Privacy Insurance and Financial Losses from Data Breach

Toby Merrill's article in the Advisen Cyber Liability Journal gives an overview of privacy insurance, also known as network security or cyber insurance, to "cover the financial losses arising from a data breach" that can also include "access to expert advice and services."

Privacy insurance has become more prominent as increases in the scope of federal and state privacy laws "continue to fuel a rise in publicly reported corporate data breach incidents."

Merrill, an Assistant Vice President in the Professional Risk division of ACE USA, warns that not all privacy insurance products are created equal:

While most policies and endorsements address both first-party and third-party exposures, there are often wide differences in coverage terms, conditions, exclusions and financial limits.

Many policies, for instance, may highlight large limits of insurance coverage for statutory notification to the affected parties of a breach and the monitoring of their credit, but fail to provide adequate financial limits or choice among the vendors providing assistance in the aftermath of a data breach.

Thanks to Nina Kallen at Insurance Coverage Law in Massachusetts for the find.

Top NAIC Officials to Scrutinize Lender-Placed Insurance

Insurance regulators focus attention on lender-placed / force-placed insurance amid allegations of monopoly and excessive premiumrates.

Both the current President of the National Association of Insurance Commissioners ("NAIC"), Kevin M. McCarty, and the NAIC President-Elect, James J. Donelon, have turned the insurance regulatory spotlight onto insurance that protects mortgage lenders and lien holders from certain property risks when homeowners allow their property insurance coverage to lapse – known as lender-placed or force-placed insurance.

McCarty intends to examine lender-placed insurance premiums and business practices.

McCarty, who is also Commissioner of the Florida Office of Insurance Regulation, intends to examine lender-placed insurance premium rates and the business practices of insurance carriers who write lender-placed insurance amid allegations of excessive rates. Two companies, Assurant, Inc. and QBE Insurance Group, Ltd., control as much as 90% of the force-placed market, according to McCarty.[1]

Donelon, also Commissioner of the Louisiana Department of Insurance, said the force-placed insurance industry is a "monopoly… that is perpetuating itself" at a recent NAIC hearing, according to an article from Bloomberg. The situation is "extremely profitable for two remaining companies in the market," according to Donelon, "Nobody is minding the store."[2]

Force-placed premiums more than tripled to $5.5 billion in 2010 from $1.5 billion six years earlier, according to New York Department of Financial Services Superintendent Benjamin Lawsky. The insurers often pay out less than 25 cents for every dollar in premiums they collect, he said, compared with about 63 cents on a typical homeowner’s policy.[3]

According to the executive director of the Center for Economic Justice, Birny Birnbaum, premium rates currently charged by force-placed insurers "are not justified when examining the companies' performance and profits over the years."[4]

Others suggest the rate increases are justified by the recent rise in foreclosures, as well as other market forces.

But John Frobose, president of American Security Insurance, suggests the increase in lender-placed insurance is justified by the recent rise in foreclosures, as well as other market forces. Because insurance carriers that write force-placed insurance have been subject to greater hazards, the associated premiums have also risen.[5]

Robert Hartwig, president of the Insurance Information Institute, suggests that the rise in lender-placed premiums has peaked. Hartwig predicted that the market for lender-placed insurance should "contract as foreclosures drop and the U.S. economy improves."[6]

Hartwig, along with the executive director of the American Bankers Insurance Association, Kevin McKechnie, defended lender-placed insurance premium rates, explaining that "carriers do not underwrite individual risks, but rather provide a portfolio of coverage to lenders where insurers are taking on risks… with virtually no information about them."[7]

Insurers also defended the higher rates they charge, saying that because the risks are primarily in catastrophe zones, higher premiums are needed to prepare for what they say is the inevitability of major losses.[8]

Nevertheless, Commissioners McCarty and Donelon, as well as other insurance regulators like Kentucky Insurance Commissioner Sharon Clark, intend to take a critical look at force-placed insurance premium rates and business practices, as well as the costs associated with the administration of lender-placed insurance placement, including the compensation paid to agents and lending institutions.[9]

The lender-placed insurance industry also faces proposed new regulations from the Consumer Financial Protection Bureau.

