State Roles in Health Reform Provisions Related to Insurance
Updated October 2011
The following report gives brief explanations of many of the insurance provisions included in the federal health reform law. It also includes legislative examples from the states.
The federal Patient Protection and Affordable Care Act (P.L. 111-148), signed March 23, 2010, as amended by the Health Care and Education Reconciliation Act, signed March 31, 2010, is also referred to as the Affordable Care Act (ACA), or simply as “federal health reform.” The 900+-page act contains many provisions, with various effective dates. The law includes an extensive range of provisions changing how private market health insurance works and how it is regulated. The provisions are of particular importance to state legislatures for two reasons: (1) many have taken effect during 2010-2011, or have a series of effective dates stretching from immediate through 2014 and beyond; and (2) many establish uniform federal standards in areas previously regulated primarily by state laws and state regulations.
The ACA enacted several insurance reforms, effective in 2010-2011, to accomplish the following:
- Require family policies to allow coverage for adult dependents up to age 26
- Prohibit lifetime monetary caps on insurance coverage and limit the use of annual caps.
- Prohibit insurance plans from excluding coverage for children with preexisting conditions.
- Prohibit insurance plans from cancelling (rescinding) coverage, except in cases of fraud.
- Establish state-based rate reviews for “unreasonable” insurance premium increases.
- Establish an office of health insurance consumer assistance or an ombudsman program.
- Establish the share of premiums dedicated to medical services (minimum medical loss ratios).
- Prohibit new group health plans from establishing any eligibility rules that have the effect of discriminating in favor of higher wage employees.
- Provide federally supported reinsurance for health policies offered to retirees age 55-64 through employer-based coverage.
Additional insurance reforms will become effective Jan. 1, 2014, intended to accomplish the following:
- Prohibit most insurance plans from excluding people for preexisting conditions.
- Prohibit discrimination based on health status.
- Prohibit imposing annual monetary caps on coverage.
- Require guaranteed issue and renewal of policies.
- Require mental health and substance abuse parity.
- Permit certain types of out-of-state purchase of health insurance (2014-2017)
Other papers published by NCSL in this series address specific topics in more detail.
As of Sept. 23, 2010, insurance plans no longer can set lifetime limits—a dollar limit on what health plans will spend for a person’s covered benefits during the entire time he or she is enrolled in that plan—on policy benefits. The law prohibits insurers in both the individual and group markets from setting lifetime limits and restricts annual limits on essential benefits.
Connecticut, Maryland, Maine and Utah passed laws that prohibit or remove lifetime limits.
Annual Limits on Coverage
Beginning Jan. 1, 2014, insurance plans no longer can set annual limits on standard health insurance coverage—a dollar limit health plans put on yearly spending for a person’s covered benefits. This will apply to the cost of what the law defines as “essential health benefits,” which include services that each health insurance plan must cover.
Utah passed a law that gives the Utah Insurance Commissioner authority to require health insurers to comply with ACA provisions on annual limits.
Preexisting health conditions are those for which an individual has been diagnosed, received treatment in the past or is currently receiving treatment. Each insurer has its own rules and regulations to determine criteria for covering services related to preexisting conditions. Some insurance plans and companies allow complete coverage after a waiting period, while others deny coverage outright. Those with preexisting conditions who try to buy insurance in the individual market often are not able to obtain health coverage or are offered coverage at a high cost.
Preexisting condition denials change significantly under the ACA. Beginning Sept. 23, 2010, provisions within the law restrict denying coverage to children with preexisting conditions. The act also created a federally funded Pre-Existing Condition Insurance Plan (PCIP). Adults can enroll in high-risk insurance pools that offer insurance to those who have been uninsured for at least the past six months and have had difficulty obtaining coverage because of a preexisting condition. These federally subsidized preexisting condition insurance plans provide an immediate, additional option for those with preexisting conditions if they have been refused coverage or cannot afford traditional individual (non-group) health coverage. Policies are sold at not more than 100 percent of standard market rates within each state.
Effective Jan. 1, 2011, HHS made available a new category within the federally administered Pre-Existing Condition Insurance Plans to allow families to enroll eligible children at a generally lower child-only premium rate for PCIP beneficiaries from birth to age 18.
In 2014, insurance companies no longer will be able to deny coverage to adults because of preexisting conditions. People with preexisting conditions will be able to obtain coverage through Health Benefit Exchanges. In addition, insurers cannot drop coverage for individuals who are diagnosed with a new condition or illness.
