Insurers in U.S. Territories will soon be exempt from popular market-reform and non-discrimination provisions of the Affordable Care Act (ACA). In a July 16 letter, the Department of Health and Human Services (HHS) clarified that the ACA provisions on guaranteed availability, community rating, single risk pool, medical loss ratio, and essential health benefits only apply to “states” as defined by Title 1 of the Public Health Services Act, which would not include U.S. territories.

HHS’ new interpretation comes after sharp criticism from insurers, territory representatives, and even the Federal Circuit. See Halbig v. Burwell, No. 14-5018, slip op. at 37 (Fed. Cir. July 22, 2014). Each had argued that applying these provisions to the territories threatened the stability of the local insurance market because the Affordable Care Act did not simultaneously require territorial residents to purchase insurance coverage nor did it provide the territories with any federal subsidies. Without the individual mandate and federal subsidies, insurers in the territories have struggled to secure a broad base of healthy customers that would stabilize costs and prices that result from the market reform and non-discrimination provisions.

But the territories are not wholly exempt from the Affordable Care Act. The letter explains that provisions of the PHS Act, ERISA, and Code requirements applicable to “group plans” continue to apply because these requirements are not only applicable to “states.”