Can a state stop insurance companies from selling health insurance through Obamacare exchanges?

Subject

Opinion No. 13-21, State Regulation of Insurers Offering Health Insurance in Federal Exchanges, March 18, 2013

Plain-English summary

In late 2012, Governor Haslam announced Tennessee would not operate its own ACA health insurance exchange. The federal government planned to operate a federally-facilitated exchange in Tennessee starting in October 2013. HB476 was the legislature's response: it would have amended the Tennessee Insurance Law to forbid any insurance company doing business in Tennessee from selling or offering health insurance coverage through any exchange operating in the state under the Affordable Care Act. The practical effect: no Tennessee-licensed insurer could participate in the federal exchange the U.S. Department of Health and Human Services was about to stand up for Tennesseans.

The AG opined that HB476 was constitutionally suspect under the Supremacy Clause. The McCarran-Ferguson Act preserves state authority to regulate insurance, but the ACA is itself an Act of Congress that specifically relates to the business of insurance. Once that triggering condition is met, state insurance laws are subject to ordinary preemption analysis under the Supremacy Clause. Two strands of implied preemption applied. Field preemption was a stretch, but conflict preemption fit clearly. To be a "qualified health plan" on an exchange, a plan must be offered by a health insurance issuer that is licensed in the state. Tennessee licenses insurers under §§ 56-1-102 and 56-2-105. HB476 would have barred those very licensees from listing on the exchange, which would have prevented Title I of the ACA from operating in Tennessee at all. That impossibility, plus the obstacle the bill would have posed to Congress's purpose of creating an organized and competitive insurance market, brought HB476 within the standard preemption framework set out in Sprietsma v. Mercury Marine and Geier v. American Honda Motor Co.

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The ACA has been amended several times since 2013, and the political debate over state participation in federal exchanges has continued through several Supreme Court decisions (notably King v. Burwell in 2015 and California v. Texas in 2021). HB476 itself was never enacted as written. The preemption framework cited here (McCarran-Ferguson + Supremacy Clause + conflict preemption) is stable doctrine, but anyone considering a similar state-level intervention should look at how the ACA's exchange architecture currently stands and at NFIB v. Sebelius and its progeny.

Background and statutory framework

The ACA's exchange architecture, codified at 42 U.S.C. § 18031, contemplates three flavors of exchange: state-based, state partnership, and federally-facilitated. If a state declines to run its own exchange, HHS steps in and runs one for that state's residents. The exchange offers "qualified health plans" that must include the ACA's essential health benefits package (the ten categories of ambulatory, emergency, hospitalization, maternity/newborn, mental health, prescription drugs, rehabilitative, laboratory, preventive, and pediatric services). Plans on the exchange must be offered by a "health insurance issuer" that holds a state license and is in good standing in the state where it offers coverage.

The McCarran-Ferguson Act, 15 U.S.C. § 1012(a), declares that "the business of insurance, and every person engaged therein, shall be subject to the laws of the several States." But § 1012(b) creates a carve-out: when a federal Act "specifically relates to the business of insurance," ordinary preemption analysis applies. Barnett Bank (1996) and Tafflin v. Levitt (1990) confirm that the McCarran-Ferguson shield drops once Congress has specifically addressed insurance.

From there the AG ran the standard preemption analysis. Cipollone describes the "ultimate touchstone" of preemption as Congressional purpose. Express preemption exists when a federal statute explicitly preempts; field preemption when federal law occupies the field; conflict preemption when state and federal law cannot coexist or when the state law obstructs federal objectives. Fidelity Federal Savings and Loan and Gade v. National Solid Wastes Management Ass'n set out the conflict-preemption test that fit HB476: impossibility plus obstacle.

The "impossibility" leg: a qualified health plan must be sold by a state-licensed health insurance issuer. Tennessee's licensing statutes (§§ 56-1-102, 56-2-105) require the certificate of authority for any insurer doing insurance business in the state. HB476 would have prohibited the holders of those certificates from listing on the exchange. There was no way for Title I to function for Tennesseans if no Tennessee licensee could appear on the federal exchange.

The "obstacle" leg: Congress designed exchanges to give individuals and small businesses competitive prices and a comparison-shopping marketplace. A state law that emptied the marketplace of issuers would stand as an obstacle to that purpose under Sprietsma and Geier.

Common questions

What was HB476 supposed to do?

Block all Tennessee-licensed insurance companies from selling health insurance coverage through any exchange (state or federal) operating in Tennessee under the ACA. It was framed as a state-sovereignty response to the federal government's announcement that it would run a federally-facilitated exchange for Tennessee starting October 2013.

