The reforms retained by the Legislature in 1995 and expanded over the years might explain why Washington residents don’t notice much change in their lives since the federal health care reform law was enacted. Washington the state has long required guaranteed issue of health insurance coverage, limited exclusions, mandated benefits, permitted access to all types of health care providers, created community rating, permitted coverage of dependents to age 25, and regulated managed health care plans. That’s not even an exhaustive list however exhausting.

Washingtonians have deep experience with health care reform gained over the last twenty years that have included these lessons:

• complex reform leads to complex deformation,
• big bites lead to choking,
• community rating creates surly neighbors, and
• money runs out.

Meanwhile, federal reform has skipped merrily down the same path that Washingtonians followed in 1993. Regulators blithely ignore the State’s history and experience. But let’s be clear that criticism of federal reform or any reform doesn’t mean that reform isn’t needed.

No one in their right mind believes that the existing system for health care delivery and finance works well. Many people in their right minds differ on how much change should happen, when that change should happen and what change will work. Unfortunately, while the political and regulatory war over health care reform reaches its 20th anniversary in Washington, the families and businesses affected rock back and forth in the turbulent waters and some fall overboard.

Federal regulators are just now understanding that just because you can adopt a regulation, it doesn’t automatically follow that those affected will be able to understand and comply. More importantly, regulators are learning that people can lose patience when promises fail to match the reality.

David Brooks, a New York Times columnist I admire and rarely miss, wrote today about the chaos of health care reform. I cannot match his intellect or skill and so instead, I add the following visual observation to mark my 20th year working on health care reform.

Nearly every year, the legal profession engages in “navel gazing” to develop the program or standard that will turn public opinion around. I don’t worry about these things. I’ve read enough history and literature to know that lawyers never have and never will be as endearing as penguins and Koala bears. But then, most attorneys I know don’t set that as their goal. Instead, attorneys I work with fiercely insist on the rule of law as the best defense of democracy and alternative to trial by combat.

I help clients seek change in law, obtain advantage the law confers, or avoid penalties imposed by law. The common denominator is law, its interpretation and application to particular circumstances. In America, we don’t take people’s stuff without due process of law. Lately, some old friends have reacted to my criticism of health care reform as though I ought to ignore the law in favor of some mystical, higher, universal good.

In 1993, I served as legislative counsel to the House Financial Institutions and Insurance Committee and worked with a team of policymakers and lawyers to develop Washington’s health care reform. The following year, I worked as Deputy Insurance Commissioner for Health Care. For the next seven years, I worked with many of the brightest people in and outside of Washington to develop solutions to the problems of unaffordable and inaccessible health care and the insurance to pay for care. Some of those efforts survived but only after great turmoil and many other failed policies and ruined businesses. Here is what I learned from those earlier failures.

• Policy decisions that underlie reform and regulation affect real lives and wallets of real people.
  • Businesses will fail; insurance producers will lose their livelihoods created from a lifetime of effort.
  • Some people will get insurance; some will lose insurance.
  • Some people will pay more for access to care; others will pay less.
  • Markets will be disrupted and may or may not recover.
  • When you work for the public, you don’t get to say to those hurt by reform, “too bad, change happens.”
• Health care costs money
  • No matter how you choose to collect and distribute money to pay for care (Private Insurance, Medicaid, Medicare, Basic Health, High Risk Pools, or Workers Compensation), the bill must be paid.
  • You can label a cut in practitioner reimbursement rates as cost containment; but, it’s still a cut in pay and sooner or later, the practitioner won’t accept the cut.
  • Health care may be a right; but, America still wants care driven by capitalist, market dynamics and no one should be surprised when insurers, hospitals, consumers, and doctors try to reduce their risk and increase their gain.
  • Someone has to pay for care; but, few people want to pay for someone else’s care.
  • When you reach into my pocket, you haven’t found a new funding source; you just took my paycheck.
• If you make a change in policy, you should expect people to find a way to avoid pain.
  • Regulators can insist that people eat their vegetables but that doesn’t mean they will.
  • Legislators can command businesses to spend money on benefits but that doesn’t mean employers will spend more than the law requires.
  • Regulators can demand that insurers sell insurance to sick people, but that doesn’t mean that insurers will go hunting for sick people to insure.
  • If the law doesn’t achieve your objective, pretending the law doesn’t exist will only make things worse.

