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HR 3962, ERISA, HIPAA, McCarran-Ferguson, and State Law. How Does the Puzzle Fit Together?

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Congress is not writing on a clean slate in enacting health care financing reform legislation. We already have, of course, massive federal health care programs: Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP). Hundreds of pages of the bills Congress is considering are consumed by amendments to the statutes governing these programs. The legislation also amends other less well-known federal programs. About 350 pages of HR 3962 are concerned with health care programs for Native Americans. This is almost the same number of pages as are dedicated to the insurance reforms that most Americans believe to be the sum total of health reform.

Most of the debate regarding health care reform, however, has focused on the provisions of the bills dealing with health insurance reform. Here there are three major bodies of federal law involved, as well as a plethora of state laws. The major federal laws are the Employee Retirement Income Security Act of 1974 (ERISA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA), and the McCarran-Ferguson Act. This post examines the relationships among the reforms found in the recently released House bill, HR 3962, these three statutes, and state law.

HR 3962 conveniently includes an entire Subtitle, F—Relation to Other Requirements; Miscellaneous, in which many, although not all, of these issues are addressed. One of the more widely publicized provisions of this subtitle is section 262 “repealing” the McCarran-Ferguson antitrust exemption for the business of insurance. In fact, as noted in earlier posts by Mark Hall and Clark Havighurst, McCarran-Ferguson never really exempted the business of insurance from the antitrust laws, but rather held that the antitrust laws only applied to the extent that insurance was not regulated by state law. 15 U.S.C. § 1012. This exception is similar to, if not coextensive with, the general antitrust state action exemption and has mainly been used to protect various data collection and development activities. These activities are explicitly protected from antitrust scrutiny by section 262, which rather focuses on permitting antitrust enforcement with respect to price fixing, market allocation, monopolization, or attempted monopolization. But these activities were not protected by the McCarran-Ferguson act to being with. Understandably, the insurance companies are much more concerned with the potential public plan than they are with the purported McCarran-Ferguson repeal.

HR 3962 would not repeal section 2 of the McCarran-Ferguson Act, its “reverse preemption” provision, which states that no act of Congress shall be construed to supersede any state law regulating insurance unless the law specifically relates to the business of insurance. The reform law clearly the reform law relates to the business of insurance, however. If it is adopted, not much will be left of McCarran-Ferguson insofar as its purpose was to leave insurance regulation to the states.

HR 3962 would work a radical change in the law governing employee benefit plans, now largely the province of ERISA. The key regulatory term of HR 3962 is the “qualified health benefits plan” (QHBP). A QHBP is a “health benefits plan” that satisfies the insurance reform requirements of the statute. “Health benefits plan” is defined to include employment-based health plans. QHBP “offering entity” is defined to include group health plans, plan sponsors, and self-insured employers. The employer mandate requires employers to offer a QHBP, contribute towards the exchange for the purchase of employee coverage, or make a contribution in lieu of providing coverage. Employers must cover 72.5% of the premium of the lowest cost plan offered by the employer for individual or 65% for family coverage to comply with the mandate.

In other words, whereas ERISA previously allowed employers to offer any coverage the employer chose to offer, or none at all, HR 3962 requires employers to play or pay. If the employer chooses to play, it must offer a QHBP (except for grandfathered plans, which will phase out over a five year period after the health reforms become effective). Whereas ERISA has been largely a deregulatory statute, protecting employee-benefit plans from state regulation, HR 3962 would subject employee benefit plans to a host of federal regulatory requirements.

QHBPs (including ERISA plans) must meet the requirements imposed by Title II of the legislation, “Protections and Standards for Qualified Health Benefit Plans.” These include:

  • the insurance reform provisions (no preexisting condition exclusions, guaranteed issue and renewal, no rescissions except for fraud, compliance with rating rules, nondiscrimination in benefits, mental health and substance abuse parity, adequacy of provider networks, an option of extension of dependent coverage to age 26, and no changes in coverage or cost-sharing without 90 days notice);
  • coverage of essential benefits;
  • no cost sharing for preventive services
  • out-of-pocket limits of $5000 for an individual, $10,000 for a couple ( to be adjusted for inflation); and
  • coverage of a minimum actuarial value of 70% of a reference benefits package.

