The health-care industry represents 16 percent of the gross domestic product, according to data from the World Health Organization. Because of this, and because individuals who lose health insurance frequently wind up relying on government for care, the government has long had an interest in regulating not just health care, but also how it's financed --- including insurance arrangements. By long legal tradition, insurance contracts have been regulated primarily at the state level. However, the passage of the Affordable Care Act in the spring of 2010 led to changes that are expanding the role of the federal government in the regulation of insurance companies.
Early History of Insurance Regulation in the U.S.
The tradition of state enforcement of insurance providers rather than federal enforcement goes back to at least 1951, when the State of New Hampshire formed a state board to regulate the insurance providers within its borders; a number of other state legislatures followed suit. However, as insurance contracts began to cross state lines, the industry attracted federal attention. However, in an early case testing the legal theory that Congress had the power to regulate insurance contracts as interstate commerce, the U.S. Supreme Court held that state laws restricting out-of-state insurance providers didn't violate the "Privileges and Immunities" clause of the Constitution, because issuing an insurance contract didn't amount to commerce.
State Authority Challenged
The primacy of state authority over insurance regulation was challenged in 1942, when a grand jury indicted a group of 198 companies for collusion and bribery under the Sherman Antitrust Act. The case, United States vs. South-Eastern Underwriters Ass'n, went all the way to the Supreme Court, which upheld the indictment, reversing its earlier position and holding that insurance was, indeed, commerce and therefore subject to federal regulation. State insurance commissioners responded by drafting model legislation that defined insurance as a state responsibility. The draft legislation won support in Congress, and President Franklin Roosevelt signed the McCarran-Ferguson Act into law in 1945, formally placing insurance within the purview of the states.
State Insurance Commissioners
Currently, each state maintains a separate agency within the executive branch with the responsibility to oversee and regulate the marketing, solicitation and sale of insurance products and contracts, including health insurance. State regulators are responsible for the licensing and disciplining of insurance agents and agencies, and require prospective agents to pass an exam prior to licensing. They also set standards for insurance companies who wish to market insurance policies within their borders, including establishing standards for minimum reserve, liquidity and financial strength.
Product and Rate Supervision
When a health insurance company wishes to sell a new product within a state's borders, it must generally first get approval from the state department of insurance regulation. The state then approves or denies the product, based on precedent and suitability. The state also approves or denies premium pricing; insurance companies must get state approval prior to any rate hikes. State regulators also supervise health insurance advertising and marketing practices, as well as monitor sales practices, including seminars, especially to senior citizens. State authority isn't limited to major medical insurance --- it also includes disability and long-term-care insurance.
Enforcement
State regulators have the authority to levy fines against agents, agencies or companies that violate state regulations; these regulators frequently suspend or revoke licenses. They can also expel companies from doing business in their states, as the State of Florida recently did with nine insurance companies found to have sold fraudulent health plans within the state.
Outlook
Despite the McCarran-Ferguson Act, the federal government has been expanding its role in the regulation of various aspects of health care and coverage. The federal government funds Medicare and Medicaid, for example, and imposes a number of requirements on health insurance providers that provide services under these programs. The Affordable Care Act also imposes a number of federal requirements on health insurance companies, including restricting their ability to decline preexisting conditions and eliminating the practice of imposing lifetime caps on health insurance coverage. A number of states are challenging provisions of the law in court as unconstitutional, such as the requirement for individuals to purchase health insurance coverage or pay a fine or tax.
Tags: health insurance, insurance companies, insurance providers, federal government, insurance contracts, State regulators
