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Multistate Plans Should Comply With State Laws, Insurance Regulators Say

By Jane Norman, CQ HealthBeat Associate Editor

August 15, 2011 -- The nation’s insurance regulators said Monday that they’re worried a “loophole” in the health care law could allow multistate insurance plans to operate under more favorable rules than smaller plans in health insurance exchanges.

The state insurance commissioners said in a letter to the Office of Personnel Management (OPM) that they have “serious concerns about the potential for market disruption and adverse selection, and the resulting negative impact on consumers and health insurance markets.”

All health plans are subject to the same basic regulations under the law but some states choose to go further. While Congress intended a level playing field, the law contains language that could be interpreted to exempt multistate plans from those additional consumer protections that might be imposed by states, said the letter from leaders of the National Association of Insurance Commissioners (NAIC).

“There should be no distinction between a multistate plan and any other carrier offering coverage in an exchange,” said the letter. “This will ensure competition and allow consumers to evaluate offerings on the basis of price, benefits, and networks.”

The issue is yet another complication that’s cropped up as the federal government and the states continue working out the many complex details of how the state health insurance exchanges will function once they’re up and running in 2014.

The exchanges will exist as marketplaces to provide access to health insurance to millions of individuals and small businesses. The Department of Health and Human Services on Friday issued three regulations in connection with exchanges.

In addition to the state-specific insurance plans offered through the exchanges, the law ( PL 111-148 , PL 111-152 ) directs the OPM to contract with health insurance companies to offer at least two multistate health plans that will be sold on every state’s exchange beginning in 2014. At least one has to be a non-profit entity.

OPM also runs the Federal Employee Health Benefits program but these national plans will be sold and administered separately by the agency.

Plans could be offered by a single insurer or by insurers in partnerships with one another across the country, according to the OPM.

The OPM has not yet offered any contracts for multistate plans and is at the stage of making a “request for information” from health insurance providers about how the agency should proceed. The request asks a number of questions about products offered, interest in offering a multistate plan, possible partnerships with other health plans and more.

The worry on the part of the NAIC, which is an influential body made up of state regulators from all 50 states, the District of Columbia and the territories, is that language in the law could allow for the multistate plans to operate under one set of rules and all other plans under another set of rules. Some of the nation’s largest companies could gain “significant market advantages,” the letter to OPM said.

This could happen because multistate plans will be automatically deemed to be certified for sale on the exchanges, and the providers could offer their policies in every state, NAIC leaders said. As a result providers will be able to write a large number of policies and spread their administrative costs over a large number of lives, reducing their risk and costs.

“It is important not to exacerbate this built-in advantage by exempting multistate plans from the regulatory oversight of insurance commissioners and programmatic oversight by state exchanges,” they said.

In addition, all state exchanges must be self-sustaining by 2015 and thus likely will have to levy fees on carriers. If multistate plans are exempt from those fees, it will be tougher for the exchanges to operate and will place additional costs on individuals and small businesses buying coverage, NAIC said.

Exempting multistate plans from state regulations would also result in confusion for consumers, said the NAIC. States don’t have the authority to enforce federal laws or regulations, so state insurance regulators couldn’t enforce provisions in OPM contracts, they said.

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