ACA’s Alice in Wonderland Twist: HHS Unilateral Delay of Regulations

A recent decision by HHS illustrates the arbitrary nature by which some implementation decisions are being made at CMS while highlighting the problem of a top-down approach in Obamacare. After months of small businesses anxiety in surrounding the impact of fewer rating factors due to an ACA mandated one-size-fits all policy, the Federal government recently pulled a piecemeal delayed implementation of the regulations out of thin air. (Background on the rating issue can be found in this post). One is now left to wonder if there is a legal rationale for such a decision, and begs the question if other states should be making similar appeals to HHS to forestall regulations that will spike premiums for many younger individuals 30-100 percent.

Delay

Jason Millman and Kyle Cheney at Politico had the story first:

Federal health officials on Friday granted Massachusetts a phase-in for certain ACA rules that the state warned would have inflicted serious damage to small businesses because of a conflict with state’s 2006 health care overhaul….

The temporary relief, explained in a letter CCIIO Director Gary Cohen sent to Massachusetts officials Friday, allows the state to phase out its insurance rating system for small businesses over three years. Bay State officials and business groups had warned Obama administration officials that switching immediately to ACA rules would have meant serious rate shock in 2014.

Takeaways

1)      Romneycare and Obamacare are Not the Same Law

The decision by the Obama Administration to phase-in the rating factors in Massachusetts should make one point very clear; the ACA will cause insurance premiums for small businesses to spike in the state– so much for the claims that the two laws are the same.

The only difference now is that the premium shock will be seen over three years instead of one. This is like telling an innocent man that his life-sentence in prison will be delayed over 3 years, with him spending a little more time in prison each year. I’m not sure if this makes the end result any easier to swallow.

Commissioner of Insurance, Joe Murphy, seems to miss the point in his related statement on the decision, “This is good news for small businesses and individual insurance consumers all across the commonwealth.”

How?

Is it because they won’t see the whole state predicted “extreme premium increase” next year, but will end up paying the full amount in three years off the highest premium base in the nation?

Pioneer Institute has put in a Freedom of Information Act request to see drafts of the report. The state has failed to respond within the required 10 working day time table, so the estimated impact of the changes remain unknown. However, the Division has informed sources that premiums could raise by 17 percent.

2)      Danger of One-Size-Fits-All Approach

Massachusetts is not the only state that finds itself in the position of trying to protect a pre-existing state regulations or programs from Obamacare.

Governor Mark Dayton (D-MN) is trying to protect a program called MinnesotaCare for 100,000 low-income residents. (Kevin Diaz at Star Tribune had the story.) The federal law would also kill off a well functioning state-high risk pool called the Comprehensive Health Association. Reporter Christopher Snowbeck contends is “one of the reasons that Minnesota traditionally has had one of the nation’s lowest rates of residents who lack health insurance.” State officials worry that dumping these high risk individuals into the exchange will cause premiums to spike for everyone.

The state of Idaho may lose its cost-effective and successful reinsurance system, which was most recently copied by Maine in the form of its Guaranteed Access Plan (GAP). (See paper by Tarren Bragdon and Joel Allumbaugh for more detail.) So much for state flexibly and tailored reform approaches.

3)      HHS is Inventing Implementation Decisions

In an April 5th letter from Gary Cohen from CCIIO to the Massachusetts Commissioner of Insurance, CMS concocts a phase-in schedule. He writes:

The Affordable Care Act makes clear that Congress had significant interest in promoting stability for states that, like Massachusetts, had implemented robust Exchanges and were succeeding in providing health insurance coverage for their residents prior to the enactment of the law. Specifically, in section 1321(e) of the law Congress created a presumption in favor of the ongoing operational processes of such existing Exchanges. The law created a transition period for those Exchanges to come into compliance with the standards of the Affordable Care Act.

While the rating requirements of section 2701 of the Public Health Service Act are not among the Exchange standards that are described in section 1321(e) of the Affordable Care Act, there is a relationship between those requirements and the operational concerns that Congress envisioned when it enacted section 1321(e). For this reason, we have concluded that it is appropriate to afford issuers in Massachusetts a three year transition period instead of coming into full and immediate compliance with the rating requirements at issue.

Putting aside the fact that section 1321 (e) was not a “transition” period at all, but instead an assumption of compliance for states with an exchange, Mr. Cohen acknowledges that this issue is not addressed in the ACA. His rationale of rating factors being primarily related to exchange operations is weak at best. Rating factor impacts will fall almost exclusively on small companies outside of the exchange, and doesn’t impact the operational nature of the public exchange. The HHS letter makes it clear the agency lacks a concrete legal standing for such a decision.

One is left to wonder why other states can’t make an equally valid claim in order to meet the spirit of the ACA language to preserve the “right to maintain existing coverage” or offer “affordable choices of health benefit plans.” Evidence suggest they too will need a delayed phase-in as well.

 Other States Should Request Similar Delays

The National Association of Insurance Commissioners (NAIC) recently circulated a draft report (found on page 61) entitled “Rate Increase Mitigation Strategies” to help promote strategies for states to shield citizens from rate hikes. This decision by HHS should embolden other states to push back strongly with this letter as a justification for a delay in their state.

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