Iowa has enacted legislation to permit the offering of certain health benefit plans that would not be subject to the restrictions of the Affordable Care Act (ACA).
The bill combined two separate measures, each intended to expand access to association health plans (AHPs) that are exempt from many of the ACA’s protections. First, the new law would allow small employers to band together to form associations that would be eligible to offer members’ employees coverage as if they were a single large employer group, which would be subject to less burdensome regulation under the ACA. Second, a health benefit plan sponsored by a nonprofit agricultural organization domiciled in Iowa (the Iowa Farm Bureau Federation) and covered by a third-party administrator that has administered the organization’s health benefits plan for more than 10 years (Wellmark Blue Cross & Blue Shield) is exempt from the definition of insurance that is subject to regulation by the state insurance department.
Recently, AHPs have been touted by opponents of the ACA as a tool to avoid its effects for larger covered populations. Iowa’s measure follows an executive order by President Trump last fall directing the administration to, among other things, promote the use of AHPs. In response to that order, the Department of Labor proposed a rule that would expand the definition of AHP to allow employers greater access to AHP coverage. As we noted in a previous post, several states have pressed the idea through comments to that proposed rule that expanded access to AHPs would create opportunities for employers to offer more affordable coverage.
The impact of Iowa’s enactment remains to be seen. Critics of the measure have expressed concern that it will water down consumer protections by exempting coverage from ACA requirements that plans cover essential health benefits, such as maternity and mental health care. Although plans could continue to include such benefits, they would not be legally obligated to do so, and could cut costs by eliminating coverage for broad categories of health care.
The legislature’s fiscal note on the bill found that its market impact would depend on too many unknown variables to measure, but some are concerned that the new law will harm the regulated insurance market. By offering less-comprehensive benefits, AHPs could offer coverage at a lower cost that would be attractive to younger and healthier members, thereby drawing them out of individual and small group market plans like those offered on ACA Marketplaces. By skimming off enrollees with favorable risk profiles, AHPs could trigger an insurance market “death spiral” in which the only enrollees remaining in higher-cost Marketplace plans are high utilizers of health care, thereby further driving up the premium costs of such plans and incentivizing enrollment by more healthy individuals in AHPs. The National Association of Insurance Commissioners (NAIC), of which Iowa’s Commissioner Doug Ommen is a member, has expressed concern about the negative impact expanded access to AHPs could have on “already fragile markets.”
Iowa is the first state to enact legislation expanding access to AHPs, but other states have taken action recently to reduce the ongoing impact of the ACA on insurance markets. Idaho’s governor issued an executive order exempting the state’s health insurance market from several provisions of the ACA. The administration, apparently with genuine regret, sent a letter to Idaho explaining that its order would violate federal law, and that the Department of Health and Human Services (HHS) may need to directly enforce federal health insurance regulatory provisions under Title XXVII of the Public Health Service (PHS) Act in Idaho if the state implemented the order. The PHS Act provides that states shall primarily enforce its provisions, but that if a state notifies HHS or HHS finds that a state fails to substantially enforce its provisions, HHS shall become the primary enforcement agency. HHS is currently the primary enforcer of federal law in Missouri, Oklahoma, Texas, and Wyoming. Unlike Idaho’s attempt to exclude insurance plans from laws applicable to insurance, Iowa’s legislation would expand the availability of large group AHP coverage and remove certain health benefit plans from the definition of “insurance.” Rather than exempting regulated plans from regulations, Iowa’s law would re-categorize coverage to fall within categories that are subject to less stringent regulations.
The administration has not yet responded to Iowa’s legislation, but it may well consider this measure to be consistent with its efforts to expand the legal availability of AHP coverage rather than an illegal attempt to avoid federal law. But Iowa’s legislation may also face scrutiny brought by Medica, a regional insurance company that is now the last issuer of Marketplace plans in Iowa. Medica has been critical of the legislation, and the Des Moines Register reports that the company will consider legally challenging the measure. If HHS Secretary Alex Azar and Centers for Medicare & Medicaid Services Commissioner Seema Verma support Iowa’s action as legal, and if it survives any privately brought legal challenges, it may provide a roadmap for other states to follow by adopting similar laws.