Following Idaho’s recent insurance bulletin allowing the sale of non-ACA-compliant products, the first issuer has waded into the murky waters of the new “state-based” health plans. On Tuesday, Blue Cross of Idaho announced that it has filed five new products with the Idaho Department of Insurance. The “Freedom Blue” plans violate a number of the Affordable Care Act’s (ACA) requirements, with premiums that vary by health status, an annual benefit limit, waiting periods for preexisting conditions, and out-of-pocket maximums beyond what is allowed under federal law. The Freedom Blue plans also fail to cover all ten Essential Health Benefit (EHB) categories.

Blue Cross of Idaho argues that the ACA affirms the regulatory authority of states, and Idaho’s guidance gives them the green light to flout federal law. But the ACA did not write states a blank check; the law created a set of federal minimum standards and consumer protections to ensure widespread reform. States can enact rules that are more protective of the federal standards, but not less. And while states remain the primary regulators of insurance, under the U.S. Constitution’s supremacy clause, state standards, such as Idaho’s, that conflict with the ACA are preempted. Despite the Trump administration’s dissatisfaction with the ACA, the law remains in effect, and the Department of Health and Human Services (HHS) is responsible for enforcing federal law when states are not in compliance.

But will HHS uphold the law? Fifteen consumer advocacy groups have now sent a letter to HHS Secretary Azar, outlining concerns over the legality of Idaho’s bulletin and the impact the noncompliant plans could have on the market and ultimately consumers. The groups urge Secretary Azar to step in and enforce federal law in the face of Idaho’s refusal to do so, further noting that “any insurer that issues such plans risks enforcement action and serious penalties.” Secretary Azar, in testimony before Congress about the Idaho plans said, “There are rules, and there’s a rule of law that we need to enforce.” However, he has since stated that he will wait to see if Idaho’s Department of Insurance will approve the Blue Cross policies before deciding whether federal action is needed, claiming that he “can’t take enforcement action based on press reports.” But Secretary Azar either doesn’t know is own authority, or he’s kicking the can. Because federal rules explicitly allow HHS to take action based on press reports.

Federal Authority to Enforce the ACA in States

This tug of war between states’ rights and federal supremacy is nothing new in the health care landscape. When the ACA established federal standards for health insurance to ensure comprehensive and affordable coverage, states became responsible for enforcing those standards. The vast majority of states fulfilled this duty, but federal rules provide that, in the event that a state is unable or unwilling to enforce the law, HHS’ Centers for Medicare and Medicaid Services (CMS) must step in. Currently, CMS is directly enforcing the ACA in four states: Missouri, Oklahoma, Texas, and Wyoming. These states are required to hand over all form and rate review to CMS, and the federal agency is charged with ensuring compliance with the ACA’s market rules in lieu of state oversight.

CMS is responsible for enforcing the ACA in cases where a state notifies them that it is not doing so, or CMS determines that a state is “failing to substantially enforce” the individual market reforms of the ACA or other federal insurance rules. They agency has the authority to make this determination based on a number of sources, including a complaint they receive or a news story. The process that ensues involves verification that a state has exhausted available remedies, a notice to state officials that gives them 30 days to respond (with the option to extend the response period if a state takes action to address enforcement). If after the response period the state has not convinced CMS that it is substantially enforcing federal law, CMS may make a preliminary determination of the state’s failure to enforce. Eventually, after providing states a “reasonable opportunity” to correct the failure, the rules provide for CMS to send a final notice with the effective date of the federal agency’s direct enforcement.

Federal Authority to Enforce the ACA Among Insurers

Ultimately, the responsibility to comply with federal law rests with insurers, and it is they who are legally – and financially – liable for violations. Investigation of a potential violation may be initiated based on complaints, reports from state insurance departments or the National Association of Insurance Commissioners (NAIC), as well as other federal and state agencies. After a notice process similar to the one used when states fail to enforce federal market rules, without sufficient evidence that a health plan provides to prove that it is in compliance with federal law, CMS may initiate a market conduct examination to make a final determination. If the insurer is found to violate the federal insurance rules , CMS may impose a penalty of up to $100 per day per violation, per member. Insurers may also open themselves up to lawsuits if consumers purchase a noncompliant plan only to find out that it does not cover ACA-mandated benefits that they need.

Looking Ahead

Blue Cross of Idaho is one of five companies offering health insurance on the Idaho individual market. While other companies have expressed a reluctance to sell products that don’t comply with federal law, one market player testing the waters could entice others to follow suit. The state DOI, acting pursuant to the Governor’s executive order, will likely approve the five “Freedom Blue” plans, which Blue Cross of Idaho hopes to begin selling as early as March. Besides the threat these plans pose to individual market stability, there is a clear legal argument against offering products that do not comply with the ACA’s market rules. Only time will tell if Secretary Azar will intervene, but the authority and responsibility of CMS to enforce federal law when states fail to step up is clear.