Arkansas passed a law during the 2011 session that requires child-only individual market health insurance policies to be an option offered by all state regulated insurance companies, on a guaranteed-issue basis without any limitations or exclusions based upon the applicant's health status. Colorado also passed a law that requires an insurance carrier that participates in the individual health insurance market to issue child-only plans on a guaranteed-issue basis. Washington also expanded access to commercial health insurance coverage for people under age 19, requiring sale of child-only policies to individuals under age 19 through the state-administered high-risk pool. Indiana has already revised the eligibility requirements for the Indiana high-risk pool, run as the Comprehensive Health Insurance Association, requiring applicants to apply first for the federal PCIP or the Healthy Indiana insurance program. Oklahoma also modified its state Health Insurance High Risk Pool Act, adding the federally funded PCIP as creditable health insurance coverage and modifying determination of certain premium rates.
For more information about this topic, please visit High Risk Pools for Health Coverage, State and Federal (State Implementation Report).
Beginning Sept. 23, 2010, under the ACA, insurers no longer can cancel medical coverage after a policyholder has become sick or injured, except for fraud.
Section 2794 requires the secretary of the U.S. Department of Health and Human Services (HHS; the secretary) to work with states to:
- Establish an annual review process to determine “unreasonable” health insurance rate increases,
- Monitor insurance premium increases, and
- Award grants to help states carry out their rate review process.
Under existing state laws, states can continue reviews or denials that go beyond those specified in federal law or can amend existing law to coordinate with the new federal requirements. Health insurance issuers that offer individual or group coverage must submit justification to the secretary and relevant state for any “unreasonable premium increases.” Both the secretary and the state must receive the justification before increases occur, and the information must be prominently posted on the health insurance issuers’ Web sites. The secretary must ensure public disclosure of information relating to these increases and justifications from all health insurance issuers.
New Mexico amended the state insurance code to provide greater transparency and new standards in rate review of applications for health insurance premium rate increases, providing for public hearings and administrative and judicial review of determinations in health insurance premium rate review matters. Vermont adjusted its state insurance rate review to be consistent with the ACA by deleting the specific provision that required "maintaining the premiums at levels due on June 15, 2008." Washington modified its insurance provisions by eliminating the insurance commissioner's authority to review and disapprove rates for individual products. The law also affects public inspection of actuarial formulas, statistics, and assumptions, credit history and insurance scores, and certain items required to be filed with the insurance commissioner by insurers, rating organizations or by title insurers.
For more information about this topic, please visit Health Insurance Rate Approval/Disapproval (State Implementation Report).
Section 1002 requires that, effective immediately in 2010, the secretary will award grants to states to enable them to establish, expand or provide support for a state-based office of health insurance consumer assistance or health insurance ombudsman. Beginning in 2014 the state-based health benefit exchanges will assume this function.
The ACA appropriated $30 million in federal funds for the first fiscal year of the program and authorized for “such sums as necessary” in subsequent fiscal years. To receive a grant, a state must designate an independent consumer assistance or ombudsman office that will directly, or in coordination with state health insurance regulators and consumer assistance organizations, receive and respond to inquiries and complaints concerning health insurance coverage. The state-sponsored offices will:
- Help file complaints and appeals;
- Help consumers with enrollment in a group health plan or health insurance coverage;
- Resolve problems related to obtaining premium tax credits; and
- Collect, track and quantify problems and inquires annually.
State executive agencies took the lead to submit 2010 grant applications and in proposing creation or expansion of consumer offices.
Hawaii passed a law during the 2011 session that authorizes the state insurance commissioner to enforce the consumer protections and market reforms relating to health insurance, including HMOs, mutual and fraternal benefit societies, as set forth in the ACA.
For more information about this topic, please visit States Implement Health Reform: Consumer Assistance Programs: Federal and State.
Minimum Medical Loss Ratios
A medical loss ratio (MLR) measures the fraction of the total insurance premiums that health plans use on clinical services as opposed to administration and profit. More technically, MLR refers to the total losses paid out in medical claims plus adjusted expenses divided by the total earned premium. The National Association of Insurance Commissioners (NAIC) defines loss ratio as “a measure of the relationship between A & H (accident and health) claims and premiums.” Section 1001 sets new limits on how much insurers can spend on administrative costs, marketing, and other non-health care-related costs. The provisions require:
- Large employer plans to spend at least 85 percent of all premium dollars collected by insurance companies on health care services and health care quality improvement. This rule does not apply to large self-insured employer plans.
