S.F. 2255 would implement important consumer protections in the event an Exchange is established in Minnesota

The Affordable Care Act (ACA) requires the establishment of an American Health Benefits Exchange that “facilitates the purchase of qualified health plans.”  States are directed to establish these exchanges and, if a state does not establish an exchange, the federal government is directed to “establish and operate such Exchange within the State.”  Assuming this requirement remains intact, S.F. 2255 would implement provisions to protect consumers and their access to a competitive, consumer-focused insurance market.  While we have concerns over some details, we support the general intent of the bill.

Any ACA-compliant Exchange will harm insurance consumers by layering on unnecessary regulatory burdens that add cost and uncertainty to the market, including the market outside the Exchange.  Furthermore, any Exchange creates accountability and transparency issues.  Whether state or federal, an Exchange meshes new federal regulations with existing state regulations into a patchwork that citizens will find hard to understand. 

There are a number of variations on an Exchange being considered today.  Though any Exchange poses problems, some Exchange proposals would do more harm to the marketplace than others.  Therefore, we support efforts to mitigate any harm to consumers due to the establishment of an ACA-compliant Exchange.

S.F. 2255 intends to protect consumers by restricting a future Exchange from engaging in harmful anticompetitive and market distorting behavior.  For instance, it restricts exchanges from imposing additional requirements on the market beyond the requirements of state and federal law and it restricts exchanges from fixing prices.   

Section 1 of S.F. 2255 itemizes important restrictions on the sale of qualified health plans when they are subsidized by the government and sold through an Exchange, including an Exchange established by the federal government.  While states cannot directly regulate a federal exchange, states can still regulate insurance products.   By restricting what can be sold in an Exchange, this section, in effect, restricts the structure of an Exchange. 

Of course, state law cannot override federal law.  However, Section 1321(d) of the ACA states, “Nothing in this title shall be construed to preempt any State law that does not prevent the application of the provisions of this title.”  Clearly, states are intended to retain their primary role in insurance regulation.  The ACA sets minimum functions for the establishment of an Exchange and most of the restrictions found in Section 1 would not prevent the establishment of a federal Exchange that meets the ACA’s minimum requirements.  So long as state insurance regulations don’t prevent the establishment of an Exchange that meets the minimum requirements of the law, the state regulations should be upheld.  We recommend amending Section 1 by deleting (a)(3)(viii) and (ix) in order to remove restrictions that may conflict with the ACA’s minimum requirements.

The idea that state insurance regulations can in any way limit the establishment of a federal Exchange is no doubt controversial.  But the ACA sails the state and federal relationship into uncharted waters where the powers and limits on both the state and federal government are ill-defined.  Assuming the ACA is upheld, future courts will need to step in and define this new and messy relationship. 

Section 2 provides a much more comprehensive list that poses direct restrictions on a future Exchange.  We generally support these restrictions.  An attempt to apply these restrictions to a federal Exchange would likely fail, but that is no reason to not make the effort protect Minnesota consumers.  Of course, a state exchange must be established by legislation.  To date, there is no state legislation establishing an exchange.  While these restrictions may seem to put the cart before the horse, they would, in effect, require the legislature to fully consider these restrictions before establishing an Exchange in the future. 

Peter J. Nelson

Director of Public Policy

March 26, 2012