Both proponents and skeptics of the new health insurance law have expressed a lot of anxiety about the possibility of uncontrolled rate hikes and price gouging in the absence of a public option. AHIP's argument that the provisional regulations do not require them to offer new plans insuring minors with preexisting conditions have further stoked these concerns, and as we face a possible law suit over the meaning of this law, many wonder whether the new regulations have any bite. At the moment, we may actually face considerable legal wrangling, but based on my reading of the new law, this appears largely due to the fact that Secretary Sebelius lacks the regulatory power offered by the health insurance exchanges.
The exchanges are the new health insurance "market places" that will be established and administered by the states. Plans offered in the exchange will have to abide by federal guidelines set forth in the new law, and about 10-15% Americans will be required to purchase a plan offered through an exchange or face a 2.5% tax penalty.
Insurer participation in the exchange, however, is not a guaranteed right. Insurers will not be able to check a few boxes on a form and put their plan for sale on the new marketplace. The Secretary of Health and Human Services is given considerable discretion in extending qualification to proposed plans. The law, in fact, gives the Secretary general authority to "establish criteria for the certification of health plans as qualified health plans." At a minimum, these criteria include compliance with regulations regarding preexisting conditions, recission, rate discrimination, and the employment of tactics to discourage enrollment. It is the authority of the Secretary to determine whether an insurer's administration of a plan meets the criteria. If the plan does not, it can be removed from the exchange. Once removed from the exchange, the plan will no longer satisfy the individual mandate.
But what about abusive rate hikes? While it's true that exchange does not grant the power to actively block rate hikes, the law does permit taking the unjustified hikes to be taken into consider when determining whether to extend qualification to a health plan:
(2) PREMIUM CONSIDERATIONS- The Exchange shall require health plans seeking certification as qualified health plans to submit a justification for any premium increase prior to implementation of the increase. Such plans shall prominently post such information on their websites. The Exchange may take this information, and the information and the recommendations provided to the Exchange by the State under section 2794(b)(1) of the Public Health Service Act (relating to patterns or practices of excessive or unjustified premium increases), into consideration when determining whether to make such health plan available through the Exchange. The Exchange shall take into account any excess of premium growth outside the Exchange as compared to the rate of such growth inside the Exchange, including information reported by the States.
Basically, unjustified rate hikes can get an insurer kicked out of the exchange, and while the anti-trust repeal is notably absent from the bill, state exchanges can respond to rampant rate hikes and price-fixing by effectively disqualifying plans and dumping everyone into the non-profit "Deancare 2.0" plans that will be offered through the Office of Personnel Management. It is inevitable that insurers will attempt to test their limits in this regard, but such limits will be in place.
Now, it also is true that the use of individual state exchanges instead of a single national exchange means regulatory enforcement will be greatly decentralized. Does this mean insurance lobbyists are free to influence state insurance regulators to ignore their powers with impunity? While there is obviously good reason to believe this will happen to some extent, there are enforcement mechanisms that target state exchange administrators as well. For one, they have to abide by the criteria established by the Secretary of Health and Human Services, and if they fail to do so, HHS is given general authority to move in and do their job for them:
(c) Failure To Establish Exchange or Implement Requirements-
(1) IN GENERAL- If-
(A) a State is not an electing State under subsection (b); or
(B) the Secretary determines, on or before January 1, 2013, that an electing State-
(i) will not have any required Exchange operational by January 1, 2014; or
(ii) has not taken the actions the Secretary determines necessary to implement-
(I) the other requirements set forth in the standards under subsection (a); or
(II) the requirements set forth in subtitles A and C and the amendments made by such subtitles;
the Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State and the Secretary shall take such actions as are necessary to implement such other requirements.
Obviously, the new law isn't perfect. Like any regulatory system, it will require responsible and ethical individuals in the executive branch, but it is hardly fertile ground for rampant abuse either. The power granted to HHS also explains why insurers continued to oppose health care reform despite the absence of a public option. They wanted people mandated to purchase a standardized health insurance plan, but they did not want the federal government serving as an active and flexible gatekeeper. To the Democrats' credit, the new law gives us that.