- Individual or small employer plans to spend at least 80 percent of the premium dollars on benefits and quality improvement.
- Health insurance companies to report yearly to the secretary on the share of premium dollars spent on health care services and health care quality improvement in all “plan years” or “policy years.”
- Insurance companies that exceed that limit to provide reports and rebates to customers for each plan year that starts after January 1, 2011. These rebates will be paid to insurance policy customers in 2012.
States may apply for waivers to allow a different timetable or percentages on a temporary, annual basis between 2011 and 2014.
Maine, Nevada, Iowa, Kentucky and New Hampshire were granted waivers; the federal government was considering similar requests from Florida, Georgia, Louisiana, Guam, North Carolina, Oklahoma, Michigan, Texas, Indiana and Kansas. Waivers were rejected for New Jersey and Delaware. Idaho adopted a non-binding resolution during the 2011 session that "urgently" requests that HHS remove health insurance agent and broker commissions from the medical loss ratio calculation and also "strongly encouraging Congress" to amend the ACA to remove agent and broker commissions from the MLR calculation.
For more information about this topic, please visit Health Insurance Medical Loss Ratios (State Implementation Report).
Increased Costs Based on Health Status
Health insurance companies currently can charge higher premiums for people who have a chronic condition, are victims of domestic violence, have disabilities, or based on age, gender or occupation. Under the ACA, beginning in 2014, insurance companies will not be able to charge higher premium rates for those based on health status, and limit premium variation to tobacco use, age (3:1 band), geography, and family composition apply to individuals and small groups to size 100 (states may limit small groups to 50 and may increase beyond 100 with expanded Exchange eligibility starting in 2017).
North Dakota passed a law that prohibits making or permitting any unfair discrimination including consideration of an individual's history or status as a subject of domestic abuse, between individuals of the same class and of essentially the same hazard in the amount of premium, policy fees, or rates charged for any policy or contract of accident or health insurance or in the benefits payable thereunder, or in any of the terms or conditions of such contract, or in any other manner whatsoever.
Health Insurance Appeals
The act specifically requires (in section 1001) that group health plans and health insurance issuers in both the group and individual markets “implement an effective appeals process for coverage determinations and claims.” Plans must comply with either a state external review process or the federal external review process.
The ACA requires the appeals process to be in place by six months after enactment—Sept. 23, 2010. The process must at a minimum:
- Have in effect an internal claims appeals process;
- Provide notice to enrollees of available internal and external appeals processes and the availability of any applicable assistance; and
- Allow enrollees to review their files, present evidence and testimony and receive continued coverage pending the outcome.
To comply with the requirements in 2010 and 2011, group plans were expected initially to incorporate the claims and appeals procedures specified in federal regulation (29 CFR §2560.530-1) and to update their processes in accordance with any standards established by the secretary of the U.S. Department of Labor. Similar procedures exist for individual health coverage.
Group health plans and health insurance issuers must comply with the applicable state external review process that, at a minimum, includes the consumer protections set forth in the Uniform External Review Model Act promulgated by the National Association of Insurance Commissioners (NAIC).
If a state has not established standards that meet the NAIC model requirements or if the plan is issued by a self-insured large employer and therefore is not subject to state insurance regulation, it must implement an effective external review process that meets the minimum standards established by the secretary. Separate but similar appeals rights apply to Medicaid, Medicare and other government-sponsored programs.
Limited coverage insurance plans (for example, to cover a single medical condition or temporary insurance coverage) are exempt from these external appeals requirements.
Indiana passed a law in 2011 that requires external review and appeals of health insurance denials consistent with the ACA. Iowa also passed a law that provides procedures for external review of adverse determinations made by health carriers, as required by the ACA. The new provisions apply to all requests for external review filed on or after July 1, 2011. Maryland’s 2011 law expands a person's right to a hearing and the right to an appeal from an action of the Maryland insurance commissioner. It provides that the federal law applies to specified insurers, nonprofit health service plans, and health maintenance organizations. It also authorizes the Commissioner to enforce consumer rights, appeals and coverage requirements in the federal law and expands notification of enrollee rights. North Dakota also passed legislation that establishes or expands health carrier external review, utilization review, and grievance procedures; and regulates limitations on health insurance company risks and independent external reviews. The law also includes a penalty for violations. Virginia’s 2011 law expands the scope of Virginia's process for independent reviews of a health insurer's adverse decision regarding covered consumer health care benefits, in compliance with requirements of the ACA. It eliminates the minimum eligibility threshold and $50 filing fee for appeals hearings. It also expands situations eligible for an independent external review to include covered people of all licensed health carriers.