What I learned from Washington’s failed reform was that good intentions do not solve problems and that change does not happen in a vacuum or as planned. My memories drive a fierce insistence on the rule of law. Federal health care reform looks much like Washington’s earlier efforts – lots of programs, lots of rules, and mass confusion with overworked public employees subject to impossible deadlines in service of unrealistic expectations.

I can’t stop history from repeating itself but I can insist upon transparency, due process, and equal application of laws. When I believe that rules have been ignored or glossed over, when consumers or businesses have rules shoved down their throat without recourse, or when companies get an advantage over others in similar circumstances, my friends should not expect me to look the other way for some mystical, higher, or universal good even if its labeled health care reform.

With all due respect to my friends who still labor in the Legislature and in government agencies, if a statute creates a roadblock to your good ideas, adopt a bill and get it signed by the governor – that’s democracy. Statutes are not suggestions, it’s the standard for action. So if you want to adopt a rule, make sure you have authority. And don’t forget to repeal the rules you aren’t using and to adopt new rules when you need them. And no, a PowerPoint is not the legal equivalent of a rule.

Just because it’s health care reform, doesn’t mean the rule of law no longer applies. It’s what I do even if I am not as cuddly as a Koala bear.

My wife surprised me with a one week castle tour of Ireland to celebrate both my birthday and St. Patrick’s day (Conniff / Connacht province). The day I left, the Washington State Senate passed Substitute Senate Bill 5605 by a wide margin of 38 in favor 11 against. I was surprised and my clients were happy that the Senate did not fall for the old “fiscal note” trick that warns of speculative financial ruin when an agency opposes a bill.

As you know, the legislation described on this site before would prohibit the Insurance Commissioner from deciding for himself whether an association satisfies the federal ERISA standards for treatment as a single, large group plan. More importantly, the legislation would require federal agencies to do their own work and prevent a situation where the Commissioner’s standards don’t match the federal standards leaving an association legally exposed to beneficiary lawsuits. Seems simple enough. Here’s the bill’s main provision:

“Until or unless the United States department of labor prohibits the treatment of a health plan issued to an association or member-governed group as a large group plan, any rate or form filed by any life and disability carrier for health benefit coverage to employers purchasing health plans through that association and member-governed group shall be deemed and may only be reviewed as a negotiated large group filing by the insurance commissioner.” [Sections 2(3), 3(3), and 4(3)]

For those not understanding the irony of the phrase “luck of the Irish,” passage of the bill would not be good news nor would my vacation.

On my second day in Dublin, I got sick and I stayed sick throughout the week. However, being sick is a good excuse for avoiding tours and shopping and sitting instead in a pub with a pint. I also had the opportunity to experience Ireland’s hybrid public health care system which guarantees basic services with private health insurance for other care. A local village nurse prescribed some medicine which I took to a village chemist who gave me a cup of hot tea while waiting for the cure. Not so bad – 30 Euro for the visit and 11 Euro for the medicine.

The next morning, alive with new hope, I opened the Irish Independent and read this, “Pledge of universal health care appears to have vanished.” There were many articles discussing the problems in the Irish health care system that week. For the rest of my trip, my wife had to hand me newspapers with big holes cut out so I would actually “vacation.” Before she was able to find scissors, I was surprised to find how utterly common the problem of financing health care has become. According to the Independent:

“Last year, 64,000 subscribers dropped their health insurance. After further steep increases, the number of parents and their children who could leave in the near future has been put at tens of thousands. At peak, private health insurance covered 51pc of the Irish population, an extraordinarily high proportion. Much of this was due to the shortcomings of the public system. But over the past few years the cost of private insurance has risen so steeply that more and more consider it simply unaffordable and have returned to relying on public provision.”