Why didn't McCarran-Ferguson protect HB476?

McCarran-Ferguson reserves insurance regulation to the states, but only against federal Acts that don't specifically address insurance. The ACA's exchange provisions specifically relate to the business of insurance. Once that's true, McCarran-Ferguson's shield drops and ordinary Supremacy Clause analysis takes over.

What's the difference between field preemption and conflict preemption here?

Field preemption asks whether Congress meant to occupy the whole field of state insurance regulation. The AG didn't rest the analysis there. Conflict preemption asks the narrower question of whether compliance with both state and federal law is impossible, or whether the state law obstructs federal objectives. The AG found both. HB476 would have made it impossible for federally-required licensed issuers to offer plans on the exchange, and would have obstructed Congress's purpose of running an exchange marketplace in every state.

Could the legislature have done anything to express opposition to the ACA without running into the Supremacy Clause?

Possibly. Resolutions of disapproval, refusal to expand Medicaid, refusal to operate a state-based exchange — those existed in 2013 and didn't trigger preemption because they didn't conflict with what federal law required. What triggered preemption in HB476 was the affirmative prohibition on private insurers from doing what federal law allowed them to do.

Was HB476 ever enacted?

No. The AG's opinion described it as constitutionally suspect, and the bill did not become law.

Citations

The AG opinion turned on the McCarran-Ferguson framework (15 U.S.C. § 1012) and the standard preemption analysis: Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996); Tafflin v. Levitt, 493 U.S. 455 (1990); Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992); Lorillard Tobacco Co. v. Reilly, 533 U.S. 525 (2001); Gade v. National Solid Wastes Management Ass'n, 505 U.S. 88 (1992); Fidelity Fed. Sav. and Loan Ass'n v. de la Cuesta, 458 U.S. 141 (1982); Sprietsma v. Mercury Marine, 537 U.S. 51 (2002); Geier v. American Honda Motor Co., 529 U.S. 861 (2000). Tennessee licensing statutes: Tenn. Code Ann. §§ 56-1-102, 56-2-105.

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2013/op13-021.pdf

Original opinion text

S T A T E O F T E N N E S S E E
OFFICE OF THE
ATTORNEY GENERAL
PO BOX 20207
NASHVILLE, TENNESSEE 37202

March 18, 2013

Opinion No. 13-21

State Regulation of Insurers Offering Health Insurance in Federal Exchanges

QUESTION

Is Senate Bill 666/House Bill 476 of the 108th Tennessee General Assembly, 1st Sess. (2013) (hereinafter "HB476") constitutional?

OPINION

HB476 is constitutionally suspect under the Supremacy Clause of the United States Constitution.

ANALYSIS

HB476 proposes to amend the Tennessee Insurance Law by adding a new section to Chapter 7, Part 10 of Title 56. HB476 provides that "[n]o insurance company doing business in this state shall be authorized or permitted to sell or offer health insurance coverage, as such term is defined in § 56-7-2802, under this chapter through any American Health Benefit Exchange or any other health insurance exchange operated in this state under the Patient Protection and Affordable Care Act (Public Law 111-148), as amended." HB476, 108th Leg., 1st Sess. § 1 (2013).

The legislative intent of the Patient Protection and Affordable Care Act ("ACA"), Pub. L. No. 111-148, 124 Stat. 119 (2010), as amended by the Health Care and Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (2010), was to reform the nation's health insurance and health care delivery markets with the aims of improving access to those markets and reducing health care costs and uncompensated care. See Seven-Sky v. Holder, 661 F.3d 1, 4 (D.C. Cir. 2011), abrogated by National Fed'n of Indep. Bus. v. Sebelius, 132 S.Ct. 2566 (2012). In order to accomplish these goals, Title I of the Act provides for the establishment of state-based health insurance exchanges, which are insurance marketplaces where individuals, families, and small employers can compare prices and buy coverage from one of the exchange's issuers. The health benefit exchanges are intended to allow individuals and small businesses to leverage their collective buying power to obtain prices competitive with group plans. See ACA, Pub. L. No. 111-148, § 1311 (codified at 42 U.S.C. § 18031); ACA: Establishment of Exchanges and Qualified Health Plans; Exchange Standards for Employers, 77 Fed. Reg. 18310 (Mar. 27, 2012).

