The Legality of the Latest ObamaCare Fix

Yesterday, the President announced a purported fix to the problem that, under the PPACA, insurance companies are not allowed to renew policies that fail to comply with PPACA requirements, even if consumers like their existing plans. This was not an accident. Forcing all health insurance policies to comply with federal minimum requirements was a key part of the law, and regulations implementing the relevant provisions ensured many plans could not be renewed. As the WSJ reported, the White House always knew that not everyone who liked their health insurance would be able to keep it, even if some thought most affected consumers would be happy to be forced to obtain “better” plans.

According to the President’s announcement, insurance companies will be allowed to renew policies that were in force as of October 1, 2013 for one additional year, even if they fail to meet relevant PPACA requirements. What is the legal basis for this change? The Administration has not cited any. (See, e.g., this letter to state insurance commissioners explaining the change.) According to various press reports, the Administration argues it may do this as a matter of enforcement discretion (much as it did with immigration). In other words, the Administration is not changing the law. It’s just announcing it will not enforce federal law (while simultaneously threatening to veto legislation that would authorize the step the President has decided to take).

Does this make the renewal of non-compliant policies legal? No. The legal requirement remains on the books so the relevant health insurance plans remain illegal under federal law. The President’s decision does not change relevant state laws either.  So insurers will still need to obtain approval from state insurance commissioners. This typically requires submitting rates and plan specifications for approval. This can take some time, and is disruptive because most insurance companies have already set their offerings for the next year. It’s no wonder that some insurance commissioners have already indicated they have no plans to approve non-compliant plans.

Yet even if state commissioners approve the plans, they will still be illegal under federal law. [See clarification below.] Given this fact, why would any insurance company agree to renew such a plan? It’s nice that regulators may forbear enforcing the relevant regulatory requirements, but this is not the only source of potential legal jeopardy. So, for instance, what happens when there’s a legal dispute under one of these policies? Say, for instance, an insurance company denies payment for something that is not covered under the policy but that would have been covered under the PPACA and the insured sues? Would an insurance company really want to have to defend this decision in court? After all, this would place the insurance company in the position of seeking judicial enforcement of an illegal insurance policy. If there’s an answer to this, I haven’t seen it [but see below]. It’s almost as if the Administration has not thought this through.  As Sarah Kliff reports, this supposed “fix” creates a “big mess.”

UPDATE: Louisiana Insurance Commissioner Jim Donelon, President of the National Association of Insurance Commissioners, comments:

[NAIC members] are concerned by the President’s announcement today that the federal government would use its “enforcement discretion” to delay enforcement of the ACA’s market reforms in 2014 for plans that are currently in effect. This decision continues different rules for different policies and threatens to undermine the new market, and may lead to higher premiums and market disruptions in 2014 and beyond.

In addition, it is unclear how, as a practical matter, the changes proposed today by the President can be put into effect. In many states, cancellation notices have already gone out to policyholders and rates and plans have already been approved for 2014. Changing the rules through administrative action at this late date creates uncertainty and may not address the underlying issues.

SECOND UPDATE/CLARIFICATION: Thinking about this some more, I think it’s worth clarifying and explaining my statement above that renewed, non-complying health insurance plans remain “illegal” under federal law despite the new enforcement policy announced yesterday. The new policy announced by the President does not alter any of the PPACA’s legal requirements.  Under the PPACA, only plans that meet various requirements are “qualified health plans” (QHPs). Only QHPs may be sold on exchanges or satisfy the minimum coverage requirement (the individual mandate). More importantly, under Section 300gg-6 insurers are barred from offering health insurance plans in individual and small group markets that do not include the essential health benefits package. This obligation remains. Would it affect the enforceability of such an insurance policies terms in private legal dispute in state court? It’s understandable if insurance companies will be in no rush to find out.

[NOTE: I've updated/revised the second update.  When challenged on my initial interpretation I went back to find the relevant prohibition in the PPACA, but I could not find it, and drafted a clarification.  I've found it now, and revised the second update accordingly.  It serves me right blogging when I'm at a conference and supposed to be heading to the airport and reviewing a brief.]