“The flow may increase shortly, when a levy of €350 (€120 for children) will be imposed to support the “community rating” system. This is the device which saves people from paying more when older or more frail.”

“One of the greatest concerns of health professionals is that it is chiefly younger and healthier people who are leaving the private system. In addition, people are cutting down on treatment or delaying it. That must mean, in some cases, long-term problems.”

I stopped reading. The problem is too familiar. It’s one of the reasons small employers are holding onto their current association coverage so tightly. I felt comfort in knowing that Washington State was on the right track. The comfort was too brief. Within days of leaving America, my phone began dinging like a mad hatter and AT&T began charging me a dollar a minute.

The Insurance Commissioner’s new old friend, CMS Oversight Division acting director, Teresa Miller, also the former Oregon Insurance Commissioner, discovered the “Washington problem.” Miller kindly provided a letter to Commissioner Kreidler expressing her view that the association plan bill that had just passed the Senate would be “preempted by federal law.” What good luck and timing for Commissioner Kreidler.

CMS summarized the legislation as “intended to exempt the association coverage at issue from the [small group insurance reforms under federal law].” Of course, the bill doesn’t actually provide for such an exemption; CMS prefers to focus on the intent. That’s what people hope no matter what the bill actually says.

Ms. Miller goes on to note that if the bills were “determined to have this effect, they would conflict with the manner in which coverage is classified under the PHS Act  the Employee Retirement Income Security Act (ERISA), and guidance issued by the Centers for Medicare & Medicaid Services (CMS) addressing association coverage.” What a calamity! But, the bill does not actually say this. It’s a risk only if someone, (other than CMS I suppose), determines that the bill has “this effect.”

Let’s look at that again (roll tape). The Senate bill is preempted but only if someone decides the bill does what Ms. Miller thinks it might do, if it does it at all. Here are two other sentences with the same obvious statements that could be said of any legislation currently before the state Legislature:

“…to the extent that the legislation (if enacted and implemented by State as intended) would prevent the application of federal law requirements for coverage offered to small employers through an association…”

“[The bill] would be preempted by the PHS Act and ERISA to the extent that it prevents the application of federal law by preventing the application of PHS Act and ERISA requirements in the absence of an affirmative action by the Department of Labor that is not required or contemplated by the PHS Act or ERISA.”

Let’s just skip over the obvious “if” repetition about the bill doing the things imagined and look at the what happens if god forbid, the state legislation were preempted. This sounds almost as bad as the consequences described in the Commissioner’s fiscal note.

“Should the State either inform us that it would not be enforcing federal law with respect to the coverage at issue, or subsequently fail to do so, this could give rise to CMS directly enforcing applicable federal requirements for health insurance coverage offered through an association.”

Ummm…I thought that was the purpose of the bill – federal agencies applying federal law that could be relied upon by employers rather than local interpretations of federal intentions applying federal standards without any legal protection that comes when a state agency without authority tells an employer that everything will be just fine.

Let’s look at what the Commissioner has already said about enforcing federal law in a presentation to insurers last fall.

“Federal Rate Review Regulations –How does It Impact Association Health Plans

- Firmly sets forth the position that Association Health Plans are subject to Federal Health Care Reform

- Sets forth a process for filing of rates with CCIIO if the state is deemed to not be an effective rate review state for Association Health Plan Business (Washington is not and (sic) effective rate review state for AHP business)

- Clarifies that small employers and individuals purchasing coverage through AHPs that are not an employer under ERISA are considered to be small group and individual market products for FEDERAL rate review purposes” [at 4]

“Employer Health and Welfare Benefit Plans must satisfy criteria to bring them within the ERISA definition of “employer.” The U.S. Department of Labor (DOL) will make the ultimate decision as to status of the association as employer under ERISA.” [at 7]

Let’s compare. Ms. Miller says that if the state tells CMS that it cannot properly regulate association plan rates, it will and that federal agencies are not required to make a determination of an association’s status under ERISA. Commissioner Kreidler says the state is not an effective rate review state for AHP business and that the Department of Labor will make the ultimate decision as to status of an association under ERISA.

