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Health Insurance Exchanges: Legal Issues

Executive Summary

Published online by Cambridge University Press:  01 January 2021

Timothy Stoltzfus Jost
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Extract

This “Legal Solutions in Health Reform” paper identifies and analyzes the legal issues raised by health insurance exchanges. Like all Legal Solutions papers, it does not purport to provide a concrete proposal as to how health insurance exchanges should be organized or even whether they should play a role in health care reform. Rather, it attempts simply to describe the legal issues that health insurance exchanges raise, and to propose alternative solutions to legal problems where useful. More specifically, it analyzes and offers alternative solutions to the legal problems raised by proposals to establish insurance exchanges by the federal government, by state governments, and by private entities or associations. Because the focus of this project and paper is on legal issues, discussion of policy and design issues is attenuated. Nevertheless, some attention to policy issues is unavoidable because law is the realization of policy.

Type
JLME Supplement
Information
Journal of Law, Medicine & Ethics , Volume 37 , Issue S2 , Fall 2009 , pp. 51 - 70
Copyright
Copyright © American Society of Law, Medicine and Ethics 2009

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References

The literature on exchanges is vast, but a useful sampling of recent papers would include A. Lischko, Health Insurance Connectors & Exchanges: A Primer for State Officials, Academy Health Stateside, September 2007, available at <http://www.statecoverage.org/files/Health%20Insurance%20Con-nectors%20and%20Exchanges-A%20Primer%20for%20State%200fficials.pdf> (last visited June 15, 2009); Haislmaier, E. F., “State Health Reform: How Pooling Arrangements can Increase Small-Business Coverage,” Heritage Foundation WebMemo 1563, July 23, 2007, available at <http://www.heritage.org/Research/HealthCare/wm1563.cfm> (last visited June 15, 2009); Solomon, J., “Health Insurance ‘Connectors’ Should Be Designed to Supplement Public Coverage, Not Replace It,” Center on Budget and Policy Priorities, January 29, 2007, available at <http://www.cbpp.org/1-29-07health.htm> (last visited June 15, 2009); Kofman, M., “Group Purchasing Arrangements: Issues for States,” State Coverage Initiatives Issue Brief, 4 no. 3 (April 2003): 1–6. One older article also worth reading is Hall, M. A., “The Role of Insurance Purchasing Cooperatives in Health Care Reform,” Kansas Journal of Law & Public Policy 3 (1993-1994): 95. Empirical studies of health insurance exchanges include, Bender, K. and Fritchen, B., Government-Sponsored Health Insurance Purchasing Exchanges: Do They Reduce Costs or Expand Coverage for Individuals and Small Employees, Oliver Wyman Actuarial Consulting, Inc., 2008, available at <http://www.oliverwy-man.com/de/pdf-files/health_ins_purchasing_arrangements.pdf> (last visited June 15, 2009); Insurance Markets: What Health Insurance Pools Can and Can't Do, California Health Care Foundation Issue Brief, 2005, available at <http://www.chcf.org/documents/insurance/WhatHealthInsurance-PoolsCanAndCantDo.pdf> (last visited June 15, 2009); Wicks, E. K., “Health Insurance Purchasing Cooperatives,” Commonwealth Fund Issue Brief, November 2002, available at <http://www.commonwealthfund.org/usr_doc/wicks_coops.pdf?section=4039> (last visited June 15, 2009); Curtis, R. E. et al., “Consumer-Choice Purchasing Pools: Past Tense, Future Perfect?” Health Affairs, 20, no. 1 (2001): 164-168; Long, S. H. and Marquis, M. S., “Have Small-Group Purchasing Alliances Increased Coverage?” Health Affairs, 20, no. 1 (2001): 154-163; Wicks, E. K. and Hall, M. A., “Purchasing Cooperatives for Small Employers: Performance and Prospects,” Milbank Quarterly 78 (2000): 511.Google Scholar
