Wednesday, August 06, 2014

The ACA preserved state regulation of health insurance

Yesterday I noted that the state-vs.-federal exchange debate within the Democratic party in early 2010 was focused primarily on which level of government would regulate insurance -- and not, as Halbig proponents are suggesting, on whether the "backstop" federal exchange created by the Senate bill would be enabled to issue tax credits.

Both before and after the Scott Brown earthquake, the question was how the Senate and House bills would be reconciled. The House bill created a federal exchange, with an opt-out for states that wanted to create their own. The Senate bill stipulated that states would establish their own exchanges, with an opt-out for those that chose to cede the function to the federal government.

As it turned out, the reconciliation bill that tacked House modifications on the Senate bill did not substantially alter the Senate bill's state exchange structure -- though it did, by the way, include a tax reporting provision that referred directly to tax credits allocated by the federal exchange, a provision that should lay to rest the Halbig contention that ACA tax provisions preclude the federal exchange allocating tax credits.  And although the federal government did end up running most of the state exchanges, in the sense of running the website processing citizens' applications, regulation of insurance, within the broad coverage parameters set by the ACA, remained mainly in state hands.*

Evidence of that retained state control can be found in the varying steepness of 2015 health insurance premium increases in different states. Overall, the rate hikes are in line with or slightly below the increases of previous years. A heat map by PriceWaterhouseCooper indicates that states that ran their own exchanges, and so more actively oversaw the offerings approved for sale, were on balance subject to more moderate increases (Vermont is an exception). From the data that's come in so far (only about half of the states have so far reported wholly or partly on 2015 rates), Jonathan Cohn extracts an illustrative tale of two states:

Some of the best news so far has come from California, where officials last week announced that the average premium increase would be just 4.2 percent. That's a "weighted" average, which means that it takes account of how many people enroll in different kinds of plans...

But on the very next day, officials with Florida Blue, the Blue Cross affiliate in the Sunshine State, announced that they were raising rates on their plans by an average of 17.4 percent. Florida Blue isn't the only carrier in the state, but it is the largest. About one-third of all Floridians who bought individual coverage through Obamacare bought a Florida Blue policy...

Why the disparities? One likely factor is how diligently officials have worked on implementing the law. California’s were enthusiastic about Obamacare from the get-go. They created their own marketplace for buying insurance and adopted an “active purchaser” model, which means the marketplace’s managers can bargain aggressively with carriers to get low premiums. In addition, California regulators have long had the authority to review and reject insurance premium increases that seem excessive. (A new measure on the ballot would give them even more power; some experts think insurers bid low this year just to undermine support for the initiative.)

In Florida, by contrast, the Republicans in charge did very little to promote the law and, at times, seemed determined to undermine it. Never was this more clear than in 2013, when the legislature passed and Governor Rick Scott signed a bill that suspended state government's ability to reject excessive premium increases. Florida regulators had a reputation for vigilant oversight, so this may have been no small thing.
Continued state authority over health insurance markets was the chief concern of Senate federalists who pushed to make states the the default administrators of the exchanges. The irony is that the federal government has only taken over a limited number of functions to the extent that states have willfully ceded them.  Of course, some red states, like Florida, insist on state control precisely so that they can regulate with the lightest hand possible.

* Some states did default on some regulatory functions, for instance, on choosing an existing state plan that would be used to define Essential Health Benefits in that state. This chart (thanks to Kaiser's Larry Levitt) shows the states that defaulted on that selection.

The Halbig file
No, Ben Nelson didn't scuttle the ACA's federal exchange
Michael Cannon gives the game away
The ACA provision that should have killed Halbig

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