Here’s some reality therapy. The bill is just fine. It defers to federal law, tells the Commissioner not to pretend to be a federal agency and follows the current state law exemption of association plan rates from the state community rating law. [I don't know if the Commissioner asked for a letter declaring the old state law preempted as well.] DOL has already said many times, that it is the sole determinant of association plan status under ERISA. So that means the state can pass the bill and move on to other issues.

Nope. Luck of the Irish.

The letter from Teresa Miller is so “definitive” and so “concise” and such “controlling law” that the state House determined that it had no other choice but to set aside a bill that 38 senators failed to recognize as preempted by federal law. At least, that was the message I got when I finally arrived on our beloved American shores. With luck, the bill’s status might change again.

I don’t know whether being sick in an Irish pub is better or worse than the political drama of health care reform; either way, you need a pint of Guinness. I wish politics would go on vacation and we could actually contemplate the consequences (and care about them) of forcing perfectly good insurance producers out of business to create a new-fangled market that forces small employers to abandon perfectly good health plans in return for “reforms” that Washington State largely implemented years ago.

I pass along the advice of my new friend in Ireland who upon hearing what I do for a living gave me these Irish words, “It is better to spend money like there’s no tomorrow than to spend tonight like there’s no money!”

Words for government if I ever heard them.

Here is the red-lined text from the filing instructions unveiled on Thursday. Do you wonder why associations are seeking legislative intervention?

“Washington State SERFF Health and Disability Form Filing General Instructions
Page 5 of 19
Ed.14
2/28/2013

“J.Association or Trust Association, Trust, or Employer Group domiciled in Washington State
1. Must file for approval the policy, association and trust certificates [in single case format [does
not apply to Employer Groups].], applications, riders, or endorsements on the Form Schedule
tab.
a. If previously approved applications, riders, or endorsements are to be used with the new
policy or certificate, they must be attached to the supporting documents tab and be
described in the filing description or cover letter.
b. Single case format means group specific language with no bracketing or variability [does
not apply to Employer Groups].
2. Must file copies of the original trust documents or articles of incorporation and include revised,
amended or restated documents on the Supporting Documentation tab [does not apply to
Employer Groups].
a. Major medical lines of business must include a copy of the bona fide association bylaws on the Supporting documentation tab.
i. Must include a copy of the Industry Classifications comprising the eligible groups in the association. Or;
ii. An advisory opinion from the Federal Department of Labor demonstrating the group is qualified to purchase association coverage.“

These new “requirements” dramatically change current state law and conflicts with federal law as I have noted in previous articles.

The OIC is neither qualified nor authorized under federal law to make determinations as to whether an association plan meets federal ERISA standards for treatment as a single employer plan (the so-called bona-fide association standard).

The OIC filing requirements would retain an informal process OIC used with the Washington Master Builders Association (MBA) whereby OIC reviewed the association’s employer member SIC codes and negotiated with the MBA until the agency felt comfortable with the similarity of member employers. The OIC approach is a crude substitute for the federal test of “commonality of interest” which is both more nuanced and broader than comparing SIC codes to decide if the member employers are sufficiently the same.

As an alternative to the OIC review of SIC codes, the agency would require the association to obtain an advisory opinion from the U.S. Dept. of Labor (DOL) that the “group is qualified to purchase association coverage.”

First, the OIC instruction makes no sense – what does the OIC mean when it states “the group is qualified to purchase association coverage?” Any and every group is “qualified” to purchase association coverage. The legal issue concerns treatment of the association as a single, large employer under ERISA. The statement demonstrates the OIC lack of understanding of the legal issues involved and the danger when an agency sidesteps the rule making process by instead issuing “instructions.”

Even allowing for the probability that the OIC simply made a mistake in writing these standards, an advisory opinion from the DOL takes years to submit and receive. Moreover, federal law does not require an opinion letter as a condition to operating a bona-fide association or any other association. Groups seek DOL opinions to resolve uncertainties about potential liability under federal law. Why would an association rely on the OIC for a legal opinion as to association liability under ERISA? Why resolve uncertainties between state and federal law through a filing instruction?