For more information about this topic, please visit States Implement Health Reform: Right to Health Insurance Appeals Process.
As of Sept. 23, 2010, private insurers must guarantee coverage, without requiring copayments or deductibles, for certain health screenings and immunizations. Group health plans and health insurance issuers in the group and individual markets specifically must provide coverage under new or renewed policies that are not grandfathered for preventive health services that are evidence-based items or services that have a rating of “A” or “B” from the U.S. Preventive Services Task Force (USPSTF).
Starting Jan. 1, 2011, Medicare also must reimburse for some preventive coverage services.
Essential Health Benefits Package
Effective beginning in 2014, Qualified Health Plans will be required to cover “essential health benefits” specified by the secretary. Essential health benefits will include at least the following general categories:
- ambulatory patient services;
- emergency services;
- maternity and newborn care;
- mental health and substance use disorder services, including behavioral health treatment;
- prescription drugs;
- rehabilitative and habilitative services and devices;
- laboratory services;
- preventive and wellness and chronic disease management; and
- pediatric services, including oral and vision care.
The plans will offer essential health benefits packages at bronze, silver, gold or platinum coverage levels, which differ by cost-sharing requirements. Health insurance issuers cannot impose annual cost-sharing limits that exceed the thresholds applicable to health savings account-qualified high deductible health plans. Small group health insurance issuers that provide the essential health benefits package will not be allowed to impose a deductible greater than $2,000 for self-only coverage or $4,000 for any other coverage in 2014 (adjusted annually thereafter). Issuers that provide the essential health benefits package will not be allowed to apply a deductible to preventive health services, as described earlier.
The ACA requires the secretary to define and periodically update coverage that provides essential health benefits. The secretary will ensure that the scope of essential health benefits is equal to that of benefits under a typical employer-provided health plan (as certified by the chief actuary of the Centers for Medicare and Medicaid Services). A health plan can provide benefits beyond the essential health benefits defined by the secretary.
For more information about this topic, please visit State Insurance Mandates and the ACA Essential Benefits Provisions.
Existing State Law Coverage Mandates
Although federal law does not preempt existing state insurance mandates, a new provision—“standard benefit packages” that include policies sold through health benefit exchanges beginning in 2014—may lead to reexamination of or proposed changes in these laws, if any are determined to be beyond the standard package. Under the ACA, states may add further required benefits for standard benefits packages, but they will be responsible for picking up the additional costs. This allows states to maintain their current benefits mandates that may not be included in the ACA-required essential health benefits package, but states will be responsible for the cost of such additional coverage. The definitions have not yet been established by HHS.
Arkansas passed legislation in the 2011 session that will require health insurance coverage for autism spectrum disorders, on or after Jan. 1, 2014, if they are not included in the essential health benefits of plans offered outside the state health benefits exchange. Colorado also passed a law that requires health insurance coverage for multidisciplinary evaluations of children suspected of having fetal alcohol spectrum disorders (FASD). The law specifies that if the "essential benefits" provisions for exchanges under the federal health reform act do not include FASD coverage, thereby triggering a potential cost to the state, the law directs the state to study the coverage of FASD and to advise about whether the state should cover the costs for health care exchange enrollees.
For more information about this topic, please visit State Insurance Mandates and the ACA Essential Benefits Provisions.
Coverage for Young Adults Up to Age 26 Through Parents’ Insurance
The ACA also requires health plans to allow young people up to their 26th birthday to remain on their parents’ insurance policy, at the parents’ choice, regardless of marital status. This provision became effective on Sept. 23, 2010.
Delaware passed a law during the 2011 session that enables any eligible child dependent, who is a full time student as of May 1, 2011, and covered under a parent's health insurance as of that date, to remain an 'eligible child dependent' until the age of 26, subject only to the limitations on dependent coverage in the ACA. Kentucky’s 2011 law allows an exclusion from state gross income tax for health insurance premiums for family policies that permit parents to provide health insurance coverage for an adult child, up to age 27, who is not their tax dependent. The change aligns the state law with the eligibility and tax-deductible coverage specified in the ACA. Minnesota also conformed state tax law to cover the federal extension of dependent health care coverage to adult children under age 27 for tax year 2010. Virginia conformed inconsistent and conflicting requirements of its health insurance laws to corresponding provisions of the ACA that became effective on September 23, 2010. One of those provisions includes requiring employers that offer dependent coverage to provide coverage for dependents of employees who do not have access to other employer-based health care.