The exchanges are to offer a choice of plans that must include a package of "essential health benefits." See ACA, Pub. L. No. 111-148, §§ 1301(a), 1302 (codified at 42 U.S.C §§ 18021(a), 18022). These plans, referred to as "qualified health plans," must be offered by a "health insurance issuer" that is licensed and in good standing to offer health insurance coverage in each state in which such issuer offers health insurance coverage. Id. § 1301(a) (codified at 42 U.S.C § 18021(a)).

Turning to HB476, an analysis of the constitutionality of this bill begins with the federal McCarran-Ferguson Act, since the proposed bill is one that would regulate the business of insurance. The McCarran-Ferguson Act confirms the states' authority to regulate the business of insurance, and it protects such regulation from federal intrusion in some instances. Towards this end, the Act provides that "the business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business." 15 U.S.C. § 1012(a). The Act goes on to protect state legislation from unintended federal intrusion in the insurance industry, but the Act does retain the power of Congress to override state insurance law when Congress desires. With respect to federal regulation, 15 U.S.C. § 1012(b) provides: "No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by a State for the purpose of regulating the business of insurance . . . unless such Act specifically relates to the business of insurance[.]" Thus, when a federal law specifically relates to the business of insurance, the states remain authorized to regulate the business of insurance but are subject to the limitations imposed by the Supremacy Clause of the United States Constitution. Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 38-39 (1996); see also Tafflin v Levitt, 493 U.S. 455, 458 (1990). Because ACA is specifically related to the business of insurance, HB476 is subject to the constraints of the Supremacy Clause.

The Supremacy Clause provides: "This Constitution, and the laws of the United States which shall be made in pursuance thereof . . . shall be the supreme law of the land." U.S. Const. art. VI, cl. 2. This clause provides Congress with the power to preempt state law. Congressional purpose is the "ultimate touchstone" of the preemption inquiry. Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516 (1992); Riggs v. Burson, 941 S.W.2d 44, 49 (Tenn. 1997). Congress's preemptive intent may be either express or implied. Express preemption occurs when Congress includes explicit preemptive language in federal statutes. Implied preemption occurs when the federal statutes occupy the entire legislative field leaving no room for state regulation or, where Congress has not occupied the entire field, when a conflict exists between federal and state law. Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 541 (2001); Gade v. National Solid Wastes Management Ass'n, 505 U.S. 88, 98 (1992); LeTellier v LeTellier, 40 S.W.3d 490, 497 (Tenn. 2001). Conflict preemption arises when compliance with both federal law and state law is impossible or when state law presents an obstacle to the accomplishment of the full purposes and objectives of Congress. Fidelity Fed. Sav. and Loan Ass'n v. de la Cuesta, 458 U.S. 141, 153 (1982); Swift v. Campbell, 159 S.W.3d 565, 577 (Tenn. Ct. App. 2004) (citing Gade, 505 U.S. at 98).

In accordance with the implied preemption precedent discussed above, any state law that prevents the application of Title I of the Act is preempted. ACA provides that the health plans offered through the exchanges must be certified as qualified health plans. A requisite of such a plan is that the plan be offered by a health insurance issuer that is licensed and in good standing to offer health insurance coverage in each state in which the plan offers health insurance coverage. With few exceptions, a company engaged in the business of insurance may not enter into a contract of insurance or transact insurance business in Tennessee without a certificate of authority from the Commissioner of Commerce and Insurance. See Tenn. Code Ann. §§ 56-1-102, 56-2-105. Thus, the provisions of HB476, for all intents and purposes, would prevent the application of Title I of ACA.

Moreover, HB476 runs afoul of the doctrine of conflict preemption. See Sprietsma v. Mercury Marine, 537 U.S. 51, 64, 65 (2002); Geier v. American Honda Motor Co., Inc., 529 U.S. 861, 869 (2000). As set forth above, conflict preemption arises when state law presents an obstacle to the accomplishment of the full purposes and objectives of Congress. A core purpose of ACA is to enable individuals and small businesses to obtain affordable health insurance through state-based exchanges. Congress has designed the exchanges to facilitate the purchase of qualified health plans and to create a more organized and competitive market for buying health insurance. Preventing insurance companies licensed in Tennessee from selling or offering health insurance coverage through an exchange established for Tennesseans under ACA stands as an obstacle to the accomplishment of Congress's objectives.

ROBERT E. COOPER, JR.
Attorney General and Reporter

WILLIAM E. YOUNG
Solicitor General

LAURA T. KIDWELL
Senior Counsel

Requested by:
Honorable JoAnne Favors
State Representative
35 Legislative Plaza
Nashville, TN 37243