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Idaho Breaks with the ACA: New Guidance Permits Some Preexisting Condition Exclusions, Medical Underwriting, and Annual Limits for “State-Based Plans”


PG Alert

January 30, 2018

Stephanie Gross and Katrina A. Pagonis (Hooper Lundy & Bookman PC, San Francisco, CA)

This Alert is brought to you by the Health Care Reform Educational Task Force.

On January 24, 2018, the Idaho Department of Insurance issued Bulletin Number 18-01, which outlines requirements for a new health insurance product to be sold on the individual market, “state-based health benefit plans” (or “state-based plans”). The Bulletin makes clear that, in regulating state-based plans, the Department of Insurance will not enforce certain requirements stemming from the Affordable Care Act (ACA), including its prohibitions on medical underwriting, annual limits, and preexisting condition exclusions. The ACA itself contains no exceptions or exclusions for state-based plans, and Idaho has not yet sought a waiver of any ACA requirements.

The Governor’s Executive Order
The Bulletin was issued in response to Governor C.L. “Butch” Otter’s Executive Order 2018-02 (January 5, 2018), which directed the Department of Insurance to “seek creative options” to expand access to lower-cost coverage and to “approve options that follow all State-based requirements, even if not all PPACA requirements are met, so long as the carrier offering the option also offers an exchange-certified alternative in Idaho.” The Executive Order asserted that the Trump administration supports state flexibility in regulating health insurance markets, but did not discuss plans to engage with federal regulators when developing or implementing new “creative options.”

A New Category of Health Plan
The Bulletin makes little reference to federal law. Instead it focuses exclusively on provisions of Idaho law that largely predate the ACA in outlining the requirements that the Department will apply when reviewing proposed state-based plans. In a number of key respects, these requirements are inconsistent with the ACA. For example, the Bulletin allows health plans to impose a preexisting condition exclusion period for applicants that fail to meet a continuous coverage requirement. Such a requirement directly contravenes the ACA’s ban on preexisting condition exclusions.1

The Bulletin also announces that state-based plans will be permitted to do the following:

  • Vary premiums by up to 50% based on health status;
  • Vary premiums more significantly based on age;
  • Impose annual limits on benefits up to a cap of $1 million; and
  • Cover less than the full range of essential health benefits (EHB).

Under the ACA, premiums cannot vary based on health status and may not vary by more than a three-to-one ratio based on age.2 The Bulletin, however, contemplates medical underwriting based on claims data and an individual applicant’s response to a standardized “health statement” survey and using a five-to-one ratio to adjust premiums for age. The ACA also prohibits health insurers from imposing annual limits on the dollar value of benefits and requires non‑grandfathered plans on the individual and small group market to cover the full range of EHBs.3

According to the Bulletin, the Department does not consider state-based plans to be “grandfathered” or “transitional” plans under federal law. The Bulletin does not address the fact that the ACA’s market reforms—including the bans on preexisting condition exclusions, annual limits, and medical underwriting referenced above—apply to all non-grandfathered health plans offered on the individual health insurance market. In fact, it does not endeavor to provide any rationale as to how a state-based plan could be offered without complying with the full range of ACA market reforms. It remains to be seen whether any carriers will seek to offer a state-based plan that does not comply with the ACA, and if any do so, how newly confirmed Department of Health and Human Services Secretary Alex Azar would respond.

A Complementary Role for the Health Insurance Exchange
Though state-based plans cannot be sold on Idaho’s health insurance Marketplace (also known as the Exchange) the Bulletin does contemplate a key role for Marketplace plans: a health insurance carrier that offers a state-based plan also must offer a plan on the Marketplace. The Bulletin also sets out a process by which any enrollee of a state-based plan who exhausts that plan’s annual limit can transition into a Marketplace plan offered by that carrier without experiencing a break in coverage. Finally, even though state-based plans will be subject to less stringent requirements than Marketplace plans, the Bulletin indicates that “state-based plans and exchange-certified health plans must comprise a single risk pool” and limits the variation in premiums between the two types of plans.

1 See Public Health Service Act § 2702, 42 U.S.C. § 300gg-3, as amended by the ACA.
2 Id. at § 2701, 42 U.S.C. § 300gg.
3 Id. at § 2711, 42 U.S.C. § 300gg-11 (annual limits); id. at § 2707(a), 42 U.S.C. § 300gg-6(a) (essential health benefits).
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