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Regulation and Compliance > State Regulation

Ted Cruz’s PPACA alternative: 3 things to know

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Sen. Ted Cruz, R-Texas, has used the excitement surrounding the King vs. Burwell (Case 14-114) U.S. Supreme Court case as a chance to introduce his own health system change bill.

S. 647, the Health Care Choice Act bill, would repeal the Patient Protection and Affordable Care Act (PPACA).

The bill then would create a new “cooperative governing” system for individual health coverage. A health insurance issuer would designate one state as its “primary state,” and submit itself to regulation by the regulators in that state.

Regulators in other states, or “secondary states,” would then have to defer to the primary state in many situations.

Critics of “association health plan” proposals,” or proposals that let insurers sell health insurance across state lines, have argued that most health insurers will end up basing themselves in a state that makes little effort to keep tabs on insurers. PPACA itself allows the sale of a Multi-State Plan (MSP) option, a kind of plan regulated mainly by the U.S. Office of Personnel Management, but HHS ended up developing regulations that, in practice, seem to require MSPs to comply with many state regulations.

Cruz has tried to deal with that concern by including mechanisms to keep the primary state from shirking regulatory responsibilities.

For a more detailed look at some of the bill’s provisions, read on.

Grandfather and granddaughter look at a globe


1. The bill uses a broad definition of the term “state.”

Some parts of PPACA include only the 50 states and the District of Columbia in the definition of “state.”

S. 647 would use “state” to apply to the 50 states, the District of Columbia, and Puerto Rico, the Virgin Islands, Guam, American Samoa and the Northern Mariana Islands.


2. S. 647 would set some consumer protection standards.

The bill would require the primary state to enforce insurer compliance with many standards, such as claim settlement practice standards. A health insurer would be violating those standards if, for example, it refused to pay claims without conducting a reasonable investigation, or it frequently compelled claimants to sue for benefits.

A health insurer could use medical underwriting when selling coverage to a new customer, but it could not use personal health information to adjust prices when the consumer renewed the coverage. But an insurer could adjust rates retroactively if the original rates were based on a material misrepresentation.

If an insurer in a primary state wanted to sell coverage in a secondary state, the insurance commissioner in the primary state would have to use a risk-based capital formula for the assessing the capital surplus of all health insurers.

Both the primary and secondary state would have to establish independent review processes for patients with concerns about coverage denials.

See also: Anthem plan members brace for news as scammers start calling

Beetle fight

3. A secondary state would still have some power.

A secondary state could enforce standards by filing lawsuits, and it could require a health insurer to register, pay premium taxes, and participate in a guaranty fund.

If the primary state had not recently conducted a financial examination, the secondary state could make a health insurer go in for a financial exam.


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