Posted on 23 Mar 2010
With attorneys general from several states threatening to challenge the federal government's newly-enacted health reform efforts, the association representing state insurance regulators says it will proceed as if the new guidelines are law.
With President Barack Obama signing into law sweeping health care reforms, the National Association of Insurance Commissioners said it plans to do the work assigned to it under new federal guidelines.
"We’ll assume this will become law and any constitutional challenge won’t be effective," said Kansas Insurance Commissioner Sandy Praeger. “We have more to lose by not being ready than by waiting and seeing. We’ll move ahead.”
Praeger and other NAIC officials held a conference call hours after attorney generals in states including Virginia, Texas and Nebraska said they plan to challenge several aspects of health reform, most notably an individual mandate to secure health insurance for every American.
Mandate fine ‘an inadequate penalty’
Kim Holland, Oklahoma’s insurance commissioner, said one of the NAIC’s “principal concerns” regards the penalty proposed for those who do not secure health coverage.
Under the bill, beginning in 2014, those who do not secure coverage will pay an annual penalty of either $695 per person or 2.5% of household income, whichever is the larger amount. Exemptions are proposed for financial hardship and religious objections, the bill states.
Some, the NAIC believe, could pass up paying an annual health insurance premium that is more expensive than the penalty they face.
Calling the fine on those who do not comply with the individual mandate “an inadequate penalty to enforce the mandate in any meaningful way,” Holland said the result is not quite what the bill has in mind.
“As a consequence …what you end up with is those motivated buyers, which are typically and more frequently those who have an illness purchasing coverage and the ‘young invincibles,’ which we struggle with getting insured today, are not motivated enough to buy.”
She added that there is “general agreement” by many in the industry that the reforms outlined by Washington, D.C., “will actually raise premium costs.
“Whereas the subsidies and incentives …may reduce the out-of-pocket costs, it doesn’t mean the insurance costs are less,” she said. “In fact, it would be substantially more. In the absence of addressing underlying costs, there is concern among many the cost of this bill will balloon to [something] much larger then expected and what they are predicting.”
Praeger added that the “weak enforcement mechanism” regarding the individual mandate “will drive younger folks out of the marketplace.
“We lose one of the advantages [of the bill], which is getting more people insured and spreading the risk among a much larger pool,” she said.
Working on new standards
Holland, who also serves as the NAIC’s secretary-treasurer, said that throughout the more than a year of health reform debate, the national association “worked hard to be sure we have a seat at the table.
“We are going to assert that position because regulators need to have a voice, not only in terms of we are the regulatory experts but also to represent our states,” she said.
Under the reform measure passed by the U.S. House March 21, the NAIC is to compile national standards on medical loss ratios to the U.S. Department of Health and Human Services (HHS), according to Praeger. The bill, she said, requires health plans to report the proportion of premium dollars spent on medical services and other costs and provide rebates to consumers for the amount of premium spend on clinical services and quality less than 85% for large group plans and 80% in the individual and small group markets.
This requirement goes into effect for the plan year 2010 with the rebate provision set to take effect at the beginning of 2011.
“The bill calls for the NAIC to work with the HHS in a number of different areas, in terms of developing a process and standards for some of the provisions, so the presumption is, at this point, is that states would be involved on the enforcement side,” Holland said. “Those are still in development.”