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More on Takings

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The individual mandate is not the only provision of the proposed health care reform legislation to raise takings clause issues. All of the bills currently marked up by the jurisdictional House and Senate committees include provision for the establishment of “exchanges” (called “gateways” in the Senate Health, Education, Labor, and Pensions (HELP) Committee bill), which would organize markets in which individuals could purchase health insurance. These exchanges would make available to individuals insurance plans that conformed to requirements established by the legislation and by the exchange. Under all committee bills, federal premium subsidies would only be available for policies purchased through the exchange. Under HR 3200, the House bill, insurance could not be sold to individuals except through the exchange (except for pre-existing grandfathered policies). Both the House bill and the HELP committee bill give the exchanges some discretion as to whether or not they will permit policies to be sold in the exchange, even if the policies comply with all requirements. The House bill, in fact, requires the exchanges to negotiate contracts with insurers before allowing them to market their policies through the exchange.

Suppose an insurer that is currently marketing policies in the nongroup market in a state applies to sell policies through the exchange. Its plans meet all of the relevant statutory and regulatory requirements, but the exchange rejects its application. Perhaps the exchange is not able to negotiate a deal with the insurer that it considers acceptable. Perhaps the exchange believes that it has contracts with enough insurers and that consumers will simply become confused it they are offered additional policies. (The Massachusetts connector, a state exchange, only offers policies from a half dozen insurers). The insurer is prohibited from selling policies in the nongroup market outside of the exchange. Has the insurer suffered a taking?

The government’s power to regulate insurers is long-standing and very broad, but not limitless. Although I am not aware of successful takings challenges brought by insurers against the federal government, some takings challenges against exceptionally restrictive insurance regulation have succeeded at the state level. I will explore this issue further in another post on legal issues affecting exchanges in the near future.

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