In addition to increased scrutiny by state-based insurance regulators, the lender-placed insurance industry also faces proposed new rules from the Consumer Financial Protection Bureau, created under the Dodd-Frank Act. The proposed new rules require servicers "to give advance notice and pricing information before charging consumers for the coverage" and "to terminate the insurance within 15 days" upon receipt of evidence that the homeowner has the necessary insurance.[10]

1. U.S. Regulators to Examine Forced-Place Insurance, Zachary Tracer and David Beasley, Bloomberg, August 10, 2012.
2. Insurance for Lapsed Borrowers Lacks Oversight: Regulator, Zachary Tracer and David Beasley, Bloomberg, August 9, 2012.
3.  U.S. Regulators..., id.
4. NAIC Promises Greater Focus on Force-Placed Insurance as CFPB Proposes Rules, By Mark E. Ruquet, PropertyCasualty360.com, August 10, 2012.
5.  U.S. Regulators..., id.
6.  U.S. Regulators..., id.
7. NAIC Promises..., id.
8. NAIC Promises..., id.
9.  U.S. Regulators..., id., NAIC Promises..., id.
10. NAIC Promises..., id.

CMS Reforms to "Obsolete" and "Burdensome" Medicare Regulations in Effect

The Centers for Medicare and Medicaid (CMS) has enacted amendments to certain Medicare regulations that it deemed "unnecessary, obsolete, or excessively burdensome" on health care providers. These new amendments went into effect on July 11, 2014.

According to a Mondaq article, the "amended regulations affect a broad range of providers and suppliers, including hospitals, long-term care facilities, rural health and primary care facilities, clinical laboratories, transplant centers and organ procurement organizations, ambulatory surgical centers (ASC), and intermediate care facilities for individuals who are intellectually disabled."

The Mondaq article notes that, while the CMS introduction focuses on the revisions intended to reform the obsolete and burdensome regulations, a "significant number of the amendments merely standardize language or confirm internal citations or references."

Of course, any effective measures CMS takes to reduce the regulatory and cost burden on health care providers are welcome. Even with these most recent changes, however, the burden of local, state, and federal regulatory compliance continues to divert resources away from patient care.[1]

CMS indicated that the final rule "increases the ability of health care professionals to devote resources to improving patient care, by eliminating or reducing requirements that impede quality patient care or that divert resources away from providing high quality patient care." [2]

Read the full article:

United States: Amendments To Reform ‘Burdensome’ Medicare Regulations Now Effective
Sarah G. Benator, Lowell C. Brown, Linda A. Baumann and Erin Muellenberg | Mondaq
August 1, 2014

1. United States: Amendments To Reform ‘Burdensome’ Medicare Regulations Now Effective
2. Medicare and Medicaid Programs; Regulatory Provisions To Promote Program Efficiency, Transparency, and Burden Reduction; Part II; Final Rule, 42 CFR Parts 413, 416, 440 et al.

New Healthcare Landscape for Businesses under the Affordable Care Act

Rachael Jeanfreau analyzes how the Patient Protection and Affordable Care Act, having recently survived the Supreme Court (mostly) intact, will affect employer-sponsored health plans and potentially increase healthcare costs.

Rachael Jeanfreau
rachael.jeanfreau@bswllp.com
504.584.5467

Rachael Jeanfreau is an associate in the New Orleans office, practicing in the areas of labor and employment law and commercial litigation. Ms. Jeanfreau received her Juris Doctor from Tulane University Law School, magna cum laude, in 2011 where she was a member of the Tulane Law Review. She received her Bachelor of Arts from Louisiana State University, summa cum laude, in 2007.

Rachael Jeanfreau's profile

On June 28, 2012, the Supreme Court upheld key provisions of the Patient Protection and Affordable Care Act (ACA), signed into law by President Obama in March 2010. Although the Court struck the Act’s Medicaid expansion provision, it upheld the individual mandate, the key feature of the Act. The Act includes several provisions that will affect employer-sponsored health plans and also mandates several new requirements for employer healthcare plans that will increase employers’ costs.

Certain provisions have already gone into effect as of September 23, 2010, such as the requirement that adult children may stay on their parents’ healthcare policies until the age of 26. For all plans created after the law was enacted in March of 2010, young adults are eligible for coverage regardless of: whether they reside with a parent, their financial dependency, their eligibility to enroll in their employer’s plan, and student and marital status. However, until 2014, certain employer plans that existed before the law’s enactment (“grandfathered plans”) are not required to provide young adults coverage until age 26 if they qualify for coverage under an employer-issued plan. Currently, the ACA also prohibits lifetime limits on the dollar amount of coverage and imposes restrictions on annual coverage limits, which limits will be prohibited beginning in 2014. Further, for plans issued after March 23, 2010, insurers cannot deny coverage to dependent children of plan participants because of pre-existing conditions. Beginning in 2014, this practice will be banned as to all insured individuals. The ACA also requires all new policies created post-March 2010 to cover the cost of most preventive without cost-sharing.