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Some commentators attempt to draw a clear distinction between the purchasing cooperatives and health alliances that were widely discussed in the 1970s, ‘80s, and ‘90s and were at the heart of the Clinton Health Security Act, and the contemporary health insurance exchange. See Lischko, supra note 1, at 2; Moffit, supra note 6. Because the terms purchasing cooperative, health alliance, and health insurance exchange cover or have covered a broad assortment of models among which there is considerable variety and overlap, I do not believe it is possible to draw a clear line between the modern insurance exchange and its antecedents. (See Bender and Fritchen, supra note 2, at 12, for an analysis of exchanges written for the Blue Cross/Blue Shield Association that strongly supports this conclusion.) Insofar as there are differences, they are the following: (1) that health insurance exchanges, as some commentators define them, do not act as purchasing agents or regulators but rather simply connect insurance purchasers with insurers, and (2) that some commentators in the past have included as purchasing cooperatives entities that purchase services directly from providers, while contemporary health insurance exchanges generally contract only with insurers. Believing that the terms are in fact largely interchangeable, I will use the term insurance exchange throughout this paper instead of the terms purchasing cooperative (or pool) or health alliance.Google Scholar
These include, by one list, California, Connecticut, Georgia, Kansas, Maryland, Michigan, Minnesota, Missouri, Montana, New Jersey, Oregon, Texas, Virginia, Washington, and Wisconsin. See Schneider, J. E. et al., “Legal and Economic Analysis of Health Insurance Exchange Mechanisms,” Health Economics Consulting Group, 2007, available at <http://www.hecg-llc.com/health_care_regulation.htm> (last visited June 15, 2009).+(last+visited+June+15,+2009).>Google Scholar
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This is the approach Congress took with the portability provisions of the Health Insurance Portability and Accountability Act, 42 U.S.C. §§ 300gg-22(a)(2) and 300gg-44(b)(3)(2007), and with eliminating state limits on high deductible policies coupled with health savings accounts. See Jost, T. S. and Hall, M. A., “The Role of State Regulation in Consumer-Driven Health Care,” American Journal of Law & Medicine 31 (2005): 395–418.CrossRefGoogle Scholar
See South Dakota v. Dole, 483 U.S. 203, 206 (1987); New York v. United States, 505 U.S. 144 (1992). Another issue that might arise involves the provisions of the Constitution that require uniform taxation among the states. See U.S. Const. Art. 1, Sec. 23, cl. 3; U.S. Const. Art. 1, Sec. 8, cl. 1. If the federal government were to require individuals to purchase insurance through purchasing exchanges, the premiums might be characterized as taxes, and if premiums varied from state to state or region to region, as would be likely, the question of whether these “taxes” were direct and uniform would need to be reached. This is a difficult question, but would probably ultimately not prove an insurmountable barrier to the establishment of exchanges by federal law. It is discussed comprehensively by Greely, supra note 17, and will not be addressed further here.Google Scholar
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If exchanges are private entities, on the other hand, their exclusionary or regulatory practices will not raise constitutional issues, as private entities are not bound by the constitutional provisions discussed here.Google Scholar
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Presumably much of the information received by insurance exchanges would be exempt from public disclosure under state law equivalents to the federal freedom of information act exemptions for “commercial and financial information obtained from a person and privileged and confidential,” 5 U.S.C. § 552(b)(4)(2008), and “personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.” 5 U.S.C. § 552(b)(6) (2008).Google Scholar
