As instructed by Governor Butch Otter’s recent executive order, the Idaho department of insurance (DOI) has published standards for new, “state-based” health plans that are exempt from many of the Affordable Care Act (ACA) protections for people with pre-existing conditions. The state’s goal appears to be to provide a cheaper alternative to Idahoans than ACA-compliant plans. They do so primarily by allowing state-based plans to offer skimpier benefit packages, limit annual benefits, and charge higher premiums to older, sicker individuals. However, the state’s action is likely illegal. If these plans are marketed and sold, they are likely to result in higher premiums for ACA-compliant plans and expose consumers who enroll in state-based plans to greater financial risk.
What are Idaho’s new “state-based” health plans?
Idaho’s DOI has, through agency guidance, invited individual market insurers to develop and market new, “state-based” health plans (SBPs). To sell these plans, insurers would have to:
- Sell ACA-compliant plans on the Idaho health insurance marketplace (exchange). Idaho is one of just 17 states that run their own exchange;
- Include SBPs and exchange plans together in a single risk pool for rating purposes;
- Submit the new SBPs to the DOI for review, and
- Inform consumers that the plan is not compliant with federal health insurance requirements.
SBPs would be exempt from many ACA rules and standards, including essential health benefit (EHB) standards, restrictions on health status, age, and gender rating, and requirements to cover care for pre-existing conditions. See Table. While the DOI guidance lays out some coverage requirements, insurers have significant flexibility to decide what to cover. For example, while SBPs must cover prescription drugs, unlike exchange plans there is no requirement that they cover insulin, HIV/AIDS treatments, or treatments for bipolar disorder.
Table. Application of ACA Consumer Protections to Exchange and Idaho Individual Market State-based Health Plans
|ACA Market Reform||Description||Exchange Health Plan||Idaho State-based Health Plan|
|Guaranteed issue and renewability||Requires insurers to accept every individual that applies for coverage; policies must be renewable.||Yes||Yes|
|Pre-existing condition benefit exclusions||Prohibits insurers from imposing pre-existing condition exclusions with respect to plans or coverage.||Yes||No*|
|Essential health benefits||Requires coverage of a specified set of 10 benefit categories.||Yes||No**|
|Lifetime and annual limits||Prohibits insurers from imposing lifetime or annual dollar limits on benefits.||Yes||No***|
|Premium rating restrictions||Requires insurers to vary rates based solely on four factors: family composition, geographic area, age, and tobacco use; insurers may charge an older adult no more than three times the rate of a younger person.||Yes||No|
|Maximum out-of-pocket limit||Requires insurers to limit annual out-of-pocket costs, including copayments, coinsurance, and deductibles, to $7,350 for an individual and $14,700 for a family (in 2018; amount indexed annually to inflation).||Yes||No|
|Network adequacy||Requires insurers to maintain a network of providers to ensure that all services are accessible without unreasonable delay.||Yes||No|
|Actuarial value standards||Requires insurers to cover at least 60 percent of total costs under each plan; requires plans to meet one of four actuarial value tiers (bronze, silver, gold, or platinum) as a measure of the percentage of costs covered by the plan.||Yes||Not clear****|
|Risk adjustment program||Insurers that enroll a relatively larger share of high-risk enrollees receive payments from those insurers with a relatively low share of high-risk enrollees.||Yes||Not clear****|
|Medical loss-ratio standard||Limits how much premium revenue an insurer can devote to profits and administrative costs (20 percent in the individual market) compared to what they spend on patient care and quality improvement.||Yes||Not clear****|
*State-based plans may impose a pre-existing condition exclusion unless the enrollee can demonstrate continuous prior coverage.
**State-based plans must cover ambulatory services, hospitalization and ER services, mental health and substance use disorder services, prescription drugs, rehabilitative services, laboratory services, and preventive care services. However, coverage of items and services such as anesthesia, immunizations, imaging, habilitative care, pediatric oral and vision, and specialty drugs is optional. Insurers must offer at least one plan that covers maternity services, but there is no limit on the price they can charge for that benefit.
***Insurers are required to move state-based plan enrollees exceeding $1 million in annual claims to one of the insurer’s exchange plans.
****Idaho’s guidance is silent on whether state-based plans must comply with this ACA standard.
The guidance, which is effective immediately, raises legal questions as well as concerns about its impact on the stability of the individual insurance market and the consumers purchasing coverage there.
Idaho’s standards for state-based health plans likely preempted by federal law
The ACA requires all insurers in the individual health insurance market to adhere to a range of consumer protections and market standards. Thus, whether insurers are marketing exchange plans or “state-based plans” in the individual health insurance market, they must comply with the ACA rules that apply to the individual market. Idaho’s guidance exempting insurers from those rules conflicts with that requirement.
As a general rule, federal law provides that states are the primary regulators of health insurance. However, state standards or rules that conflict with or prevent the application of federal law, including the ACA, are preempted under the U.S. Constitution’s supremacy clause. In practice, this means that state laws that do not meet federal minimum standards are preempted. In the case of a state that refuses to comply with or enforce federal law, the U.S. Department of Health & Human Services (HHS) is required to step in and enforce the law. And indeed, HHS has been directly enforcing federal law in Texas, Wyoming, Missouri, and Oklahoma because these states have refused to enforce the ACA. In light of Idaho’s new guidance, HHS will likely soon be asked to step in and directly enforce the ACA in that state.
How will Idaho’s state-based plans impact the market and the consumers who buy in it?
There are significant legal and financial risks for insurers who might want to sell SBPs. First, by doing so they will be in violation of federal law. This exposes them to the risk of large federal fines (as much as $365,000 in potential fines per customer every year). These insurers also face the threat of private litigation for offering an essentially illegal product.
If insurers do decide to market these plans, they pose significant risks for consumers and the stability of the individual market. Insurers could charge older, sicker consumers premiums as much as 15 times that of a young, healthy person. Insurers can design skimpy benefit packages that don’t cover critical items or services for people with chronic diseases, leaving them exposed to high out-of-pocket costs. While young, healthy consumers may find these plans attractive, older, sicker ones will gravitate to ACA-compliant plans both on and off the exchanges. This adverse selection will result in higher premiums for ACA-compliant plans, rendering coverage unaffordable for many Idahoans who don’t qualify for the ACA’s premium tax subsidies and aren’t young or healthy enough to afford the state-based plans. Further, taxpayers will need to pick up the tab for the higher federal subsidies needed to pay for the more expensive exchange plans.
It’s far from clear that Idaho’s insurers are interested in offering these products, although one of the state’s Blue Cross Blue Shield companies has expressed some interest, with the CEO saying “…we believe the [DOI’s] direction will provide uninsured middle class families in Idaho with choices in health insurance at a price that fits their budget and meets their needs.” At the same time, it’s also far from clear whether the Trump administration will step in and enforce the law, given its longstanding opposition to the ACA. This could make insurers breathe a little easier about entering this market. It could also lead other states to follow in Idaho’s footsteps, further crippling the availability of affordable, adequate insurance coverage promised under the ACA.