Some States Are Lacking in Health Law Authority

Published: August 14, 2010 - New York Times

WASHINGTON — Faced with the need to review insurance rates and enforce a panoply of new rights granted to consumers, states are scrambling to make sure they have the necessary legal authority to carry out the responsibilities being placed on them by President Obama’s health care law.

Insurance commissioners in about half the states say they do not have clear authority to enforce consumer protection standards that take effect next month.

Federal and state officials are searching for ways to plug the gap. Otherwise, they say, the ability of consumers to secure the benefits of the new law could vary widely, depending on where they live.

Meanwhile, state governments that have for years allowed insurers to set premiums virtually at will are gearing up to establish procedures to review rate increases.

Under the new federal standards, insurers generally must offer coverage to children under 19 and must allow adult children up to age 26 to stay on their parents’ policies. Insurers cannot charge co-payments for preventive services or impose a lifetime limit on benefits; must allow consumers to appeal a denial of benefits; and cannot rescind coverage, except in cases of fraud or intentional misrepresentation.

States have the primary role in enforcing many of the new standards. If a state fails to enforce a standard, the federal government will step in to do so — as it did in several states after passage of a health insurance law in 1996.

The federal government recently surveyed states to assess their enforcement capabilities, and the results suggest a patchwork of protections.

California, Florida, Hawaii, Michigan, Nebraska, Oklahoma, Virginia and Wyoming, among other states, said they did not have authority to enforce federal law.

Some state regulators said they would ask state legislators to expand their authority by putting the federal standards into state law next year. Others said they would rely on their powers of persuasion, the good will of insurers or general state laws that ban unfair or deceptive trade practices.

By contrast, Maryland passed a bill in April that explicitly authorizes its insurance commissioner to enforce consumer protections in the new federal law. Similar bills were signed in June by Gov. Bev Perdue of North Carolina and in July by Gov. John Lynch of New Hampshire.

Kathleen Sebelius, the secretary of health and human services, said she realized that “some states may lack the full authority they might need or desire to fully enforce” the new market rules.

The administration said its general approach was to have “states take a lead role in providing consumer protections, with federal enforcement only as a fallback measure.”

Sara Rosenbaum, a professor of health law and policy at George Washington University, said this was an awkward arrangement. “The new law creates detailed federal standards for insurance, but does not give consumers a right to sue if insurers don’t live up to their obligations,” Ms. Rosenbaum said.

Kim Holland, the Oklahoma insurance commissioner, said, “We will have to seek explicit authority from our State Legislature to make sure we can adequately enforce all the new provisions of federal law.”

Ken Ross, the Michigan insurance commissioner, said, “I fully expect insurers to comply,” even though his office “does not currently have clear authority to enforce the consumer protections enacted in federal law.”

Arizona said it was unlikely to pass legislation authorizing any state agency to enforce federal insurance standards, in view of its participation in a lawsuit challenging the federal law. Moreover, it said, Gov. Jan Brewer has “instituted an indefinite rule-making moratorium, so we have no plans to adopt rules related to enforcement” of the law.

Some states hope to secure compliance by using their power to review insurance policy forms and contracts.

In a recent bulletin, the Texas Insurance Department encouraged insurers to file amendments to standard policy forms that would bring them into compliance with federal law. John Greeley, a spokesman for the department, emphasized the word “encouraged.”

“We don’t have authority right now to require it,” Mr. Greeley said.

Florida said that if insurers did not voluntarily revise their contracts, the state “has no legal authority to force them to do so.”

The Nebraska Insurance Department said it did not have “specific authority to order compliance with federal law in the face of a refusal to comply.”

Wyoming said it did not have the authority, under its insurance code or its Unfair Trade Practices Act, to enforce federal law even if it received consumer complaints.

New Jersey, New York and Ohio said they believed they had the power to enforce federal standards.

Gov. David A. Paterson of New York said his state would require insurers to rewrite their contracts to include the new consumer protections. State officials have developed model language. In addition, Mr. Paterson said, the Legislature will consider amending state insurance laws so they “meet or exceed” federal requirements.

Within days, the Obama administration is expected to announce up to $51 million in grants to states to help them perform one of their new duties: reviewing “unreasonable increases in premiums.”

Thirteen states currently have no authority to review proposed health premium increases for most forms of coverage, according to the National Association of Insurance Commissioners. About a dozen have limited power to review increases after they take effect, while half the states require some form of state approval.

With insurers proposing heavy rate increases this year, possibly in anticipation of tougher regulation, several states have exerted their rate review authority with new vigor.

Sandy Praeger, the Kansas insurance commissioner and chairwoman of the health committee for the National Association of Insurance Commissioners, said states were eager to toughen their procedures to ward off federal interest in obtaining that authority. “The pressure is on us to prove that what we do is effective, and for states that don’t have the authority to get it done,” Ms. Praeger said. Many states will require legislation to change their rate review systems, she said.

States are also waiting for the federal Department of Health and Human Services to define unreasonable rate increases.

“That’s the big question,” Ms. Praeger said. “Unreasonable is a rather nebulous term.”