For more information about this topic, please visit Extension of Dependent Health Coverage Up to the Age of 26.
Early Retiree Insurance
The ACA required HHS to establish a temporary program within 90 days of enactment (June 1, 2010) for the purpose of providing reimbursement to participating employment-based plans for a portion of the cost of health benefits for early retirees, individuals 55 and over, and their spouses, surviving spouses and dependents. Beginning with plan years on or after Oct. 1, 2011, HHS will reimburse certain claims between $15,000 and $90,000.
For more information about this topic, please visit The Early Retiree Reinsurance Program.
Any Willing Provider
Any willing provider laws require managed care plans to accept any qualified provider who is willing to accept the terms and conditions of a managed care plan. These laws do not require managed care plans to contract with all providers. However, they do require managed care plans to explicitly state evaluation criteria and ensure “due process” for providers who wish to contract with the plan.
North Dakota passed a law in the 2011 session that establishes an "any willing provider" consumer freedom of choice for health care services. It requires that a health care insurer may not prevent a beneficiary from selecting the health care service provider of their choice if the health care provider is licensed in the state. The law also requires that the insurer may not impose upon any beneficiary selecting a provider a copayment fee or other condition not imposed upon all other beneficiaries. For those insurers that deny the right of providers to participate as a preferred provider, the state may assess penalties.
Small Business Health Insurance
The ACA contains a number of provisions related to small business health insurance. Beginning in 2014, small businesses will be able to participate in small business health options programs or "SHOP" exchanges. These programs are simply state-based health insurance purchasing pools where small businesses are able to pool together to buy insurance. Small businesses are defined as those that have no more than 100 employees. States have the option of limiting pools to companies with 50 or fewer employees through 2016. Companies that are currently defined as small businesses and grow beyond the size limit will be "grandfather in." The purchasing pools are intended to lower the costs of insurance.
According to the Congressional Budget Office (CBO), exchanges are estimated to ease small business insurance costs. CBO forecasts that premiums in the small group market would fall between 1 percent and 4 percent. The amount of coverage in the small group market is expected to rise by 3 percent.
The law also assists small businesses and small tax-exempt organizations to afford the cost of covering their employees’ health insurance. If a small business has fewer than 25 employees and provides health insurance it may qualify for a small business tax credit of up to 35 percent (up to 25 percent for non-profits) to offset the cost of insurance, starting with the 2010 federal tax year. This is intended to lower the cost of providing insurance. Starting in 2014, the small business tax credit goes up to 50 percent (up to 35 percent for non-profits) for qualifying businesses.
For more information about this topic, please visit Small Business Health Insurance: State Roles.
Out-of-State Health Insurance
The ACA permits states to form “health care choice interstate compacts” and allows insurers to sell health insurance policies in the individual market across state lines, under limited conditions. The insurer must comply with market conduct, unfair trade practice, network adequacy, consumer protection, and dispute resolution standards of any state in which the insurance is sold, must be licensed in each state, and must notify consumers that it may not be subject to the laws and regulations of the selling state. Additionally, they must also offer plans that meet the essential health benefits package and cost sharing protections of the ACA.
Georgia passed a law in 2011 that authorizes health insurers to offer "cross-border" or out-of-state individual sickness insurance policies in-state, that have been approved for issuance in other states; providing for minimum standards for such policies and allowing insurers authorized to transact insurance in other states to issue individual accident and sickness policies in the state.
For more information about this topic, please visit Out-of-state Health Insurance - Allowing the Purchase (State Implementation Report).
Congressional Research Service, Private Health Insurance Provisions in PPACA (P.L.111-148) (Washington, D.C.: CRS, Feb. 15, 2010); http://bingaman.senate.gov/policy/crs_privhins.pdf.
U.S. Department of Health and Human Services, New Plan Options for Federally Administered Pre-Existing Condition Insurance Plan in 2011 (Washington, D.C.: USDHHS, Nov. 5, 2010); http://www.healthcare.gov/news/factsheets/new_plan_options_2011.html.
 Congressional Research Service, Private Health Insurance Provisions.