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For the analysis in this section and in the section on HIPAA that follows, I am greatly indebted to Amy Monahan, Mark Hall, and Pat Butler. A monograph on “Section 125 Plans for Individual Insurance and HIPAA's Group Insurance Provisions,” by Amy Monahan and Mark Hall was made available to me as I was drafting this paper and is now available at <http://www.phs.wfubmc.edu/public/pub_insurance/HIPAA_125_Policy_Brief_final.pdf> (last visited June 15, 2009). See also Butler, P., Employer Cafeteria Plans: States' Legal and Policy Issues, California Healthcare Foundation, October 2008, available at <http://www.chcf.org/topics/download.cfm?pg=insurance&fn=EmployerCafeteriaPlans%2Epdf&pid=511167&itemid=133770> (last visited June 15, 2009). (last visited June 15, 2009). See also Butler, P., Employer Cafeteria Plans: States' Legal and Policy Issues, California Healthcare Foundation, October 2008, available at (last visited June 15, 2009).' href=https://scholar.google.com/scholar?q=For+the+analysis+in+this+section+and+in+the+section+on+HIPAA+that+follows,+I+am+greatly+indebted+to+Amy+Monahan,+Mark+Hall,+and+Pat+Butler.+A+monograph+on+“Section+125+Plans+for+Individual+Insurance+and+HIPAA's+Group+Insurance+Provisions,”+by+Amy+Monahan+and+Mark+Hall+was+made+available+to+me+as+I+was+drafting+this+paper+and+is+now+available+at++(last+visited+June+15,+2009).+See+also+Butler,+P.,+Employer+Cafeteria+Plans:+States'+Legal+and+Policy+Issues,+California+Healthcare+Foundation,+October+2008,+available+at++(last+visited+June+15,+2009).>Google Scholar
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See New England Mut. Life Ins. Co. v. Baig, 166 F.3d 1 (1st Cir. 1999); O'Brien v. Mutual of Omaha Ins. Co., 99 F.Supp.2d 744 (E.D. La. 1999). Where employers are more involved in the insurance relationships or individual insurance policies seem to be part of a larger employee plan, however, the arrangements will be held subject to ERISA. Burrill v. Leco Corporation, 1998 WL 340781444 (W.D. Mich. 1998).Google Scholar
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See, e.g., Butero v. Royal Maccabees Life Ins. Co. 174 F.3d 1207 (11th Cir. 1999); Hrabe v. Paul Revere Life Ins. Co., 951 F.Supp. 997, 1001 (M.D.Ala. 1996). There is also a line of ERISA cases that have held that a scheme under which an employer pays for individual insurance premiums on a payroll deduction basis is a group policy if the employee receives a discount that is otherwise not available for purchasing through the employer. See Tannenbaum v. Unum Life, 2006 U.S.Dist. LEXIS 6623 (E.D. Pa. Mar. 18, 2005); Kuehl v. Provident Life & Accident, 1999 U.Dist. LEXIS 22946 (September 30, 1999). One case has even held that a disability plan was an ERISA plan because it was funded with pretax income, Brown v. Paul Revere Life Ins. Co., 2002 WL 1019021 (E.D. Pa. 2002), although that court seems to have inappropriately applied COBRA regulations in interpreting ERISA and the case is in any event distinguishable from our situation on several grounds. See Butler, supra note 51. Other courts have held, however, that the fact that employees receive a discount for purchasing through their employer does not in itself make a plan an ERISA plan. See, e.g., Rubin v. Guardian Life, 174 F.Supp. 2d 1111 (D.Or. 2001). If the only discount that is offered employees participating in a state insurance exchange is the benefit of paying for insurance using pretax income available under §125, this alone is unlikely to turn the § 125 arrangement into an ERISA plan.Google Scholar
See Schwartz v. Provident Life and Accident, 280 F.Supp. 2d 937 (D.Ariz. 2003); Murdock v. Unum Provident Co., 265 F.Supp. 2d 539 (W.D. Pa. 2002); Merrick v. Northwestern Mutual Life, F.Supp.2d, 2001 WL 34152095 (N.D.Iowa 2001); Byard v. Qualmed Plans for Health, Inc. 966 F.Supp. 354 (E.D. Pa. 1997); Levett v. American Heritage Life Ins. Co., 971 F.Supp. 1399 (M.D. Ala. 1997).Google Scholar
Although there is no authority addressing this question, it would seem that participation by an employee in a state-mandated § 125 arrangement would still be “voluntary” under the terms of the safe harbor because it would not be required by the employer, which is the concern of the regulation.Google Scholar
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Section 125 also has its own non-discrimination provisions that apply to discrimination in favor of highly compensated employees and key employees. These provisions are not discussed here (see Butler, supra note 52, at 3–4 for thorough analysis of these provisions.) If they are violated, however, favored employees may not be able to take advantage of the tax advantages offered by § 125.Google Scholar
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45 C.F.R. § 164.501 (2007).CrossRefGoogle Scholar
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42 U.S.C. § 1320d(5) (2008).Google Scholar