States will be able to set their own standards for determining which insurers can sell medical coverage in online marketplaces that will serve an estimated 24 million people under the U.S. health-care overhaul.
Rules announced today by the Obama administration allow states to determine whether insurers led by UnitedHealth Group Inc. must bid to compete in the exchanges, or meet general standards set by the state that fit within broad federal guidelines. They also allow states to pool their exchanges.
The health law signed in 2010 directed states to set up websites and telephone lines that enable residents to compare and buy coverage as if shopping for plane tickets. The rules come two weeks before the U.S. Supreme Court hears arguments on whether a provision mandating coverage for all Americans is constitutional, draining some of their impact, according to Thomas Carroll, an analyst with Stifel Nicolaus & Co.
“I don’t know that the markets will give anything much credence yet, given that things could change significantly,” said Carroll, who is based in New York, in a telephone interview.
The Standard & Poor’s 500 Managed Health-Care Index, which tracks insurer stocks, closed down 1.3 percent. The broader S&P 500 index was up 0.02 percent.
States have until January to demonstrate how their exchanges will work, or the U.S. will install a backup in which federal officials will determine the rules. So far, 17 states and the District of Columbia have created an exchange or have said they will, according to the Kaiser Family Foundation, a Menlo Park, California-based research institution
Today’s guidelines allow states to police insurers by using “secret shoppers” to ensure sick people aren’t discouraged from signing up and banning promotions to attract healthier people. They also urge use of third-party “navigators” to help consumers get the most from the exchanges.
The rules don’t say how the federal backup exchange will work. That is “a huge priority” for the government, said Tim Hill, the deputy director of the Center for Consumer Information and Insurance Oversight, the agency responsible for exchanges, in a conference call with reporters.
The rule acknowledges “states are in the best position to establish exchanges because they have the experience and local-market knowledge needed to best meet consumers’ needs,” Karen Ignagni, president and chief executive officer of America’s Health Insurance Plans, the industry’s trade group in Washington, said in a statement.
The industry has lobbied against proposals in states that would require insurers to bid to sell plans in exchanges.
“It looks like they tried to be as accommodating to states as they possibly could,” said Thomas Barker, the former acting general counsel of the U.S. Department of Health and Human Services under President George W. Bush.
The flexibility may be aimed at getting states moving on building exchanges, and “to try to tone down some of the criticism” of the health law, said Barker, now a partner at Foley Hoag in Washington, in a telephone interview.
The regulations extend the federal government’s reach into states and will cost millions of dollars, said Virginia Governor Bob McDonnell, chairman of the Republican Governors Association, in a statement. He criticized the lack of clarity on the federal health insurance exchange and other details.
Competition between plans in the exchanges “will drive down costs” while giving people and small businesses “the same purchasing power big businesses have today,” said Health and Human Services Secretary Kathleen Sebelius in a statement.
Low-income and working-class people will get discounts on coverage purchased through exchanges under the law. A family of four earning as much as $92,000 this year would be eligible for a subsidy, the law says.
The rule gives people a six-month window beginning in October 2013 to enroll in plans through the exchanges for the first time, said Ron Pollack, executive director of Families USA, a consumer advocacy group in Washington.
“Having that extra time, I think it’s going to make it more likely that people who don’t currently have insurance actually get it,” Pollack said.
The subsidies are expected to cost the U.S. about $773 billion from 2014 to 2021, according to CBO estimates. Some of the 644 pages of rules announced by the Obama administration may still be revised, the government said in a regulatory filing.
A spokesman for UnitedHealth, Matt Stearns, said in an e-mail that the company was reviewing the regulations and couldn’t immediately comment. The Minnetonka, Minnesota-based company is the largest commercial insurer by market value.