Because it’s easier for the OIC. The Legislature has never shown a willingness to repeal the association health plan rating law and the federal standards do not provide the kind of “bright line” the Commissioner wants to shut down most association plans. The OIC standard effectively ensures that only the OIC will be able to judge the association. No association plan can survive until either the DOL issues an opinion or the OIC satisfies itself that if it were the federal government, it would find an association to be bona-fide. Remember that the “instructions” tell insurers that the OIC will not allow the insurer to sell a plan unless the insurer satisfies the “instructions.”

These OIC instructions demonstrate the purpose of SSB 5605 which the Senate was hearing on the same day the OIC was explaining. The legislation would go in the opposite direction from the OIC – an association plan could continue until the federal government says no. The OIC wants to say no until the federal government says yes. Which is fairer to the thousands of small businesses currently insured through associations?

This flurry of activity leads me to a simple question – exactly who is in charge of what?

The Legislature exempted associations from state small group rating laws in 1995 and association health plans now dominate the small group market. Since then, the federal government has applied federal health plan rating standards to small groups purchased through associations unless the association could be treated as a bona-fide association under ERISA.

The Insurance Commissioner interprets these state and federal laws as authorizing the agency to issue new “filing instructions” that apply federal small group rating laws to associations unless the Commissioner decides the association employer members are acceptably similar.

I should have paid more attention in law school. I don’t remember this lesson on constitutional law.

Here’s the analysis of ERISA and the role of the Insurance Commissioner I remember, as described in a letter from the DOL to the Washington State Legislature about Insurance Commissioner authority over employer health plans. Even dusty old letters can be “instructive.”

The bill does just one thing – if passed, the legislation would maintain the status quo by preventing the Insurance Commissioner from taking on the federal government’s job. Here is the operative sentence of the bill:

“Until or unless the United States department of labor prohibits the treatment of a health plan issued to an association or member-governed group as a large group plan, any rate or form filed by any life and disability carrier for health benefit coverage to employers purchasing health plans through that association and member-governed group shall be deemed and may only be reviewed as a negotiated large group filing by the insurance commissioner…”

That seems pretty clear to me. Until the feds say otherwise, stay the course. Here is the existing state law:

“Employers purchasing health plans provided through associations or through member-governed groups formed specifically for the purpose of purchasing health care are not small employers and the plans are not subject to [the state small group community rating law].” (RCW 48.44.024)

Here is what the Insurance Commissioner advised about his existing powers to regulate association health plan rates in a presentation to insurers several months ago:

“Associations which do not qualify as an Employer Health and Welfare Benefit Plan under ERISA, continue to be exempt from State Community rating laws but at the plan renewal in 2014 must comply with Federal Community rating laws ‐and will be made up of individual, small and large employer groups for Federal Rating purposes.” (page 5)

“Federal Rate Review Regulations –How does It Impact Association Health Plans?
Sets forth a process for filing of rates with CCIIO if the state is deemed to not be an effective rate review state for Association Health Plan Business (Washington is not and effective rate review state for AHP business).” (page 4)

In other words, federal law governs associations both in terms of rate review and in terms of classification of an association as a single large plan under federal law. Again, here is the Commissioner’s advice to insurers and their association plan customers:

“Consider direct contact and or meetings with DOL to clarify their expectations –OIC has learned a great deal over the past year but DOL is the ultimate decision maker.” (page 16)

Pretty straightforward, right? The legislation tells the Commissioner to defer to the federal agencies. Even the Commissioner admits that the OIC does not qualify as “an effective rate review state” because of the longstanding (18 years) treatment of association plans as large group plans for rate review purposes. Seems straightforward to me – let the feds put these plans out of business. But here is a quote from the Senate staff analysis summarizing the OIC opposition to the bill:

“The federal DOL is responsible for determining whether an association is a bona fide group that will still be subject to large group rating. The federal guidance has made it clear that associations with small employers have to be rated as small groups. This language tries to create a federal pre-emption which is an important issue driving our fiscal impact estimate.”

