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April 25
10:14 2019

Public Policy Analysis & Opinion

By Kevin P. Hennosy


State regulators take up the torch of health insurance carriers

The National Association of Insurance Commissioners (NAIC) issued a comment letter on behalf of state insurance regulators in response to the Trump administration’s continuing efforts to use regulatory policy to undermine the healthcare reform legislation passed during the Obama administration.

While the NAIC comments formally represent insurance regulators, they also disclose the association’s effort to protect federal government payments to insurance carriers.

How would Schoolhouse Rock! explain this twist in American public policy?

Even with large majorities in Congress in the first two years of his administration, President Trump failed to repeal the Affordable Care Act (ACA).With control of the House of Representatives passing to Democrats, repeal is no longer a viable goal.

Now the administration seeks to hamper the implementation of the law through rulemaking.

In January of this year, when the administration issued a notice of proposed rulemaking for the calendar year 2020, it appears that state insurance regulators called basta! Enough!

Heritage’s heritage

In general, the ACA remains about as popular as root canals in the world of insurance producers; however, some health insurance carriers welcome the revenue from mandated purchases and subsidized premiums.

Members of Congress worked with lobbyists for carriers to construct that patron-client relationship as a defense of the ACA. Even if carrier executives hated the concept of a federal healthcare law, they sure liked what the compelled revenue did for their financial reports and stock prices.

The Obama administration’s approach sought to preserve health insurance as a viable private sector product. The ACA’s drafters borrowed from a plan concocted by The Heritage Foundation, a conservative think tank. That model included a mandate for every American to buy insurance or qualify for it through a group.

To foster fair competition for private health insurance policies, drafters established four categories of content-based benefit plans. The categories were named bronze, silver, gold, and platinum. The bronze plans contained the fewest benefits but offered the lowest monthly premium, and the platinum plans offered the most benefits at the highest cost. Consumers could make an informed purchase decision on an “apples to apples” basis across companies that offered products on the health insurance exchanges.

The ACA established policy content standards to ensure that policies transferred the risk of financial loss incurred by accessing medical care—to ensure that policies were real insurance and not some sham product that carried the word “insurance” on a cover page. An insurance mechanism spreads risk rather than sharing costs.

The ACA provision addresses the “bait and switch” or “disappearing coverage” nature of “cost- sharing mechanisms.” These policy provisions that increased consumers’ out-of-pocket spending became common in the late 1970s. Defenders of deductibles, copayments, and coinsurance argue that the out-of-pocket spending requirement prevents “overuse” of healthcare services and products.

Policyholders came to hate this requirement. A common complaint was: “Insurance premiums come out of my paycheck, then I pay again when I go to the doctor.” Policyholders felt defrauded. Where carriers saw a brake on consumers’ overuse of the healthcare system, consumers felt like they paid twice for healthcare. Something had to give.

The ACA drafters tried to give consumers a path to coverage without cost sharing. The act contained prohibitions and disincentives for the use of out-of-pocket spending or “cost sharing.” This effort focused on Silver plans, which were designed to attract middle- and low-income consumers. Provisions of the law reimbursed insurance carriers for not including cost-sharing mechanisms in Silver plans.

Of course, the individual mandate concept breaks down with the recognition that the population of healthcare consumers includes poor people—or even not-so-poor people—who cannot afford to buy insurance. The folks at The Heritage Foundation probably did not know many poor people, so how could they understand their challenges?

The ACA drafters tried to respond to this reality. First, the act expanded Medicaid, the state and federal partnership that funds healthcare for poor people and provides federal money to the states to fund Medicaid expansion. (The Supreme Court later ruled that states had to expressly accept or reject Medicaid expansion.) The statute also provided individual tax credits—in most cases paid directly to insurance carriers—to subsidize insurance sales to low- and middle-income people. Further, the statute provided for cost sharing reduction (CSR) reimbursements to prevent the use of deductibles, copayments, and coinsurance to impede consumers’ access to medical care.


The ACA framework resulted in a material increase in the number of Americans buying insurance from private sector insurance companies—just as The Heritage Foundation said its proposal would work. Well, sort of like that. Anyway, health insurance carriers and their stockholders—if not their agents and brokers—began to make money.

Then an administration came to power that everyone expected would be unabashedly pro-business but later issued regulations that cost insurance carriers money. What happened to the Trump administration’s “pro-business” stand?

As noted above, the administration and Senate Majority Leader Mitch McConnell failed to repeal the ACA in 2017 and 2018. Concurrent with those unsuccessful efforts, Trump administration appointees began to change the program in ways that made it less responsive and less efficient.

In 2017 the administration ignored the statutory requirement to provide sliding value tax credits to subsidize the four categories of policies. The administration’s legally dubious position did nothing to change the statute, but it undermined the statute’s implementation.

One might speculate that the strategy seeks to introduce just enough chaos into the health insurance market to ignite a political backlash. If so, it is also causing a backlash in quarters that generally support the administration: health insurance carriers. Well, health insurance carriers as represented by the NAIC.

The NAIC comment letter begins by chiding the administration for announcing proposed federal rules for calendar 2020 in late January 2019. “State regulators are concerned about the timing of this proposed Notice and hope in future years it will be published much earlier,” said the NAIC.

Playing along with the charade that administration officials might want to make things easier on American business, this section of the NAIC letter focused on the needs of insurance carriers.

“For carriers to fully weigh their options and develop plans and rates, they need to know the rules under which they will be operating. With the proposed Notice published in late January, and likely not finalized for another 60 days, carriers and state regulators will be forced to work quickly to prepare and review plans for 2020,” according to the NAIC.

My good friends at NAIC maintained decorum and politely explained: “We encourage the Administration to publish the proposed Notice for 2021 by the end of November and then provide a longer comment period to ensure a better regulatory environment.”

Silver loading

The NAIC comment letter again takes up the cause of carriers when it challenges proposed Trump administration policy in rational terms. The NAIC explains that “the requirement that issuers reduce cost sharing for lower-income enrollees remains in place even though the issuers are no longer reimbursed for the cost-sharing reductions they provide.

“The loss of CSR reimbursements threatened the exchange markets with immediate destabilization, which would have resulted in a loss of coverage options and increased premiums,” wrote the NAIC.

At this point, one can picture some federal political appointee mumbling, “That was the point, nitwits … Nothing to see here; move along!”

Then, with all the earnestness of Rebecca of Sunnybrook Farm, the NAIC letter explains how state officials have managed to work around the administration’s efforts to cause the ACA to collapse.

“Through the use of actuarial loading, states were able to instead stabilize their markets and preserve the coverage options available to subsidized enrollees, preventing substantial increases in the premiums for bronze and gold plans that bear no relationship to the actual cost of coverage,” explains the NAIC.

The letter continues in the same innocent voice, which is probably enough to generate a claim against the Federal Employees Health Benefits Program. The letter addresses issues in addition to Silver loading, such as exchange user fees, mid-year changes to drug formularies, drug costs and out-of-pocket maximums, navigators and outreach, and a request to reduce risk adjustment transfers in the Alabama small group market. The whole comment letter is available at the NAIC website.

Time and again, the NAIC letter addressed proposed changes to federal regulations that are clearly designed to undermine or destroy the ACA framework. In response to these efforts, the NAIC offers recommendations to “save” the administration from making a terrible mistake that will damage the system, including financial harm to insurance carriers.

How would Schoolhouse Rock! explain this twist in American public policy?

The author

Kevin Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nationwide Insurance Cos. and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.

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