The US Congress is currently considering proposals to overhaul the nation’s health care system. On 7 November 2009, the House of Representatives passed the “Affordable Health Care for America Act” (H.R. 3962), and, on 24 December 2009, the Senate passed the “Patient Protection and Affordable Care Act” (H.R. 3590). The House and Senate bills, which differ from each other in material respects, are now in the hands of a Joint Conference Committee of the two chambers, whose mandate it is to seek to reconcile the two bills. If the reconciliation process is successful, the Conference Committee report will go back to each chamber to be voted upon. If adopted by both the House and the Senate, the Conference Committee report will be presented to President Obama for his signature.

Both the House and Senate bills are very lengthy and complicated and, if enacted in anything resembling their present form, would have a profound impact on the health insurance industry in the US. At the risk of oversimplification, three of the most important consequences of the bills would be to: (i) greatly increase the number of purchasers of health insurance as a result of the individual and employer mandates, (ii) establish a number of alternatives to the traditional insurance market, and (iii) significantly alter underwriting practices (e.g., through mandating guaranteed issue and renewability, restricting rating variation and prohibiting lifetime coverage limits and pre-existing condition exclusions). Importantly, however, the effective date of a number of the bills’ provisions would be several years in the future.

The following brief summary highlights some of the key features of the two bills.

Individual mandates – The bills would require individuals to have qualifying health coverage. Those without coverage would pay a penalty, unless they qualified for an exemption (e.g., religious objection, financial hardship). The penalty would be imposed in 2013 in the House version, and phased in beginning in 2014 in the Senate version.

Employer mandates (“pay or play”) – The bills would require employers to either offer health coverage to their employees or pay a penalty. The details of this requirement, including the extent of relief to be provided to small employers, differ considerably between the two bills. The mandate would be imposed in 2013 in the House version, and in 2014 in the Senate version.

Expansion of Medicaid – The Medicaid program (which provides health coverage for indigent persons) would be expanded to cover all individuals under age 65 with incomes up to 150% (House version) or 133% (Senate version) of the Federal poverty line.

Health insurance exchanges – The House bill would create a National Health Insurance Exchange, through which individuals and employers could purchase qualified insurance, including from private health plans and the public health insurance option. The House bill would also allow states to operate state-based exchanges if they demonstrate the capacity to meet the requirements for administering the exchange. The Senate bill would create state-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges, administered by a governmental agency or non-profit organization, through which individuals and small businesses with up to 100 employees could purchase qualified coverage.

Public option – The House bill would create a new public health insurance option to be offered through the National Health Insurance Exchange that must meet the same requirements as private plans regarding benefit levels, provider networks, consumer protections, and cost-sharing. The Senate bill has no public option.

CO-OP program – Both bills would create a Consumer Operated and Oriented Program (CO-OP) to facilitate the establishment of non-profit, member-run health insurance cooperatives to provide insurance through the National Health Insurance Exchange.

Guaranteed issue and rating rules – Both bills would require guaranteed issue and renewability. The House bill would allow rating variation based only on age (maximum 2-to-1 ratio), premium rating area, and family enrolment. The Senate bill would allow rating variation based only on age (maximum 3-to-1 ratio), premium rating area, family composition, and tobacco use (maximum 1.5-to-1 ratio) in the individual and the small group market and the Exchange. Rating based on gender and health would be eliminated.

Temporary high-risk pool – The bills would establish a temporary national high-risk pool to provide health coverage to individuals (and spouses and dependents) with pre-existing medical conditions. Premiums, deductibles, and cost-sharing would be capped for individuals in the national high-risk pool.

Limits on medical loss ratios – The bills would limit health plans’ medical loss ratio to not less than 85% (80% in the Senate version for plans in the individual and small group markets), to be enforced through a rebate back to consumers.

Prohibited limitations on coverage – The bills would prohibit individual and group health plans from placing aggregate dollar lifetime limits on coverage, and would prohibit insurers from rescinding coverage except in cases of fraud. The Senate bill would also prohibit annual coverage limits.

Health care choice compacts – The bills would permit states to form Health Care Choice Compacts to facilitate the purchase of individual insurance across state lines.

Health Choices Administration – The House bill would create a federal Health Choices Administration, headed by a Health Choices Commissioner, to establish the qualifying health benefits standards, establish the National Health Insurance Exchange, and enforce the requirements for qualified health benefit plan offering entities, including those participating in the Exchange or outside the Exchange.

Antitrust exemption – The House bill would eliminate the longstanding statutory antitrust exemption for health insurers and medical malpractice insurers.

Reactions from state insurance regulators – The National Association of Insurance Commissioners (NAIC) is the umbrella organization of US state insurance regulators who historically have had almost exclusive jurisdiction over US insurance regulation. On 6 January 2010, the NAIC’s executive officers sent a letter to Congressional leaders, expressing the NAIC’s views on the House and Senate health care bills. Among their comments were the following:

  • The NAIC supports extending guaranteed issue protections to the non-group health insurance market, eliminating pre-existing condition exclusions and annual and lifetime limits, and prohibiting the rating of policies based on gender and health.
  • By the same token, the NAIC underscores the need for a robust individual mandate, implemented sooner rather than later, and with strong penalties, to mitigate the risk of adverse selection.
  • The NAIC recommends that health insurance exchanges be established and administered at the state level and opposes the House bill’s provision to establish a new federal Health Choices Administration headed by a Health Choices Commissioner.
  • The NAIC urges that nationally-sold plans be subject to all statutes and regulations that apply to other plans being sold to the same population and that they remain subject to the oversight of state insurance regulators.
  • The NAIC warns against any provision (e.g., giving federal regulators the authority to deny premium increases) that could separate the regulation of premiums from the regulation of solvency by state insurance regulatory authorities.

Prospects for the legislation – The future of the proposed health care legislation is rather uncertain at this point. The prospects of enacting either bill, or a combination of the two fashioned by the Joint Conference Committee, have been called into question by the recent victory in a Massachusetts by-election of a Republican senator who has pledged to cast the deciding vote to filibuster (i.e., delay indefinitely) consideration of the legislation in its present form. While opinion polls indicate public support for certain aspects of the legislation, they also evince concern about the costs of the legislation and, in particular, the taxes that would be imposed to implement it. As 2010 is a Congressional election year, members of Congress will be more wary than usual of casting a potentially unpopular vote in favour of the legislation. Some commentators have suggested that the attempt to enact comprehensive health insurance reform should be abandoned in favour of enacting specific components of the legislation that are generally popular among the citizenry, such as guaranteed issue and renewability, restricting rating variation, and prohibiting lifetime coverage limits and pre-existing condition exclusions. As the NAIC has pointed out, however, such partial initiatives, unless combined with a robust individual mandate to maintain the integrity of the risk pool, would create an adverse selection problem of major proportions. The most that can be said at this point is that there is great uncertainty about whether the US Congress will pass comprehensive health insurance legislation this year and, if so, in what form.