What if State Law Doesn't Comply with the Affordable Care Act?

Nearly a dozen states haven't passed laws to conform their state code with the federal law's health insurance reforms.
by | January 16, 2013

As state legislative sessions kick off and the debate about the Affordable Care Act’s Medicaid expansion and health insurance exchanges intensifies, an unappreciated piece of state implementation of the law could be overlooked: changing state insurance regulations so they match up with the new federal reforms.

Now, most states have passed new statutes, called “conforming legislation” by insiders. They embed the federal law’s insurance reforms (letting kids stay on their parents’ insurance until age 26, forbidding the exclusion of people with preexisting conditions, settling dollar limits for out-of-pocket expenses, among others) into the state code. That way, state insurance commissioners -- which have traditionally regulated the health insurance industry -- have the authority to enforce state and federal laws.

But 11 states haven’t passed such legislation, according to an analysis of state laws provided to Governing by an industry group: Alaska, Arizona, Florida, Georgia, Michigan, Montana, New Mexico, Pennsylvania, South Carolina, Tennessee, Texas, West Virginia and Wyoming. It should be noted that existing state laws might conform to some of the ACA's provisions, but no statutes have been passed in those states since the federal law was signed by President Barack Obama in 2010.

It raises an interesting existential quagmire: if the state hasn’t statutorily recognized the ACA’s insurance reforms, do those new regulations exist in that state?

The simple answer is yes. According to the federal Centers for Medicare and Medicaid Services (CMS), the law gives CMS the authority to enforce the ACA’s reforms if states say they don’t have the authority to enforce them or refuse to do so. But in practice, it could be messy. States without conforming legislation could end up with dueling regulatory schemes: state officials will continue to enforce state insurance laws, while CMS will be watching for compliance with the ACA.

That’s not a desirable situation for anyone, state officials and policy experts say. Insurance companies might have to file rate reviews and other paperwork twice, once with the state and once with CMS. It would be easier if states adopted conforming legislation, they say, so state officials could perform their traditional role as insurance regulators.

“It wouldn't make it easier just for the commissioner or the industry, but also for the consumer,” says Monica Lindeen, Montana Insurance Commissioner and vice president of the National Association of Insurance Commissioners. “New federal laws are in place. If it's not in the state statute, then it's difficult for the insurance commissioner to enforce those laws. So if a consumer is being harmed in some way, in this case, our hands are tied.”

Generally, insurance companies support states passing conforming legislation. America's Health Insurance Plans, an industry group, has advocated for passage. "This is one way to improve efficiency and help avoid duplication of regulation," Robert Zirkelbach, a spokesman, told Governing in an email. The end of the 2013 legislative sessions would be the last chance before the ACA’s reforms take full effect in 2014.

Insurers will likely be altering their plans everywhere to comply with the federal law, regardless of what individual states do, says Timothy Jost, a health law professor at Washington and Lee University. They don’t want to invite enforcement action from any government bodies, the states or CMS. The conforming legislation just avoids the complications of two coexisting regulatory schemes.

“I'd be very surprised if there's any out-and-out disobedience on the part of insurers. You’re more likely to see out-and-out disobedience in some states,” Jost says. “But even if you have a state that, for political reasons, is dead set against recognizing the federal government exists or the law exists, you'd have to be pretty crazy as an insurance company to ignore the law.”

Of course, politics is the obvious culprit for those 11 states’ non-compliance thus far. All except West Virginia have either a Republican governor, a Republican legislature or both.

Take Lindeen’s own state of Montana. Lindeen, an elected Democrat, drafted conforming legislation in 2011, but the bill died before ever reaching the floor in the state legislature. Her office says she won’t bother introducing a bill this year because the partisan dynamics are the same: Republicans control 63 out of 100 seats in the state House and 27 out of 49 seats in the state Senate.

“Certainly, it’s political,” Lindeen says. During the 2011 and 2012 legislative sessions, conforming bills were also introduced in Florida, South Carolina and Texas, according to the National Conference of State Legislatures (NCSL), but they failed to pass.

Some states might have statutory loopholes that allow lawmakers to avoid passing a law that appears to endorse the ACA while still allowing for state enforcement of its provisions. In Texas, for example, a legislative aide to a Republican state legislator tells Governing that, while the legislature won't pass a conforming bill, a section of the state code allows the Texas Department of Insurance to adopt rules that comply with federal law between legislative sessions, if necessary.

Those states could also always pass a conforming law in later years, policy analysts point out, particularly if the insurance industry applies some pressure. But for now, they seem content to continue their unyielding stand against the ACA, with the added bonus of adding a little extra administrative work for the Obama administration.

“By taking a federal law and paralleling it in state law, state agencies can play a more direct role in what is occurring,” says Richard Cauchi, program director for health reform at NCSL. “But a state can also choose to make it a less smooth process.”

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