Straight talk on health care reform: As health care reforms unveiled, it's important to keep an eye on details

How a law is implemented can be more important than the language of the law, and for that reason, we urge Colorado regulators and residents to monitor the rollout of the Affordable Care Act.

Thanks to a letter sent last week on behalf of state insurance commissioners, we learned that a provision of the law, section 1334, bears watching. As it stands now, implementation could have a negative impact on how well Colorado's new health insurance exchange serves its citizens and legal residents.

Section 1334 was designed to improve competition between health insurance carriers, which is an important goal of the ACA. It requires state-based insurance exchanges to offer at least two multi-state health plans when they begin operating in 2014. (It also requires that at least one of the multi-state plans be a non-profit entity, that plans be licensed by states and that they meet the requirements of a "qualified" health plan.)

The reasoning behind section 1334 is that in many states a limited number of insurance carriers command the large majority of the market. The law's drafters felt that the inclusion of multi-state plans would increase competition in the new insurance exchanges. The provision would be particularly effective in states where a very few carriers would otherwise control the majority of the market. Ideally, that competition would spur carriers to improve their plans and lower rates for consumers.

However, a loophole in the ACA could allow these multi-state plans to have a significant competitive advantage, create an uneven playing field and disrupt the state health insurance market. This potential problem was identified last week by the National Association of Insurance Commissioners (NAIC), the group that sets standards and organizes the regulatory and supervisory efforts of state insurance commissioners.

The loophole is that section 1334 does not specifically require multi-state plans to be subject to the laws and regulations of those states where these plans would be employed.

The concern is that multi-state plans could be exempt from state consumer protection laws and regulations such as those governing unfair trade and claims practices, network adequacy, external review, marketing and other areas.(1) If allowed to operate under different standards, multi-state plans could gain a significant competitive advantage.

In addition, an uneven playing field could create "adverse selection," where multi-state plans could attract healthier, less-costly customers while other plans would be left to cover less healthy, higher-risk and higher-cost customers. That could lead to higher premiums for many residents, and possibly force some insurers to leave the state market.

Even without this loophole, multi-state plans will have a competitive advantage. They will be offered by some of the nation's largest insurers, and the very design of multi-state plans will allow these insurers to better spread their administrative costs across a larger number of customers.

State laws and regulations, like those in Colorado, have been developed to address unique consumer protection concerns, based on demographic criteria, business and labor markets and consumer expectations. (2) These laws and regulations should pertain to multi-state plans as well.

According to the NAIC, "Exempting Multi-State Plans from any of these consumer protections in a state, or substituting a single national standard for the more tailored approaches taken by the individual states, would leave some consumers with fewer protections than others, confuse them, and result in an unlevel playing field that could give the largest insurers additional competitive advantages in the marketplace, stifling competition in health insurance markets and weakening consumer protection." (3)

We hope that the concerns of the NAIC will be heeded and addressed. In this case, the Affordable Care Act would not have to be amended, since the law leaves the regulation and implementation of multi-state plans to the federal Office of Personnel Management. In developing regulations, OPM would have to require that multi-state plans abide by the rules in the states where insurance is sold.

The greater lesson is that how a law gets implemented has direct impact on individual Americans, and implementation happens mostly outside of our view and attention. We need to pay attention to how laws get rolled out, how regulations are written and to make sure that loopholes are closed and that laws don't come with unintended consequences.

– Bob Semro

End notes
1) Susan E. Voss, president, National Association of Insurance Commissioners, letter to Cheryl D. Allen, U.S. Office of Personnel Management, Aug. 10, 2011.
2) Ibid.
3) Ibid.