individual market risk pool, making comprehensive coverage less affordable to those who have preexisting conditions. The repeal of the individual mandate will cause more people to drop coverage, also increasing the cost of coverage for older and higher-cost individuals.
Throughout the summer of 2017, those who sought ACA repeal promised that people with preexisting conditions would be covered regardless. Those promises seem increasingly hollow. It is one thing, however, for the administration to seek ways within existing federal law to weaken ACA protections (though the administration’s proposals will also likely face legal challenges). It is quite another for a state to blatantly claim that federal law no longer applies within it. Secretary Azar stated at his confirmation hearings that he would continue to enforce the federal law. It is reasonable to expect that he will do so.
Idaho’s approach is not acceptable. There are already signs that other states may follow suit. Congress failed to repeal the ACA. Individual states certainly cannot repeal it on their own.