The Act will change the insurance environment.

The Act will also change the insurance environment through its creation of Health Benefit Exchanges. By January 1, 2014, the Act requires the States to establish “Health Benefit Exchanges,” one for individuals and one for small employers with 100 or fewer workers. In 2017, the States may choose whether to open the exchanges to large employers as well. Employees may opt out of the employer’s plan and choose to participate in the exchange. Those who opt out of the employer’s plan may receive a tax credit if the employer’s coverage is not affordable, i.e., (1) if the employee’s required contribution to the insurance premium is greater than 9.5% of his income or (2) if the employer plan pays less than 60% of the cost of covered care, the ACA’s standard of “qualified coverage.”

In addition, the ACA introduces other new regulations and reporting requirements that may increase costs on businesses. As of 2018, employers will be required to pay an excise tax of 40% on high cost health insurance that exceeds a certain cap. The cap has been set initially at $10,200 for individuals and at $27,500 for families. Effective 2013, contributions to flexible spending accounts will be capped at $2,500. As of 2014, employers with more than 200 full-time employees to automatically enroll all new full-time employees in the employer’s health insurance plan. The Act also contains new disclosure and reporting requirements. For example, for new plans, employers must offer an external appeals process for employee appeals of benefit decisions, and beginning in 2012, employers must report the cost of employer-sponsored health insurance on employees’ W-2 statements.

Other costs include an annual fee on health insurance providers effective 2014, an annual fee on manufacturers and importers of brand-name pharmaceuticals effective 2011, and an excise tax on manufacturers and importers of certain medical devices effective 2013.

Under the Act, employers with more than 50 full-time employees or their equivalent will be required to offer healthcare coverage to their full-time employees or pay a penalty.

Notably, as of 2014, “large” employers with more than 50 full-time employees or their equivalent will be required to offer healthcare coverage to their full-time employees or pay a penalty, and full-time employees are defined as those who work at least 30 hours per week. Two basic rules affect employers’ obligations under this system. First, if a large employer does not offer healthcare coverage that complies with certain standards to all full-time employees, and any employee obtains tax-subsidized coverage on an individual exchange, the employer must pay $2000 for every full-time employee, not counting the first 30 employees. Second, if an employer offers coverage but the plan is not affordable (i.e., it does not cover 60% of the cost of covered expenses or if the employee’s contribution for single coverage is greater than 9.5% of the employee’s income), the employee can receive tax-subsidized coverage on the exchange; if this occurs, the employer must pay a $3000 penalty for that employee.

Small employers with 25 or fewer employees and wages of $50,000 or less per employee are eligible for a tax credit if the employer offers health insurance and pays at least 50% of the premium cost. For firms of no more than 10 workers and wages of $25,000 or less per employee, the maximum credit is 35% of the employer’s contribution for tax years 2010 through 2013 and 50% for tax years 2014 and 2015. As employers increase in size and wages per employee, the credits decrease, and none are available after 2015.

Even so-called "grandfathered" plans are still subject to certain requirements under the ACA.

Some of the new rules will not apply to “grandfathered” plans, defined as individual or group health plans in effect before the Act was enacted on March 23, 2010. For example, employers with “grandfathered” plans may require employees to pay a share of preventive healthcare costs and are not required to establish the appeals procedure to review employee claims. They are also not subject to the Act’s new requirements regarding patients’ choice of health care providers and access to emergency care. Nevertheless, even grandfathered plans may not impose lifetime dollar limits on coverage or cancel coverage because of an “honest mistake” on an insurance application. In addition, grandfathered employer, but not individual, plans may not deny children coverage based on pre-existing conditions.

However, to maintain “grandfathered” status, an employer may not: change insurers, significantly reduce benefits, decrease employer contributions by more than 5%, raise copayment charges by more than $5 (adjusted each year for inflation), raise deductibles by a certain percent, increase co-insurance charges, or impose a new or harsher annual limit.

In light of these changes to the healthcare landscape, employers should consult with their insurance brokers to develop a plan for the future and with their legal counsel to ensure compliance with the Affordable Care Act.

