Officials Warn To Be Careful Where You Buy Insurance Outside Federal Marketplace

It’s that time of the year again — time to sign up for Obamacare! Those who are currently without access to healthcare can browse through a number of plans on healthcare.gov. But health experts have warned would-be buyers looking for plans outside of the federal marketplace to watch out for the so-called “junk insurance” plans that have popped up due to new laws signed by the Trump administration. 

Those plans don’t meet the standards of the Affordable Care Act (ACA). 

The Supreme Court will soon hear a case that will determine whether or not insurers are reimbursed $12.3 billion to which they believe they are entitled. We should have an answer before the Senate goes on recess in summer next year.

According to insurer Land of Lincoln Health, the company is down over $75 million that it should have been able to recover from the risk corridor program under the ACA. 

Risk Corridors are a provision of the ACA. They “limit the risk borne by qualified health plans on the insurance marketplaces. Risk Corridors are a mechanism to minimize the year-end losses of insurers who covered a disproportionate share of sicker, often older, insured customers. The federal government, through the Department of Health and Human Services, agrees to cover 50% of the excess costs borne to insurers if those costs exceeded premiums by 3-8%.”

Land of Lincoln Health says that their monthly premiums were set low due to the provision. In addition, insurers Moda Health Plan, Blue Cross and Blue Shield of North Carolina, and Maine Community Health Options are all suing as well.

A federal appeals court has already ruled that the Risk Corridor provision of the ACA was non-binding, and that it was more of a description of what an optimal system should look like. The Supreme Court has been asked and subsequently agreed to review the previous rulings.

America’s Health Insurance Plans (AHIP) CEO Matt Eyles said, “The Supreme’s Court’s decision to hear this case recognizes how important it is for American businesses, including health insurance providers, to be able to rely on the federal government as a fair and reliable partner. Strong, stable and predictable partnerships between the private and the public sector are an essential part of our nation’s economy, and our industry looks forward to having this matter heard before the Court.”

Association for Community Affiliated Plans (ACAP) CEO Margaret Murray said, “We’re pleased that the Supreme Court has agreed to hear the case, as it gets to the heart of the concept of the full faith and credit of the United States government. We asked the appeals court in an amicus brief to affirm that the Federal government should be as good as its word in statute, and urge the Supreme Court to do the same.”

The Supreme Court Case: United States vs South Eastern Underwriters Association Explained

The  Supreme Court case United States vs the South-Eastern Underwriters Association is known because the outcome inspired the McCarran-Ferguson Act, which gave Congress the power to help regulate the Insurance industry.

The case took place in 1942. The Attorney General of Missouri requested the case because the insurance regulators in Missouri felt that they were not able to correct abuses that had been taking place since the 1920s. The Department of Justice investigated the case, and a grand jury then indicted the South-Eastern Underwriters Association, as well as many of their officers and member companies. The defendants were charged with two counts of antitrust violations as well as conspiracy to fix premium rates for fire insurance policies, boycotting independent sales agencies that did not comply. They were also charged with monopolizing markets in several states.

The district court dismissed the indictment, noting that the business of insurance is not commerce and that while it might be considered trade that is subject to local laws, the commerce clause is not to be relied upon.

The question that the Court formulated for the case was whether or not the Commerce Clause gave Congress the power to regulate insurance companies (from health insurance, to social security and disability insurance, to homeowners and life insurance) doing trade across state lines. The Supreme Court had, for the last 80 years, held the belief that insurance is not a commerce transaction, and this is what the case tested. The case in the Supreme Court ruled that the Sherman Act was intended to cover monopolization and that the sales of insurance was indeed a form of commerce that Congress could regulate.

In response to this, the McCarran-Ferguson Act was passed in 1945, giving formal protection to states to allow them to regulate their own insurance transactions, and limiting the way that insurance could be regulated on a federal level. The act still stands now, although it could be modified to change how health care insurance is treated.

Summary Of Paul v. Virginia In 1869

In 1868, the U.S. Supreme Court ruled that states could regulate insurance sales and issuance. The deciding factor, according to the Court was that insurance sales were not interstate commerce. This case was brought by the National Board of Fire Underwriters. The purpose of the case was to challenge the states’ ability to regulate insurance sales.

In the 19th century, life and fire insurance companies began marketing products nationally. In an effort to encourage local enterprise, states began levying license fees and taxes on insurance companies that were not based in the state. This type of legislation was mostly focused on the large insurance companies headquartered in the Northeast United States.

Paul v. Virginia became a landmark case for states’ rights. Paul was an insurance agent for several New York state fire insurance companies. He was selling insurance in Virginia and was convicted for selling insurance without a license under Virginia law.

Paul lived in Virginia and was a resident of the Commonwealth. He was appointed to sell insurance against fire by several New York insurance companies. He applied for a license with the state, but did not deposit bonds with the state treasurer and was refused the license.

The insurance company lawyers argued that their corporations should be considered citizens and be covered under Article IV and the Privileges and Immunities Clause. The ruling by the Supreme Court denied this argument and found that corporations were not citizens as defined by this clause.

In a later 1944 ruling in United States v. Southeastern Underwriters Association, the court found that insurance was interstate commerce, however by this time state regulatory systems were well-defined. Congress strengthened the states’ positions in 1945 when they authorized the McCarran-Ferguson Act and recognized state insurance regulation.

This ruling also held that the federal government could regulate insurance transactions under the Commerce Clause. To date, this ruling has not been reversed.