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More Legal Issues Raised by Health Insurance Exchange Legislation

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The following is part of a memorandum on legal and policy issues raised by health insurance exchanges, which will be presented at the O’Neill Center’s Legal Issues in Health Care Reform conference on Monday, October 26. The full paper from which it is taken is available here.

In my last post, I discussed the constitutional issues raised by the insurance regulation provisions of health reform legislation pending in Congress. Although Congress is free to act as it chooses as long as it is within its constitutional authority and does not violate the rights created by the Constitution, it needs to also be conscious of two other legal issues.

First, Congress should take care to align the proposed legislation with existing laws to avoid confusion and conflict. The primary laws that may cause problems are the McCarran-Ferguson Act, the Employee Retirement Income Security Act of 1974 (ERISA), and the Health Insurance Portability and Accountability Act of 1996 (HIPAA). McCarran-Ferguson provides that federal statutes will not be presumed to preempt state insurance regulation “unless the law specifically relates to the business of insurance.” Each of these bills clearly and explicitly does, so this should not be a problem.

ERISA preempts state laws that “relate to” employee benefit plans, but specifically allows states to regulate insurers, but not self-insured plans. The Finance Committee bill states that ERISA continues to apply to group health plans, while the House bill, HR 3200, states that ERISA continues to apply outside of the exchanges. The Senate HELP bill excludes self-insured ERISA plans from its risk adjustment provisions and from several of the insurance reforms but does not otherwise address the continued application of ERISA.

The Senate versions of the reform legislation would seem to enhance the authority of the states over group health plans. Self-insured plans by definition do not participate in the exchanges, but other insurance reforms (no lifetime or annual limits or cost-sharing, for example) do apply to group plans generally and will be enforced through the states. To the extent that Congress delegates regulation of group health plans to the states through the exchanges, it must be clear as to how the new law relates to ERISA preemption.

HIPAA, provisions of which appear in the Public Health Act, ERISA, and the Internal Revenue Code, has been until now the primary federal law regulating insurance underwriting. The Senate HELP bill carefully integrates the new law into the existing requirements of HIPAA. HR 3200 and the Finance bill largely overwrite HIPAA without attempting to amend it section by section, although it presumably still applies to grandfathered plans. Better drafting here could save problems of interpretation down the line.

The second issue is how the reform legislation relates to state law. The states have traditionally been primarily responsible for regulating health insurance and the new legislation represents a massive shift in authority from the states to the federal government (although the Senate legislation largely redelegates authority to the states). The new federal legislation would preempt state law to the extent that it does so explicitly or that its terms conflict with state law. Each of the bills states that it is not intended to supersede state law except to the extent that state law is inconsistent with its terms. While it might be difficult for Congress to be more specific as to when the federal law preempts state law and when it does not, the history of ERISA preemption, where more than twenty Supreme Court decisions have not yet sorted out the scope of preemption, suggests that this issue will lead to future difficulties.

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  • fred tillman says:

    Normally I would not post a comment, but you’ve put together a nice post here and I wanted to say thank you.

  • 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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