Health care reform is not just national, it’s local. The “generals” may be busy planning in the other Washington but what matters most are the “boots on the ground.” The folks that you see day to day will have a more immediate effect on your life than the folks in a distant office. As if that split between the two Washingtons were not enough, local control is “Balkanized” with commanders setting priorities that conflict.

The Attorney General, the Insurance Commissioner and the Governor have each been sorting through health care reform in a rush to meet impossible federal deadlines. The Attorney General has joined a lawsuit challenging the constitutionality of the health care reform law. The Insurance Commissioner has been issuing guidance to insurance companies on his expectations for regulatory compliance. The Governor has created a “health care cabinet” to coordinate change among the remaining state agencies. What do these folks have in common? They are each separately elected officials.

If you are one of the thousands of businesses, professionals, or ordinary consumers in Washington State trying to plan for the future, you may want to dig a good “spider hole.” We all hope that civilian casualties can be minimized; but, when so many people are in charge of telling the health care delivery and financing sector what to do next, there is bound to be “collateral damage.”

Let’s focus on insurance commissioners. Even though we talk of national reform and we live and work in a “global economy,” health insurance is still regulated one state at a time. If you are a national insurance company doing business throughout the country, you comply with the rules of 50 different insurance commissioners. With reform, you can add compliance with the different federal agencies. If a Washington company wants to sell insurance in Idaho or Oregon, the company must follow the rules of those states. Of course, insurance commissioners realize that such a cumbersome system threatens their existence (i.e., why not just have one commissioner – the feds) and they try to work in unison through the National Association of Insurance Commissioners (NAIC).

In a “tea party” world, there is no way Congress would move to eliminate traditional state regulation of insurance. Even if Congress wanted to put the feds in charge, the federal capacity to replace state regulation does not exist. Thus, reading through the federal health care reform, you will find explicit references to the NAIC. The feds must consult with the NAIC on a vast array of topics to create the federal baseline for health care reform. One look at the NAIC work plan would make the most seasoned veteran wilt – NAIC tasks under health care reform.

Now put this in perspective, you have national agencies consulting with 50 insurance commissioners to establish standards for all of the health insurance industry that begin to take effect in 4 months. From a practical standpoint, this means that you obey the person who is standing in front of you – right or wrong. For now, the only person who can issue a fine, take away your license, or order you to stop doing business is the Insurance Commissioner. But you have to be prepared to change course when someone in the other Washington issues new orders. It will happen.

So for the benefit of those in Washington, here are samples of “today’s” directions from the state Insurance Commissioner (OIC). Notice that the best the Office can do under the circumstances is to give short term advice in an industry that requires long term planning.

  • What is a “grandfathered” plan?
    • A “grandfathered” plan is any group or individual health plan that was in force on or before March 23, 2010. A plan remains “grandfathered” even if it can be renewed or new employees and dependents may be added to the plan after March 23, 2010.
  • What’s the definition of plan year?
    • For group plans, we interpret this to be the first renewal date on or after 09/23/10.  Rules published by HHS on 5/10/10 clarify the use of the term “plan year” and how it applies to individual coverage.   PPACA uses the term “plan year” in referring to the period of coverage in both the individual and group health insurance markets.  The interim final regulations substitute the term “policy year” for “plan year” in defining the period of coverage in the individual health insurance market.   These regulations define “policy year” as the 12 month period that is designated in the policy documents of individual health insurance coverage.  If the policy document does not designate a policy year (or no such document is available), then the policy year is the deductible or limit year used under the coverage.  If deductibles or other limits are not imposed on a yearly basis, the policy year is the calendar year.
  • What does the OIC consider to be the plan year for an association plan for compliance with the interim reforms?
    • The association is the policyholder and the contract between the policyholder and carrier governs the certificates issued to enrollees.  As such, we will look to the association’s master contract renewal date on file with this office for the purpose of determining plan year and implementing these reforms for all members of the group.
  • What immediate insurance reforms must be made to “grandfathered” health plans?
    • These plans must comply with [identified short term reforms], with the exception of preventive health services.  Additionally, annual limits on essential benefits and the prohibition of pre-existing exclusions for individuals under 19 do not apply to individual “grandfathered” plans.  The requirement to offer coverage to dependents up to age 26 in group grandfathered plans is limited to dependents that are not eligible for their employer’s health plan.
  • How will carriers be expected to handle provisions that require federal rulemaking?  As an example, HHS needs to define the term dependent.
    • In this situation, we will permit a definition stating that “dependent means an individual who meets the dependent status criteria to be adopted by the Secretary of HHS.”  Carriers will be expected to incorporate the new definition along with other endorsement changes into their health plans as they are later re-filed.
  • Can I negotiate the large group rates?
    • Based upon our current understanding, we do not believe you will be able to negotiate large group rates in the same manner as is being done under current practice.    In addition to the loss ratio and rebate requirements set in Section 2718 of the Public Service Act (PHS Act), Sec 1003 of the PPACA, Pub. L. 111-140 adds Section 2794 of the PHS Act.  Section 2794 requires the Secretary of the Health and Human Services in conjunction with states, to establish a process for the annual review, beginning with the 2010 plan year, of “unreasonable” increases in premiums for health insurance coverage. The process shall require health insurance issuers to submit to the Secretary and the relevant State a justification for an unreasonable premium increase prior to the implementation of the increase. Insurers shall prominently post such information on their Internet web sites. The Secretary shall ensure the public disclosure of information on such increases and justifications for all health insurance issuers.
    • The Department of Health and Human Services has issued a request for public comment on rate review provisions included in this new law. Copies of these documents are available at its web site. We encourage carriers to comment on this.
    • We will update information on this subject once we have more information from the Department of Health and Human Services.

Yikes! Irrespective of your views on health care reform, you have to wonder what thought process produced a reform that requires the state Insurance Commissioner to issue this type of guidance to insurance companies. For now, we have moved from a regulatory system where the Commissioner once rejected imprecise health plans to one that permits “placeholder” language in plans.

We will permit a definition stating that “dependent” means an individual who meets the dependent status criteria to be adopted by the Secretary of HHS.

Like most such major offensives, you expect the “boots on the ground” to improvise. The reality in the East coast Washington won’t match up with the reality in the West coast Washington.