How is a statement that the Commissioner must continue to follow state law until the federal government says otherwise an attempt to “create a federal pre-emption?” More to the point, the analysis makes no sense. State law cannot create a “federal preemption.” Federal health care reform already preempts state law. Staff explanations to the Senate Ways and Means Committee didn’t help to clarify the confusion.

Staff described the purpose of the bill as creating a state exception to federal health care reform law (You can actually watch the explanation here. I love the TVW video record  label of the bill as pertaining to “Water/Fire Suppression.”)

Staff went on to explain that associations use insurers strictly as third party administrators like the Washington Education Association. Staff also explained that the state collects no premium tax from coverage provided through associations and the fiscal note reflected that fact. Namely, if more small businesses purchased coverage through associations under the bill, the state would lose more revenue.

The next day, Senate staff corrected the error noting that association health plans are subject to the premium tax. Staff also noted that the OIC assumptions about revenue loss might or might not happen and that other scenarios were possible. In other words, the “fiscal note” was just a lot of guessing by an agency with a longstanding opposition to association plans looking for a math reason for opposition.

Of course, you can’t blame Senate staff for not grasping the OIC argument. The OIC argues that It’s not that insurers fail to pay premium taxes for coverage sold to associations but rather, coverage costs less when bought from associations. If small businesses failed to pay the higher private market price for reformed coverage, there would be less premium to tax. On the other hand, reform is just as likely to create the opposite effect. Richer benefits and community rating will raise market prices and generate even more revenue.

Representatives of associations testified as well. Some of this testimony was just as wrong as the staff analysis. Federal law does not require insurers selling coverage to bona-fide associations to sell such coverage to everyone in the state. Federal law requires an insurer selling a non-grandfathered small group policy to sell it to everyone not just association plan members. An insurer selling a plan to a bona-fide association would be selling a large group plan under federal law which is not subject to that standard. But hey, let’s not be picky about the law, it’s just too hard, darn it!

What I find to be such a puzzle is the cavalier attitude about state regulatory practices that could eliminate coverage for the majority of small businesses after all the promises that they could keep the coverage they had if they liked it. Why should the state shut down an association plan if the federal government won’t?

If everyone agrees that the determination of the status of an association is a federal matter, why should the OIC be permitted to shut down plans according to the agency’s own opinion which does nothing to settle the federal question?

What’s wrong with legislation that tells the Commissioner to continue reviewing association plans as they are now until the federal government says otherwise? How can doing something exactly the same way you’re doing it now create new costs? I must be missing something and no, it’s not that I don’t understand that some policymakers want these small businesses to pay more for coverage so that others can pay less. To me, it’s a simple legal question in an era where laws have become an afterthought and regulatory authority is less important than good intentions.

In spite of the poor efforts to describe the legislation, SSB 5605 passed the Senate Ways and Means Committee by a vote of 15 in favor and 6 against.

Senators recommending for the measure:

Andy Hill, Chair (R)
Jim Honeyford (R)
Michael Baumgartner (R)
Barbara Bailey (R)
Randi Becker (R)
John Braun (R)
Bruce Dammeier (R)
James Hargrove (D)
Brian Hatfield (D)
Mike Hewitt (R)
Mike Padden (R)
Linda Evans Parlette (R)
Ann Rivers (R)
Mark Schoesler (R)
Rodney Tom (D)

Senators recommending against the measure:

Karen Fraser (D)
Bob Hasegawa (D)
Karen Keiser (D)
Jeanne Kohl-Welles (D)
Ed Murray (D)
Sharon Nelson (D)

The legislation has a long way to go and more than enough opponents along the way. Dare I hope that opponents can be honest and say, “we need the association plan money to cover costs when the high risk pool is closed under reform; so they’ve got to go.”

Why spend all the time and energy coming up with fake arguments and misinformation? It’s exhausting.