Dexter A.

Johnson
LEGISLATIVE COUNSEL

900 COURT ST NE S101 SALEM, OREGON 97301-4065 (503) 986-1243 FAX: (503) 373-1043 www.lc.state.or.us

STATE OF OREGON
LEGISLATIVE COUNSEL COMMITTEE December 3, 2013

Representative Dennis Richardson 900 Court Street NE H373 Salem OR 97301 Re: Authority of Insurance Commissioner to allow the sale of health insurance policies in violation of the minimum standards under the ACA and Oregon law.

Dear Representative Richardson: You have asked for our legal opinion on the following question: Did the [Insurance] Commissioner exceed her legal authority by enabling Oregon Insurance Companies to sell health insurance to Oregonians in 2014 in violation of the minimum standards required under the ACA and Oregon law? The short answer is yes, we believe the commissioner exceeded her legal authority. The Affordable Care Act (“ACA”)1 added section 2707 to the Public Health Service Act (“PHS”) (42 U.S.C. 201 et seq.). Section 2707 requires all health benefit plans to cover all of the essential health benefits designated by the Secretary of Health and Human Services within 10 specified categories of services.2 The section becomes effective “for plan years beginning on or after January 1, 2014.”3 Oregon aligned its insurance requirements with the ACA in chapter 681, Oregon Laws 2013 (House Bill 2240 (2013)), including the requirement that both small employer group and individual health benefit plans provide all of the essential health benefits.4 The provisions become operative on January 1, 2014. Under the Oregon Constitution, laws may not be enacted that impair the “obligation of contracts.” Article I, section 21, Oregon Constitution. Therefore the changes effected by the bill may be applied only to plans issued or renewed on or after the operative date of January 1, 2014. Because section 2707 of the PHS and state law apply only to plans issued or renewed on or after January 1, 2014, plans that renew prior to January 1, 2014, are not subject to section 2707 or state law and may continue in effect until the end of the plan’s term. However, if the plan does not cover all of the essential health benefits, the insured may not renew coverage at
1

For the purposes of this memo, the Affordable Care Act or “ACA” refers to the Patient Protection and Affordable Care Act, P.L. 111-148, as amended by the Health Care and Education Reconciliation Act of 2010, P.L. 111-152. 2 42 U.S.C. 300gg-6; 42 U.S.C. 18022. 3 Section 1255 of the ACA. 4 ORS 743.737 (1) and 743.766 (3).

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Representative Dennis Richardson December 3, 2013 Page 2

the end of the plan’s term. For example, if an individual purchased a health benefit plan on August 1, 2013, that does not cover the essential health benefits, the plan may continue through July 31, 2014, but it could not be renewed on August 1, 2014. Several insurers chose to discontinue noncompliant plans instead of continuing them through the end of the terms and sent out cancellation notices to individuals covered by those plans. In response to the notices, on November 15, 2013, the commissioner announced that all health benefit plans that were in effect in Oregon on October 1, 2013, may continue through December 31, 2014.5 Therefore, plans that would have ended during 2014 because they fail to provide the essential health benefits may continue until the end of that year. As noted above, section 2707 of the PHS is effective “for plan years beginning on or after January 1, 2014.” The use of the term “year” is important. A year is commonly understood to be a period of 12 months. Moreover, the United States Department of Health and Human Services, one of the federal agencies charged with implementing the ACA, has defined “plan year” by regulation, and the definition is linked to the term of the contract or, if the contract does not specify a term, to one of four different 12-month periods.6 Thus, the ACA assumes that the term of any plan will be 12 months or less, and if the term ends on December 31, 2013, or later, the ACA requirements will begin to apply to the plan following the end of the term. By allowing insurers to extend these noncompliant plans, the commissioner has extended the terms of the plans for up to 24 months.7 The commissioner’s justification appears to be that she is allowing plans that were issued or last renewed in 2013 to be extended and the ACA requirements apply only to plans that are issued or renewed in 2014. However, we believe that an extension of a plan year for more than 12 months is the functional equivalent of a renewal and conflicts with the ACA’s use of the term “plan year.” The commissioner’s announcement that she will allow all health benefit plans that were in effect on October 1, 2013, to continue through the end of 2014 allows noncompliant plans to continue for up to 12 months longer than the ACA allows. Therefore, we believe the commissioner exceeded her legal authority. The opinions written by the Legislative Counsel and the staff of the Legislative Counsel’s office are prepared solely for the purpose of assisting members of the Legislative Assembly in the development and consideration of legislative matters. In performing their duties, the Legislative Counsel and the members of the staff of the Legislative Counsel’s office have no
5 6

See <http://www.cbs.state.or.us/external/ins/news_releases/2013/111813-CommissionerExtensionGuidance.pdf>. The regulation says: Plan year means the year that is designated as the plan year in the plan document of a group health plan, except that if the plan document does not designate a plan year or if there is no plan document, the plan year is — (1) The deductible or limit year used under the plan; (2) If the plan does not impose deductibles or limits on a yearly basis, then the plan year is the policy year; (3) If the plan does not impose deductibles or limits on a yearly basis, and either the plan is not insured or the insurance policy is not renewed on an annual basis, then the plan year is the employer’s taxable year; or (4) In any other case, the plan year is the calendar year. 45 C.F.R. 144.103. (Emphasis in original.) 7 For example, a plan that began January 1, 2013 and would have ended on December 31, 2013, may now be extended to December 31, 2014.

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authority to provide legal advice to any other person, group or entity. For this reason, this opinion should not be considered or used as legal advice by any person other than legislators in the conduct of legislative business. Public bodies and their officers and employees should seek and rely upon the advice and opinion of the Attorney General, district attorney, county counsel, city attorney or other retained counsel. Constituents and other private persons and entities should seek and rely upon the advice and opinion of private counsel. Very truly yours, DEXTER A. JOHNSON Legislative Counsel

By Lorey H. Freeman Senior Deputy Legislative Counsel

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