Obamacare Health Insurance Regulations and Exchanges Could Be Here to Stay

Efforts to legislatively dismantle the reforms and requirements of the Affordable Care Act may nevertheless leave behind significant remnants of Obamacare provisions, such as limits on exclusions for pre-existing conditions as well as the health insurance exchanges.

The Politico has an article suggesting that, even if Republicans find a way to repeal the Patient Protection and Affordable Care Act, many of the insurance rules and regulations issued as a result of the Obamacare legislation could be here to stay.[1]

Obamacare is more focused on the health insurance industry than the health care industry.

Although Obamacare is styled as a health care law and described as reform for the health care industry, the legislation is actually more narrowly focused on health insurance law and reform of the health insurance industry. As discussed in a previous Insurance Regulatory Law article, the health insurance industry has already begun to shift as a result of legislative reforms like Obamacare.

The Politico suggests that, even if a new administration takes a "legislative wrecking ball" to the Affordable Care Act, what remains after the dust clears could nevertheless "cause some pretty serious policy headaches."[2]

From the Politico:

GOP Hill aides are still working through the details of what they can rip out of the Affordable Care Act through budget reconciliation — the same complex process used more than two years ago to usher through final passage of the health law.

There’s broad agreement Republicans could use the legislative maneuver to go after the law’s individual mandate — and it doesn’t matter whether it’s a tax or a penalty; either is fair game under reconciliation.

Health policy analysts are split on what else can stay under reconciliation and what can go. There’s uncertainty, in particular, on what would happen to the new insurance rules — such as requiring insurers to cover people with pre-existing conditions. The Senate parliamentarian — Congress’s rule maker — will be at the center of any decision.

Keith Hennessey, a research fellow at Stanford University’s Hoover Institution, agreed that much of the law could be unspooled under reconciliation but predicted that some discretionary programs could remain intact.[3]

The Politico questions whether Congress would seek the repeal of Obamacare's health insurance market reforms "including a requirement for insurers to offer coverage to anyone who seeks it and a ban on charging customers based on their medical histories."[4]

Insurers have warned that allowing those market reforms to stay without mandating that virtually everyone have insurance would encourage people to wait until they’re sick to seek coverage, driving up the cost of insurance.[5]

Another important consideration is the health insurance exchanges that the individual states are required to develop under Obamacare. The exchanges have been described as health insurance markets where individuals and small businesses can shop online for competitively priced health insurance coverage. Each state must have its own exchange up and running by January 1, 2014, or else the federal government will step in and set up an exchange for the state.[6]

Health insurers likely to press forward with health insurance exchange development.

IT industry experts see the recent Supreme Court decision upholding the individual mandate as a sign that health insurers will abandon their "wait-and-see phase" and press forward with health insurance exchange development. In order to be ready to participate in the new online marketplaces, health insurers will have to integrate "their back-end electronic enrollment, fulfillment, billing and reconciliation systems" with the exchanges.[7]

The clock is ticking, according to those experts, in part because open enrollment for the health insurance exchanges will have to begin in late 2013 to be ready for the January 1, 2014 deadline.[8]

Some argue that Affordable Care Act subsidies are not available to those who buy insurance through federally-run exchanges.

The Affordable Care Act also includes certain subsidies to help consumers pay for health insurance bought through the exchanges. But the issue of whether those subsidies are available only to consumers who purchase insurance through a state-run exchange, or if they are available to all consumers including those that purchase through a federal exchange, is already turning into a brawl according to the New York Times.[9]

The law states that “each state shall” establish an exchange and that subsidies will be provided to residents of a state with respect to health plans offered “through an exchange established by the state.”[10]

Some say that means that only people who purchase coverage through an exchange set up and run by a state are eligible for the subsidies. Others say that Congress clearly intended the subsidies to be available for those who purchase through federal as well as state exchanges.[11]

According to the New York Times, the federal government could be running the exchanges in one-third, or even one-half, of the states because "local officials have been moving slowly or openly resisting" the exchanges.[12]

The dispute has huge practical implications. The Congressional Budget Office predicts that 23 million uninsured people will gain coverage through exchanges and that all but five million of them will qualify for subsidies, averaging more than $6,000 a year per person. Subsidies, in the form of tax credits, will be available to people with incomes from the poverty level up to four times that amount ($23,050 to $92,200 for a family of four).[13]

The one thing that is clear with respect to the future of the Affordable Care Act is that it will likely continue to produce just as much legislative, political, administrative and industry turmoil (and expense) despite the Supreme Court's decision on the individual mandate.