There are also additional rules on timely claims payment, coordination and subrogation of benefits, administrative simplification, and provision of information respecting advance directives that apply to all QHBPs.

QHBPs must also meet fair marketing, fair grievance and appeals, and plan disclosure and transparency requirements, but these requirements apply to plans outside the exchange (i.e. group benefit plans) only to the extent required by the Commissioner of Health Choices. Health insurance coverage not offered through the exchange must also comply with the HIPAA portability and accountability provisions found in the Public Health Services Act and in ERISA.

HR 3962 has a number of provisions that go into effect immediately (most of the bill does not go into effect until 2013). Some of these cover insurers that insure ERISA plans while some apply to ERISA plans themselves. Insurers that offer group health policies, for example, must under section 102 achieve at least an 85% medical loss ratio and are prohibited under section 103 from rescinding coverage absent clear and convincing evidence of fraud, subject to third-party external review. Section 105 requires group health plans and ERISA plans to make available dependent coverage for children up to 27 years of age. Section 106 shortens the HIPAA pre-existing condition look-back period from 6 months to 30 days and the exclusion period from 12 months to 3 months, while section 107 prohibits treating acts of domestic violence as a preexisting condition. Section 108 requires group health plans and ERISA plans to cover surgery for the congenital or developmental deformities of minor children. Section 109 eliminates lifetime limits in ERISA and group health plans, while section 110 prohibits postretirement reductions in retiree benefits if benefits are not also reduced for active employees. Finally, section 113 of the statute extends COBRA coverage until the permanent reforms go into effect in 2013.

While HR 3962 radically changes the law governing employee benefits law, ERISA’s deregulatory provisions are not totally abrogated. Section 251 of the statute continues the application of ERISA section 514 to preempt state laws as they relate to employee benefit plans outside of the exchange. Within the exchange, state law rights and remedies do not apply to employers or group health plans sponsors. Section 257 authorizes actions by state attorneys general to enforce the health reform law, but again not where it would be prohibited by section 514.

A number of other provisions of HR 3962 line out the relationship between federal and state regulators. The bill would create a new federal agency, the Health Choices Administration, headed by a Health Services Commissioner. At numerous places, the bill requires the federal Commissioner to coordinate with state regulators. Section 303 permits the states to require QHBPs offered through the exchange to offer benefits beyond those defined in the federal essential benefits package, but requires the states to cover the extra cost of such benefits for persons who receive affordability credits, which should sharply reduce the attractiveness of state benefit mandates. Section 308 provides the possibility of state-based exchanges to take the place of the national exchange. Section 238 prohibits QHBP’s from discriminating against providers in violation of state law. In sum, although HR 3962 creates an overarching federal framework for regulating health insurance and creates a new federal agency to assume primary responsibility, it also recognizes a significant continuing role for state regulators.

Finally, several other provisions of HR 3962 specify the relationship of the reform laws to other state and federal laws. Section 240, requiring QHBPs to disseminate information on advance directives, is not to be construed as preempting state law on assisted suicide or palliative care. Section 258 states that the reform laws do not preempt state or federal laws regarding abortion. And section 261 provides that guidelines and other standards developed under the statute should not be regarded as establishing malpractice standards of care.

In sum, if enacted into law HR 3962 would considerably shrink the discretion now enjoyed by employers and insurers under ERISA, would significantly expand the demands placed on insurers by HIPAA, would reduce but by no means eliminate the role of state insurance regulation, and might slightly reduce the antitrust immunity that now protects insurers

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The views reflected in this expert column are those of the individual authors and do not necessarily represent those of the O’Neill Institute for National and Global Health Law or Georgetown University. This blog is solely informational in nature, and not intended as a substitute for competent legal advice from a licensed and retained attorney in your state or country.

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