State Laws & Obamacare

Ready or not, Obamacare is coming. The problem is that many states may not be ready.

Less than a year away from the biggest changes the Patient Protection and Affordable Care Act (commonly know as Obamacare) will usher in, only 11 states and the District of Columbia have proactively prepared themselves, according to a new report by the Commonwealth Fund.

What Will Change in 2014

President Obama signed the Affordable Care Act into law in 2010, but a large chunk of the Act's provisions will go into effect on January 1, 2014.

The Commonwealth Fund report highlights what it considers the seven most critical 2014 market reforms:

  • Guaranteed Issue: This is perhaps the most essential piece of the Act. It requires that insurers accept every individual and employer that applies for coverage.
  • Ban on Employer Coverage Waiting Periods: When a new employee is hired, employers must provide insurance coverage for him or her within 90 days.
  • Rating Requirements: In the past, insurance companies typically used rating systems to set premiums. These took into account factors like a patient's health status and gender. This rating system is no longer allowed.
  • Ban on Excluding Those with Preexisting Conditions: Another big one. Insurers will no longer be able to exclude or limit coverage for people with preexisting health problems.
  • Essential Health Benefits: The ACA lays out a set of core health benefits that all insurers must provide, including, for example: emergency services, prescription drugs, pediatric care, lab services, mental health treatment, doctor’s visits, and outpatient services.
  • Out-of-Pocket Cost Limits: From now on, out-of-pocket maximums are limited to the level established for high-deductible health plans that qualify for health savings accounts (HSAs).
  • Actuarial Value: The ACA requires that all insurance plans cover a specific percentage of total costs. At minimum, this would be 60 percent of total costs. In addition, all plans must be sold in tiers based on average costs covered: Bronze (60 percent), Silver (70), Gold (80), and Platinum (90).

Why Won't States Get With the Program?

According to the report, the ACA sets out the minimum standards listed above for protecting consumers nation-wide, but ultimately, state governments must determine whether and how to enforce Obamacare.

Jay Angoff, former Director of the Office of Consumer Information and Insurance Oversight at the Department of Health and Human Services (HHS) confirmed, “states are not compelled to re-enact the provisions of the ACA.” Nevertheless, some states have. For example, according to the Commonwealth Fund Report:

  • Connecticut has passed legislation that addresses all seven of the new reforms.
  • California has passed legislation on six of the seven reforms.
  • Nine states—Arkansas, Maine, Maryland, New York, Oregon, Rhode Island, Utah, Vermont, and Washington—and the District of Columbia have passed laws or issued new regulations covering at least one of the seven new market reforms.

That leaves 39 delinquent states. The study suggests three reasons why states are not acting:

  1. States are waiting until closer to 2014 when the reforms become effective.
  2. There has been uncertainty surrounding the law, including a challenge to the law’s constitutionality and the possibility that the results of the 2012 elections may have changed the course of the law.
  3. States are waiting on key regulations from the federal government before taking action.

What the authors do not point out is that some states may simply not want to play nice with the federal government. “It’s no secret that some states are hostile to the law,” said Angoff.

What Happens if States Don’t Play Nice

According to Jessica Gustafson, Founding Partner at Health Law Partners, if you have a problem with your insurance provider today, your recourse is first to your provider and then to the state, which “oversees the insurance companies within its borders to ensure that they are complying with state laws.”

State governments have historically been the regulators of health insurance. Angoff states, “insurance has traditionally been the only major industry solely regulated at the state level—there is no federal insurance department.”

That changes with the passing of the ACA—but only slightly. Federal regulators—specifically, the HHS—now have the power to step in and enforce provisions of the ACA, but only if a state fails to “substantially” enforce it. The enforcement scheme, according to the Commonwealth Report, is vague. The authors worry that this, added to the variation in the way states are handling acting on the 2014 market reforms, may lead to what they call “enforcement gaps.”

Angoff disagrees. “The statute does give the HHS the authority to enforce the law in any state—it’s just that the HHS must first find that the state is not enforcing the law,” Angoff said. Once the HHS finds that the state is not enforcing the law, the federal regulator can levy a civil penalty of $100 for each violation. It doesn’t sound like much, but according to Angoff, it can add up quickly.

On the other hand, “the effectiveness of the enforcement of these laws will depend on resources,” noted Kathryn Hickner-Cruz, another partner at the Health Law. “States are so overburdened and struggling financially; I can’t imagine states putting resources towards enforcing these laws.” Angoff agreed, adding that the HHS budget is constantly threatened as well.

The good news is that no matter how cash-strapped our government is, individuals can take action themselves. “If the state and the HHS are not enforcing the law,” said Angoff, “the beauty of the system is that private parties can still go into court and vindicate their own rights.”

After 2014, if an insurance company attempts to withhold coverage for a preexisting condition (or violates any of the seven market reforms discussed earlier), you can take them to court, and you’ll likely win. It may not be the ideal situation, but it’s better than it was before, when insurance companies could simply deny coverage and leave you with no legal recourse.

But I Don’t Live in __________, What Happens to Me?

Thirty-nine states seems like a staggering number at first glance.

On the other hand, Gustafson noted that at least five additional states already have laws on the books that would enable them to require insurers to provide coverage in accordance with the ACA. “There are state regulators who have replied to the authors of this study stating that additional laws were not necessary to enforce federal law,” Gustafson said. So it may not be as bad as it seems.

Moreover, most experts seem confident that the majority of states will still take some action before 2014. After all, when it came to the ACA’s 2010 market reforms (including dependent coverage for adults under 26 and bans on lifetime limits on benefits), many states hemmed and hawed, but all eventually took action.

Hickner-Cruz believes that it is not a major issue. “It doesn’t shock me that states are slow to respond,” she said. “They were waiting on the elections to see if they needed to respond, and I think it takes time.”

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