1. Insurance rules might stay even if ACA repealed, Jason Millman and Matt Dobias, Politico, July 8, 2012.
2. Insurance rules might stay..., id.
3. Insurance rules might stay..., id.
4. Insurance rules might stay..., id.
5. Insurance rules might stay..., id.
6. Feds release health overhaul blueprint for U.S. statesThe Associated Press, NJ.com, March 13, 2012.
7. Supreme Court 'Obamacare' Decision Will Speed Health Insurance Exchange Growth, Brian T. Horowitz, eWEEK, June 28, 2012.
8. Supreme Court…, id.
9. Brawling Over Health Care Moves to Rules on Exchanges, Robert Pear, New York Times, July 7, 2012.
10. Brawling Over Health Care..., id.
11. Brawling Over Health Care..., id.
12.  Brawling Over Health Care..., id.
13.  Brawling Over Health Care..., id.

Supreme Court Upholds Constitutionality of Obamacare and the Individual Mandate

The U.S. Supreme Court upholds the constitutionality of the Patient Protection and Affordable Care Act, and related healthcare reform legislation. The Court determined that the most controversial aspect of Obamacare, the individual mandate, was constitutional because it is a tax.

The Supreme Court of the United States has released its ruling in the matters of National Federation of Independent Business v. Sebelius, U.S. Department of Health and Human Services v. Florida and Florida v. Department of Health and Human Services. These three cases were decisions out of the 11th Circuit of the United States Court of Appeals that challenged the constitutionality of some or all of the Patient Protection and Affordable Care Act, and related healthcare reform legislation, known colloquially as Obamacare.

The principal issues set forth in the 11th Circuit cases that the Supreme Court agreed to review can be simplified and summarized as follows:

• Whether Congress has the power under the Constitution to require virtually all Americans to obtain health insurance or pay a penalty;
• Whether, if the Court concludes that the provision of the Act requiring virtually all Americans to obtain health insurance or pay a penalty is unconstitutional, the rest of the Act can remain in effect or must also be invalidated;
• Whether Congress can require states to choose between complying with provisions of the Patient Protection and Affordable Care Act or losing federal funding for the Medicaid program; and
• whether the Anti-Injunction Act, which prohibits taxpayers from filing a lawsuit to challenge a tax until the tax goes into effect and they are required to pay it, prohibits a challenge to the Act’s provision requiring virtually all Americans to obtain health insurance or pay a penalty until after the provision goes into effect in 2014.[1]

The most controversial matter has been what is known as the "individual mandate" issue — whether the federal government can compel practically all Americans to acquire health insurance coverage or pay a penalty.[2]

The Supreme Court's ruling today generally upholds the constitutionality of Obamacare, although it narrowly reads the federal government's authority to terminate Medicaid funds. The individual mandate is upheld as a tax, and the Court reinforces that individuals can simply refuse to pay the tax.[3]

1. Remaining Merits Cases: In Plain English, SCOTUSblog, Amy Howe, June 15, 2012.
2. Health care: Time to sum up, SCOTUSblog, Lyle Denniston, June 26, 2012.
3. SCOTUSblog, live blog coverage of public reading of the Court's opinion, Amy Howe, Lyle Denniston, Tom Goldstein, June 28, 2012, 9:45 AM CST.

Hospitals Cutting Out Insurance Companies…. Or Insurance Companies Taking Over Hospitals?

A recent article suggets that large hospital systems are moving to cut insurance companies out of the health care process, but a closer examination suggests it may be the insurance companies making the moves.

A recent article in the Fiscal Times warns that "Hospitals Plot the End of Insurance Companies," citing comments by health care and business professionals regarding "an increasing trend in the industry toward cutting insurance companies out of the [health care] process entirely, as large, regional hospital systems move into the insurance business."

But is this trend really about "the end" of insurance companies?

The article points to the Mount Sinai Health System as one example of cutting the insurance company out of the health care process:

"Dr. Kenneth L. Davis, CEO and president of Mount Sinai Health System, the largest health care provider in the state of New York, said that starting next year, Mt. Sinai will begin offering its own Medicare Advantage plan. It will look for other opportunities to bring premium payments directly into the hospital system, rather than filtering them through insurance companies. * * * For both non-profit systems like Mt. Sinai and for-profit systems, he said, retaining more and more of the health care premiums paid by consumers is essential to providing a full spectrum of care."

