Insurance Commissioners: Health Reform Will Not Limit State Oversight

Executives with the National Association of Insurance Commissioners say they're pleased that the healthcare reform package President Obama is expected to sign into law today retains states' oversight for their own insurance markets.

"We believe state insurance regulators are best equipped to educate consumers, field complaints, and regulate insurers," NAIC President Jane L. Cline, who is West Virginia insurance commissioner, told reporters at a media availability Monday afternoon. "So, we are pleased that the federal legislation preserves that role and does not create a federal commissioner shifting oversight to Washington, D.C."

Kansas Insurance Commissioner Sandy Praeger, chair of the NAIC Health Insurance and Managed Care Committee, said the provision to create multistate compacts by 2016 that would allow consumers to purchase insurance across state lines is workable "as long as states come together and agree on what the rules will be for those interstate sales via a compact."

"Consumers are still protected and the markets in those states would still be protected because they would be playing by the same rules. Selling across state lines absent a compact could destabilize the market," Praeger says.

Even though the compacts would be well-regulated, Oklahoma Insurance Commissioner Kim Holland, the NAIC secretary-treasurer, said she's not sure how many states would be willing to compromise on their health insurance benefits structures.

"It is likely that there won't be many of these compacts formed because you are going to have to harmonize the benefits structure and the products," Holland said.

"What we are talking about are mandates for coverage. Those are developed through the legislative process within a jurisdiction that is driven by consumer interest and a response by legislatures and it is difficult to pass them," Holland said. "The idea that a state would just give up the legislation that has been passed based on consumer need and interest and legislature response seems remote to me."

Cline said states share about 200 interstate compacts on a wide range of issues, but that health insurance creates a new set of challenges. "The difference here is you are dealing with an insurance product that is about providing healthcare, and healthcare delivery systems are generally local. It makes it a little more tricky," Cline says.

Under reform, Holland said the federal government would establish a "floor" for benefits within a compact, and that states could fashion there own benefit levels.

"Conceivably you could have states that have over time added numerous mandates to the scope of their benefits that might be interested in offering an alternative to consumers in their state that were lower cost, and agree that some other options with fewer of those mandates be available, and that could be done through the compact," she said.

As far as regulating medical loss ratio within the compact, the commissioners said that would almost assuredly remain within the purview of each individual state. "Otherwise, you could game that system easily," Praeger said.

The commissioners also expressed concerns that the three-to-one rating bands in the bill for the "young invincibles" might be too restrictive, and drive those young healthy adults out of coverage. The commissioners say the penalties for ignoring the insurance mandate of up to 2.5% of annual income would still be cheaper than the cost of health insurance coverage.

"That has been one of our principal concerns, that there is an inadequate penalty to enforce the mandate in a meaningful way," Holland said, adding without a proper penalty "motivated buyers," such as those with an illness, would buy coverage, while the "young invincibles" would rather pay a small penalty.

With the passage of the bill in Congress, Republican opponents have vowed to take their fight to the state level. Attorneys general in three states have already vowed to challenge the constitutionality of the individual insurance mandate. The commissioners said they are aware of the turmoil surrounding the bill, but that they will plan for implementation.

"The timeframes in some cases are narrow enough that we can't afford to let any time lapse. We will move ahead assuming this will become the law and that it won't meet any constitutional challenges that will be effective," Praeger said. "We have more to lose by not being ready than by waiting and seeing. We will move ahead."