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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Guest Post by J.D. Vance: Automobile Insurance and President Obama’s Administrative ‘Fix’



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J.D. Vance, a National Review contributor currently working on a book about the social mobility of the white working class, offers thoughts on how insurers might react to the Obama administration’s new administrative fix for recent insurance cancellations.

The president’s announcement that he will not enforce the minimum coverage provisions of Obamacare has raised a lot of hackles. For many, the move represents a fundamental breakdown of the separation of powers: presidents don’t make (or unmake) laws, and this action exceeds the bounds of executive discretion. Others have listed a variety of reasons the extension may not work—among them, that the insurance companies might simply refuse to play along—but most have neglected the bizarre interplay between enforcement delay and the private insurance contracts that form the heart of our healthcare system. As so many recognize, the president cannot unilaterally change the law. And there’s a very good chance that state courts will refuse to enforce private health insurance contracts that violate federal law.

Over at the excellent Volokh Conspiracy, Jonathan Adler states the basic case: Obamacare requires that all health care policies offered in the private marketplace meet certain minimum coverage requirements. That so many plans do not meet these requirements is what sparked the recent spate of policy cancellations. The president’s decision to delay enforcement of that provision doesn’t mean the provision doesn’t exist. It’s still part of federal law. And other institutions of our society—notably, state courts—must follow that law. One wonders what will happen what state courts will do if confronted with an insurance contract that violates federal law.

Adler seems agnostic about that issue. But courts have addressed similar questions before, albeit in a different context: automobile insurance. Each state regulates automobile insurance extensively. Most require some minimum liability coverage for drivers. And, unsurprisingly, insurance providers sometimes sell policies that flout those requirements.

The states’ experience with car insurance suggests that President Obama’s ability to delay parts of the ACA is limited, at best. Salamon v. Progressive Insurance, a Maryland appellate court case, is instructive. That case involved a pizza delivery guy whose policy excluded income-producing driving from coverage. Delivering pizzas is obviously income-producing activity, so the delivery guy was not covered when he hit another car during work.

Unfortunately for Progressive, his insurance contract failed to meet Maryland’s minimum coverage requirements. The exclusionary clause was thus unenforceable, and Progressive had to pay up. As the court noted, it had no problem invalidating “insurance policy exclusions that excuse or reduce the insured parties’ coverage below the statutory minimum level.”

It’s not difficult to imagine language like this settling future health care insurance disputes. Take a self-employed woman with a low-coverage, high-deductible plan. By its terms, the plan doesn’t cover the woman’s maternity expenses, and under Obamacare, such a bare bones plan doesn’t meet the minimum coverage requirements. A court following the logic of the Maryland case would force the insurer to cover the woman’s maternity care.

Insurers, of course, are undoubtedly aware of this fact, so they have two options. They can continue offering the skeletal insurance plans and hope their customers never take them to court (or that the courts, against all precedent, rule in their favor). Or they can continue cancelling policies and offering only those that satisfy Obamacare. It’s possible I’m missing something. But if I’m not, there’s little doubt which route insurers will take.

It’s worth mentioning something else. The health care experts in the administration may be wrong, but I didn’t think they were stupid. To state the obvious: either they knew that the enforcement delay would have little impact in the face of state law, or they didn’t. I’m not sure which is worse.



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