The article further describes the Kaiser Permanente health care consortium, "which combines a health insurance company with subsidiary hospitals and medical practices to create a fully integrated health care delivery system.

According to the article, Dr. Ezekiel Emanuel, "chairman of the Department of Medical Ethics and Health Policy at the University of Pennsylvania and one of the architects of the Affordable Care Act," has suggested that the health care industry is beginning to see the so-called "Kaiserification" of the industry.

But the Kaiser Permanente model is not a hospital system "cutting out" the insurance company. Rather, it is a large health insurer that essentially owns and controls a subsidiary hospital and provider system.

Thus, perhaps the trend is not hospitals plotting the end of insurance companies, but insurers beginning to take over existing hospital systems or develop their own medical provider systems.

Consider another example of "Kaiserification" provided but the Fiscal Times article: WellPoint. WellPoint is a large insurer that "recently completed the acquisition of a health care company in California, apparently with an eye toward replicating the Kaiser model in some form."

In the end, whether it's a hospital system with a subsidiary insurance company, or an insurer with subsidiary hospitals and medical practices, it doesn't seem to signal the end of insurance companies.

Supreme Court to Hear Arguments on PPACA Individual Mandate Next Week

Supreme Court will begin hearing arguments for and against the constitutionality of the individual mandate under PPACA on March 26; a decision is expected in June.

The United States Supreme Court will begin hearing a recent challenge to the constitutionality of the individual mandate under the Patient Protection and Affordable Care Act ("PPACA"), which requires individuals to purchase and maintain a minimum amount of health insurance coverage, starting on March 26, 2012.

The "justices are allotting an unusually long period, six hours over three days... to hear arguments challenging the law's constitutionality," according to an Associated Press article.

Their ruling, expected in June, is shaping up as a historic moment in the century-long quest by reformers to provide affordable health care for all.

The Associated Press article suggests that the individual mandate is the "linchpin" of the Obama administration's health care reform laws.

The Obama plan relies on private companies plus lots of regulation to make sure they provide basic benefits, keep premiums reasonable, and cover the sick as well as the healthy. That's where the mandate comes in. If insurers must cover everyone, even those with existing medical conditions, healthy people have little incentive to sign up before they get sick.

Insurance companies argue that if only the sick sign up, insurers will go broke. So the law says everybody must have insurance for themselves and their children, or pay a penalty.

But if paying the penalty will ultimately cost less than purchasing the coverage, healthy people will still have little incentive to purchase coverage.

By 2016, the fine reaches $695 per uninsured adult or 2.5 percent of family income, up to $12,500 per year. The IRS is in charge of the penalties but can't prosecute violators or place liens against them. Its only enforcement option may be withholding money from refunds.

That leaves insurance companies, who stand to gain lots of new customers, worried that people instead will shrug off the weak mandate.

Read the full article:

Court weighs making health coverage a fact of life
Associated Press | CBS News
March 19, 2011

Department of Health and Human Services Releases New Operating Rules for State-Run Health Insurance Exchanges under the Patient Protection and Affordable Care Act

The Department of Health and Human Services has issued new rules that purportedly provide state officials with some flexibility despite the looming January 1, 2014, deadline to have state and/or regional health insurance exchanges under PPACA.

The U.S. Department of Health and Human Services has released broad new rules and regulations to provide state legislatures and agencies guidance on the establishment of the health insurance exchanges that form a significant part of the Obama administration's healthcare reform law, the Patient Protection and Affordable Care Act (PPACA), also known as Obamacare.

As reported by Reuters, the long-awaited rules are intended to provide state officials with flexibility as to federal deadlines as they undertake "the complex task of building state and regional insurance markets before a January 1, 2014, deadline."[1]

Starting Jan. 1, 2014, new health insurance markets called "exchanges" must be up and running in every state, the linchpin of a grand plan to make health insurance accessible and affordable to those who now struggle to find and keep coverage. Individual consumers and small businesses will be able to shop online for competitively priced coverage, and many will receive government subsidies to help pay premiums.[2]

Among the key elements of the new rules, according to the Associated Press:

