Legal risks loom over Idaho's alternative state-based health plans

Idaho’s top insurance regulator has proposed allowing health insurers to sell plans that do not meet federal benefit requirements, creating a legal gray area that could undermine the state’s effort to coax insurers back to its market.

A directive from Idaho Gov. C. L. “Butch” Otter, a Republican, to bring the state’s rising health insurance premiums under control spurred the idea. Under Insurance Director Dean Cameron’s proposal, insurers could offer plans that give consumers lesser coverage for the minimum set of benefits defined by the Affordable Care Act.

By inviting insurers to offer plans that do not conform to federal standards, the state may be violating the law, Georgetown University professor and health policy lawyer Sabrina Corlette said in an interview.

The ACA requires all health plans, whether sold on or off exchanges, to be based on benchmark plans that include 10 essential health benefits. However, state regulators allow insurers to make some changes to the benefit coverage as long as a plan ultimately covers the same percentage of costs for those benefits. That percentage, called the “actuarial value” of a plan, is missing from Idaho’s proposal, Corlette explained. Without an actuarial value requirement, the new state-based plans could technically include the essential benefits but give customers a far smaller benefit than an actuarial value clause would require.

The state's rules, if adopted, would be a "blatant violation" of the U.S. Constitution because federal law is meant to override state law when they conflict, Corlette said.

"There's a lot of room here for insurers to use benefit design to cut their costs and to also make these policies not attractive to anyone with a pre-existing condition," she said.

Corlette highlighted the provision covering maternity benefits as an example. The bulletin outlining Idaho’s plans states that maternity and newborn care must be included in state-based plans. But the degree to which that care will be covered can vary widely among different plans, leaving consumers who need that coverage to choose between very high premiums or inexpensive plans with lesser coverage.

Weston Trexler, a bureau chief for Idaho's insurance department, said in an interview that the proposal does not intend to replace ACA-compliant plans, but instead offer alternatives for consumers who are finding premiums too high to manage. Idahoans have pressured the state government to help alleviate the higher costs they face, he said. In October 2017, the department approved an average 27% rate increase for individual ACA plans offered on Idaho’s exchange.

The state will still enforce federal rules governing plans sold on the state’s exchange, he said.

"The department believes it can offer these plans," Trexler said in response to questions about legal risks. "They're not meant to reduce any kind of ACA protections on the market. It's just an alternative plan."

Trexler also said the proposal was motivated in part by insurers considering whether to withdraw from the state’s ACA marketplace if uncertainty there persists. The state currently has four insurers offering plans in its market: Mountain Health CO-OP, SelectHealth Inc., PacificSource Community Health Plans and Blue Cross of Idaho Health Service Inc.

Throughout 2017, insurers pulled their participation state by state or requested substantial rate increases to keep the markets profitable. And insurers are “not in a hurry” to re-enter markets they have departed, Jefferies equity analyst David Windley said in an interview.

The ACA was designed to require all taxpayers to purchase insurance so insurers could balance premiums and claims from consumers who frequently file claims and those who do not. Observers warned that that trend could worsen following the weakening of the ACA’s individual mandate in the Tax Cuts and Jobs Act.

In Idaho, insurers are likely viewing the state’s proposal with long-term caution, as a future administration could reverse any rules and retroactively enforce federal law, Corlette said.

For the near future, though, the state’s proposal will probably stand if it is adopted. The Centers for Medicare and Medicaid Services, the federal regulator that oversees ACA rules and health insurance markets, is unlikely to contest Idaho’s proposal, given the deregulatory stance of President Donald Trump’s administration. Congressional Republicans and Trump have made many attempts to dismantle the ACA.

“There are questions about the extent to which this administration will be willing to enforce the law," Corlette said. "We just don't have the answer to that."