S.D. restricts coverage; HHS looks other way

Published by POLITICO

There’s a state that has issued regulations that may directly violate health care reform rules, and HHS has taken no formal action for more than a year.

The state is South Dakota, and the provision is a small but popular one — a ban on insurers denying coverage for kids because of their health status or excluding coverage for pre-existing conditions. The fact that HHS hasn’t done anything about it has some consumer advocates worried about how it will affect states that flout the law after more health care reform provisions take effect in 2014.

“When the state responds to the needs of their market by undermining a provision that is as central to the Affordable Care Act as ending health discrimination against children, then people should sit up and take notice,” said Sabrina Corlette, a National Association of Insurance Commissioners consumer representative.

“You would certainly not want to see this kind of delay, lack of action, for the broader range of reforms that are truly the linchpin of the coverage provisions” that kick in after 2014, she said.

In September 2010, the South Dakota Department of Insurance issued regulations that allow insurers to continue denying coverage to children under 19 or excluding coverage for their pre-existing conditions if the policies are sold outside an open-enrollment period where insurers must cover all comers.

“Nothing in this section prohibits an insurer from issuing a policy with a health condition rider, endorsement, or declining coverage for an application that is received from a person under the age of 19 outside of the open enrollment period,” the regulations state.

A CMS spokesman would not comment on whether the agency considers South Dakota to be in violation of health care reform rules. But a FAQ document published a few weeks after South Dakota issued its regulations specifically says this kind of end-run around the ban is not permitted.

“States may set one or more open enrollment periods for coverage for children under age 19, but cannot allow insurers to selectively deny enrollment for children with a pre-existing condition while accepting enrollment from other children outside of the open enrollment period(s),” it states.

South Dakota Lt. Gov. Matt Michels, who has been leading the state’s discussions with CMS about this issue, argues that the state isn’t in violation of the law even if it is not in compliance with HHS rules.

“Our position … is that we are compliant with PPACA,” he said. “The rules that [HHS] issued exceeded their authority.”

He speculated that HHS shares the state’s view, noting that a team of state officials met with CMS officials in Washington to discuss the issue about a year ago, but “we haven’t heard any formal objection” from the agency.

Information on how widespread underwriting of children remained in South Dakota was unavailable, but Michels said that insurers are using the option even though HHS has the ability to go over the heads of state regulators who are not enforcing federal rules and levy fines on health plans.

“They are using the rule,” he said, explaining that it was necessary to sustain a competitive market for child-only policies in his small state.

Consumer advocates say this South Dakota rule is an especially overt flouting of federal insurance rules.

“They may just not be as aggressive as we’d like them to be,” said Community Catalyst’s Nicole Tambouret, who suggested that the agency has so many larger implementation problems they may just be too busy to take action against South Dakota.

But CMS spokesman Brian Cook said the agency is still trying to resolve the issue.

“We’re committed to ensuring that sick children continue to receive access to coverage, and we’re working with the state in this instance,” he said.

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