• States can receive conditional federal approval for their exchanges if their plans are far along but not final by Jan. 1, 2013. States can operate exchanges in partnership with other states. The federal government will provide funding for different types of exchanges to allow for flexibility.
• The state exchanges themselves will determine the number and type of health plans offered to consumers, within broad standards set by the federal government. Plans will have to comply with marketing rules to ensure they are not trying to cherry-pick the healthiest customers in the state.
• Consumers must be able to apply online for coverage in their state exchanges. To reduce paperwork, exchanges will rely on existing computer databases to verify basic personal information and eligibility. However, some key details, such as whether the consumer is a legal resident of the U.S., may have to be verified by the government. And the IRS will have final say on tax credits.
• Exchanges must be able to pick from two federally approved methods for coordinating with the Medicaid program in their states.
• Exchanges must be able to use intermediaries called "navigators" to help educate consumers and small businesses about how the new system works.
• Exchanges must be financially self-sufficient by 2015, by charging fees to support their operations.[3]

UPDATE: While the rule is final, certain provisions are being issued as "interim final" such that those provisions are open to public comment for forty-five (45) days.

The full text of the rule, 45 CFR Parts 155, 156 and 157, is available here.

1. New Healthcare Exchange Rules Issued for States, David Morgan, Reuters, March 13, 2012.
2. Feds release health overhaul blueprint for U.S. states, The Associated Press, NJ.com, March 13, 2012.
3. Feds release health overhaul blueprint…, Id.

The Affordable Care Act in the News

A proponent of the Affordable Care Act has admitted that insurance premiums will dramatically increase under the Act's reforms. The White House chief of staff has also suggested that the recent "compromise" on contraceptive coverage in health plans will ultimately save insurance companies money.

Massachusetts Institute of Technology economist Jonathon Gruber, a proponent of the health care reforms of the Patient Protection and Affordable Care Act (PPACA), has recently acknowledged that the "price of insurance premiums will dramatically increase under the reforms."[1]

Sally Pipes, president of the Pacific Research Institute in San Francisco, agrees according to the Daily Caller. Pipes indicated that the Affordable Care Act will cause healthcare rationing, and that the Obamacare "will ultimately result in far greater costs across the board."[2]

On a related note, White House chief of staff Jack Lew indicated that the recent "compromise" proposed by the Obama administration requiring insurance companies to pay for the cost of birth control if religious non-profit insureds claim an exemption in their health plans "will not cost the insurance companies money." As reported by Talking Points Memo, Lew said on CNN's "State of the Union" that the total care of healthcare for persons without contraceptive coverage is higher than with such coverage.[3]

UPDATE: According to the Weekly Standard, House Democratic Leader Nancy Pelosi has said that self-insured entities should be required to pay for morning-after pills and birth control as part of the health insurance plans they provide. This would include organizations such as the Catholic Church in Washington, D.C., which is a self-insured institution that has expressed its moral objections to birth control.

Pelosi went on to say that "all institutions" that provide health insurance "should cover the full range of health insurance issues for women."[4]

1. Obamacare Architect: Expect Steep Increase in Health Care Premiums, Myles Miller, February 11, 2012.
2. Obamacare Architect: Expect Steep Increase in Health Care Premium, Myles Miller, February 11, 2012.
3. Lew: Tweaked Contraception Rule Will Save Insurance Companies Money, Sahil Kapur, February 12, 2012.
4. Pelosi: Govt. Should Require Church To Pay for Birth Control, John McCormack, Ferbruary 16, 2012.

White House Extends Deadline for States to Set Up Health Insurance Exchanges While Health Insurance Premiums Rise

As the White House grants more time for the states to establish health insurance exchanges, health insurers are seeking (and receiving) double-digit rate increases.

The White House has agreed to give states more time to set up the health insurance exchanges mandated under the Obama administration's health care law.

The HHS is waiving or extending the January 1, 2013, deadline for states to set up health insurance exchanges.

