Iowa Emerges as Latest State to Challenge ACA Through Noncompliant Plans

We recently wrote about Idaho’s failed attempt to permit health insurers to sell policies that did not comply with Affordable Care Act (ACA) requirements for the individual insurance market. CMS quashed Idaho’s plan, albeit reluctantly, but explained that, with certain modifications, issuers in Idaho might be able to offer technically noncompliant plans through certain ACA exceptions. While some ACA supporters viewed CMS’s message as a victory, Idaho’s governor was not deterred, explaining that he viewed CMS’s response as an invitation to keep discussing “innovative alternatives” to ACA-compliant plans. It appears that other states may also have viewed the response as an open invitation, and they are starting to take CMS up on its offer.

Earlier this week, Iowa became the latest state to try its hand at permitting noncompliant plans. On April 2, Iowa Governor Kim Reynolds signed a bill that would allow certain types of health care coverage to shirk ACA requirements. Governor Reynolds, who held a press conference to announce the new law, said “I have urged Congress to fix this problem, but . . . we’re done waiting . . . Because of this bill, thousands of Iowans will now have affordable health care coverage.”

Iowa’s new law would permit Iowa’s Farm Bureau to partner with a designated insurance company to create self-funded health benefit “arrangements” that are not technically health insurance plans, thus allowing these “arrangements” to avoid state regulation and ACA mandates like essential health benefits. Under the law, these plans are to be “sponsored by a nonprofit agricultural organization . . . [and] shall be deemed not to be insurance.” Tennessee permits a similar process.

Iowa’s bill is not without its critics. Medica, the only insurer offering individual policies in Iowa’s ACA exchange marketplace, said that “Markets don’t work when some get to play by a different set of rules.” Other critics of Iowa’s plans worry that younger, healthier enrollees will seek out these nonregulated plans, which may destabilize the market and drive up costs for older and sicker Iowans left in an increasingly unbalanced ACA exchange risk pool.

When asked to respond to this criticism, Governor Reynolds remarked, “prior to Obamacare we had a very robust individual health care market. We had over nine carriers in the market. We had a really high participation rate. And we had some of the lowest premiums in the country.” She further explained that today Iowa has only one carrier, which increased premiums by more than 50 percent in 2018. She was emphatic that “Congress has a responsibility to fix this. In the interim . . . I have Iowans that don’t have coverage so we had to figure out some type of an option so that they could have an affordable health care plan.”

As with Idaho, many see Iowa’s actions as just the tip of the iceberg, with other states likely to follow suit. "What Iowa is doing is part of a pattern of states looking for ways to get around ACA rules and offer cheaper insurance to people — at least to healthy people," said Larry Levitt, vice president of the Kaiser Family Foundation in a Des Moines Register article.

It is likely only a matter of time until we see the next state introduce another creative shortcut to circumvent ACA mandates.

Barak Bassman and Sara Richman are partners in Pepper Hamilton’s Health Sciences Department , a team of 110 attorneys who collaborate across disciplines to solve complex legal challenges confronting clients throughout the health sciences spectrum. Leah Greenberg Katz is an associate in the Health Sciences Department.