Opinion Column

Behind The Scenes of Health Reform: The National Association of Insurance Commissioners

The new health reform act has been widely criticized as a federal government takeover of the health care system. To a remarkable degree, however, the law actually relies on the states to reform health insurance.

The health overhaul does establish new national requirements that insurers must meet. It also establishes a federal program for subsidizing the purchase of private health insurance. It imposes nationwide requirements that individuals be insured and that employers that do not offer health insurance help cover the cost of public subsidies for their employees.

But the jobs of enforcing the insurance regulations, of operating the health insurance exchanges and generally of regulating insurance are left to the states. Indeed, the health overhaul leaves state insurance law in place, only preempting laws that prevent its application.

To help coordinate state regulatory efforts, health reform looks to the National Association of Insurance Commissioners. The NAIC has for nearly 140 years orchestrated the efforts of the state insurance commissioners. Until 1944, states exclusively regulated insurance. But in that year the Supreme Court decided that the business of insurance was within the regulatory purview of Congress. The following year, however, Congress passed the McCarran-Ferguson law, handing responsibility for insurance regulation back to the states.

Although federal regulatory authority has expanded over the decades, the states have by and large continued to be the primary regulators of health insurance. The NAIC coordinates their efforts to sustain a national insurance market and to assure the efficient use of state resources.

In 10 provisions, the new health law explicitly assigns reform responsibilities to or requests help from the NAIC. One section requests the NAIC to amend its Medigap plan standards; another asks the NAIC to establish definitions and methodologies to be “certified” by the Department of Health and Human Services for determining whether insurers pay out enough of their premiums for claims or quality improvement costs (the “medical loss ratio” requirement). A number of other provisions require HHS to consult with the NAIC or to take its advice into account in drafting implementing regulations.

The NAIC website explains, “A state regulator’s primary responsibility is to protect the interests of insurance consumers, and the NAIC helps regulators fulfill that obligation.” The NAIC has 29 consumer representatives this year, 18 of whom are “funded representatives,” for whom the NAIC covers the expenses of participating in NAIC proceedings. They represent groups like the cancer and diabetes societies, the heart and multiple sclerosis associations, Consumers’ Union and state-based insurance consumer advocacy organizations.

Regulators are often accused of being influenced by the industries they regulate, and the NAIC has also been criticized for being too close to the insurance industry. It’s true, the industry is a continual presence at all NAIC proceedings. But as a funded consumer representative actively participating in the NAIC health overhaul implementation process, I have been impressed with the transparency and participatory nature of that process to date and the seriousness with which the NAIC has taken its responsibility to implement the new health law.

There are several reasons why the NAIC was singled out for a key role in implementing the legislation. Most obviously, the federal government needed its expertise. Although the Departments of Labor and Treasury regulate some health insurance plans and HHS has partial responsibility for administering the Health Insurance Portability and Accountability Act, the federal government has had little experience with regulating the individual and small group insurance market, the primary concern of the health overhaul. The NAIC is the repository of state expertise in regulating these markets.

Second, the NAIC is the ideal partner for coordinating federal laws across states. No other institution has as much experience or expertise in coordinating insurance regulatory efforts among the states or between the states and the federal government.

Finally, the state insurance commissioners, the NAIC’s constituent members, are natural partners for the federal government in implementing the new law. While the political grandstanding that attended Congress’ enactment of health reform has continued unabated at the state level, the insurance commissioners have approached reform as a practical, not a political, challenge.

Even in states whose governors have vociferously opposed the health overhaul, insurance commissioners are quietly working together with the NAIC to fulfill their obligation to implement the new law of the land.

The NAIC has been hard at work implementing health reform since it was signed into law in March. Working groups and committees have held hours of conference calls and already drafted a complex form needed for the medical loss ratio instructions and another for justifying unreasonable premium increases. An NAIC committee that is working on the health insurance exchanges will hold hearings on July 22 and 23.

As implementation proposals adopted by the working groups are passed on to be voted on by all the commissioners, the NAIC process seems to be coming under increasing political pressure. I hope and trust, however, that the NAIC will fulfill the expectations of Congress; that it will prove a worthy partner in the task of reforming the health insurance industry to better serve American consumers.

Timothy Jost is the Robert L. Willett Family Professor of Law at Washington and Lee University School of Law.