The deadline to establish a viable health insurance exchange under the law was January 1, 2013, but the Secretary of the federal Health and Human Services Department, Kathleen Sebelius, has indicated that "she will waive or extend the deadline for any states that expressed interest in creating their own exchanges or regulating insurance sold through a federal exchange," according to the New York Times.[1]

The exchanges are a crucial element of President Obama’s health care law. Every state is supposed to have one by October, and most Americans will be required to have coverage, starting in January 2014. The federal government will run the exchange in any state that is unwilling or unable to do so. It now appears that federal officials will have the primary responsibility for running exchanges in at least half the states — far more than expected when the law was passed in 2010.[2]

Thusfar, the HHS has given "conditional approval" to 17 state-created health insurance exchanges even though some of those states had not granted clear legislative authority or funding to actually run the exchanges.[3]

The Obama administration has indicated that, rather than determining whether these 17 state-run exchanges are viable as of the deadline set in the law, the federal government will continue to work with the 17 states to set "timelines and milestones for progress toward creation of an exchange."[4]

HHS has suggested that states could operate a health exchange "in partnership with the federal government" despite the lack of authority for such a partnership in the health care law.

HHS continues to encourage other states that have not yet created an exchange to cooperate with the White House, granting states until February 15, 2013, to file an application to operate an exchange "in partnership with the federal government." But some have argued that the health care law does not authorize either "conditional approval" of an exchange or an "exchange partnership" with the federal government as the HHS seems to be promoting.[5]

Federal officials are also allowing extra time to other states that might cooperate with the White House to some degree. Ms. Sebelius told states they had until Feb. 15 to file applications to operate exchanges “in partnership with the federal government.”[6]

A political benefit of this strategy is that it allows the administration to keep working with even the most recalcitrant states. Administration officials said they were trying to persuade such states to share the work of running an exchange, supervising health plans and assisting consumers.[7]

While the federal and state governments continue to negotiate on health insurance exchanges, health insurance premiums for consumers may continue to rise.

Health insurers are seeking and winning doubt-digit increases in premiums for some customers.

The New York Times reported last week that health insurance companies "across the country are seeking and winning double-digit increases in premiums for some customers, even though one of the biggest objectives of the Obama administration's health care law was to stem the rapid rise in insurance costs for consumers."[8]

Particularly vulnerable to the high rates are small businesses and people who do not have employer-provided insurance and must buy it on their own.[9]

At least one health insurer in California has proposed rate increases of up to 26%, while other insurers have proposals for increases up to 22% and 20%.[10]

In other states, like Florida and Ohio, insurers have been able to raise rates by at least 20 percent for some policy holders. The rate increases can amount to several hundred dollars a month.[11]

Some people may be delaying health care treatment because of the weak economy.

The Times article points to evidence that the increase in overall health care costs appears to have slowed in recent years, "increasing in the single digits annually as many people put off treatment because of the weak economy." The insurers, on the other hand, argue that medical costs for certain policyholders are rising much faster than the overall average.[12]

Federal regulators suggest that, although health insurance premiums may be increasing, the increase would be even higher without the health care law, in part because it "sets limits on profits and administrative costs and provides rebates if insurers exceed those limits."[13]

Some health insurers may be more afraid of losing money by charging inadequate premiums than having to refund some of that money.

While some consumer advocates suggest insurers may be seeking large rate increases in spite of the refund provisions – "they may be less afraid of having to refund some of the money than risk losing money" – even some state insurance regulators agree that rising health care costs are driving the rate increase requests. This is in part because of the process of medical underwriting, which also limits the availability of health insurance to those with pre-existing conditions, according to the Times.[14]

…[B]ecause insurers now take into account someone’s health, age and sex in deciding how much to charge, and whether to offer coverage at all, people with existing medical conditions are frequently unable to shop for better policies.[15]

As the Times article notes, however, the health care law will prohibit insurers from considering the health of a prospective policyholder before offering coverage, or deciding what rate to charge, in 2014.[16]

1. States Will Be Given Extra Time to Set Up Health Insurance Exchanges, Robert Pear, New York Times, January 14, 2013.
2. States Will Be Given Extra Time…, id.
3. States Will Be Given Extra Time…, id.
4. States Will Be Given Extra Time…, id.
5. States Will Be Given Extra Time…, id.
6. States Will Be Given Extra Time…, id.
7. States Will Be Given Extra Time…, id.
8. Health Insurers Raise Some Rates by Double Digits, Reed Abelson, New York Times, January 5, 2013.
9. Health Insurers Raise Some Rates…, id.
10. Health Insurers Raise Some Rates…, id.
11. Health Insurers Raise Some Rates…, id.
12. Health Insurers Raise Some Rates…, id.
13. Health Insurers Raise Some Rates…, id.
14. Health Insurers Raise Some Rates…, id.
15. Health Insurers Raise Some Rates…, id.
16. Health Insurers Raise Some Rates…, id.