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Health Care Law's Insurance Market Rules Might Provoke More Battles in the States

By Jane Norman, CQ HealthBeat Associate Editor

November 12, 2012 -- The next big hurdle for implementation of the health care law: States must adopt the overhaul's major changes to how consumers purchase health insurance, which are due to take effect in 2014. They are the very guts of the measure's promise of better access to health care.

But tough new standards on guaranteed issue, age rating and more might also provoke a new round of fights in Republican-controlled states where officials have been so resistant to implementing the overhaul that they've refused to set up state health insurance exchanges.

Insurers, health policy experts, state regulators and others are watching to see if proposed rules will be issued soon dealing with insurance market regulations, as well as standards for qualified health plans and minimum standards for essential health benefits. The Office of Management and Budget said recently that the proposed Health and Human Services rules are under review.

Some changes in insurance market rules took effect in September 2010 under the health care law, such as allowing young adults to say on their parents' policies until age 26. States had to adjust to those new rules.

But the new consumer protections that will go into effect in 2014 make much larger changes in the insurance market, such as guaranteed issue for non-grandfathered plans in the individual market. That means insurance companies must issue a health plan to anyone who applies, regardless of their health status or other factors. Now, in most states, insurers are able to deny coverage to sick people or people who have in the past had any one of a number of illnesses.

"It's like a whole new ball game with these [rules] because they are so sweeping," said Sabrina Corlette, research professor and project director at the Center on Health Insurance Reforms at the Georgetown University Health Policy Institute. "And so many states have conflicting laws on the books."

In some states, insurance commissioners and regulators can on their own issue the regulations that will make state policies conform to the federal health care law (PL 111-148, PL 111-152), experts said. But in others, it might require very swift legislative action during the next few months as an Oct. 1, 2013, deadline looms for exchanges to begin enrolling people. To write policies for sale in the exchanges, insurance companies need to know the state rules governing their products.

Lawmakers opposed to the health care law could also decide to block regulatory action, said Sandy Praeger, the Kansas insurance commissioner and the head of a health care committee at the National Association of Insurance Commissioners. In her own state, where GOP Gov. Sam Brownback has opposed establishment of an exchange, "I'm not anticipating cooperation," said Praeger, who predicted troubles in other states where Republican governors and lawmakers continue to oppose the health care law.

However, Joel Ario, the former director of the Office of Exchanges at the Department of Health and Human Services, said he doesn't see a problem and expects states to comply, just as they did when guaranteed issue was mandated by federal law for the small group market in 1996. "They'd be just ignoring federal law," said Ario, now of Manatt Health Solutions. "The broader issue is what will happen in the marketplace and will it be disruptive or not."

In states that refuse to act, it's possible the federal government would have to come in and regulate the insurance market, Corlette said. "I think it's too early to say any states will do that," she said.

The Commonwealth Fund in a study issued in March took a look at what happened when states were confronted with implementing the early changes in the insurance market. The study found that states adopted both formal and informal approaches to requiring or encouraging compliance, though some had to hurry and act without state legislative action because of the quick time frame in which the new rules took effect. But unlike many of those early rules, the 2014 changes do not exist in state law, the study said. And where they do exist, they might more often be inconsistent with federal law. But the study also warned of the need for "continued tracking of state action."

One rule that might emerge and that deeply worries insurers is what's known as age rating. In 42 states, insurers are allowed a five-to-one age band, which means older people will pay no more than five times as much as younger people, says the trade group America's Health Insurance Plans. The health care law reduces that to a three-to-one age band, which means younger people will pay more, says AHIP.

The group has advocated that the law be changed back to five-to-one, which would require congressional action. But Robert Zirkelbach, a spokesman for AHIP, said that how the rule on age rating is structured could make a difference—such as whether there is some kind of phase-in period for it. The other alternative suggested by consumer advocates is for states to move quickly on this particular rule and adopt it by the end of 2012, giving insurers plenty of time to set their rates and submit them to regulators for approval.

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