27 Sep 2022

Insurance Issues after Dobbs: Health Insurers and Health Insurance

By: The Lexis Practical Guidance Attorney Team

This article discusses the impacts that are anticipated on health insurance and health insurers as a result of the Supreme Court decision in Dobbs v. Jackson Women’s Health Org.¹

THAT CASE USED A MISSISSIPPI STATUTE AS THE VEHICLE to overturn the essence of Roe v. Wade² and, by implication, Planned Parenthood of Southeastern Pennsylvania.³ The practical effect of Dobbs was to return to each state the power to determine the timing and circumstances under which an abortion could be obtained in that state. Roe had permitted a virtually unfettered right to abortion during the first trimester of pregnancy. Casey abandoned Roe’s trimester framework and its strict scrutiny standard of review of state laws on abortion and replaced it with an undue burden test, yet followed the central holding of Roe.

The issues considered by the Supreme Court in Dobbs were the mechanism by which the Mississippi Gestational Age Act was enacted and whether there was a rational basis for passing it, even though the statute placed more stringent restrictions on abortion than Roe. The court found in favor of Mississippi on both counts.

The net result of upholding the challenge to the law was to overrule Roe’s authorization of abortion as a constitutional right. Instead, it returned to each state the power to regulate abortion—as was the case before Roe was decided. More specifically, it returned to the citizens of each state the power to regulate abortion through the legislators they elected. Just like voters elected legislators and entrusted them with reflecting their interests concerning other laws, Dobbs returned the issue of abortion to the state legislators elected by the citizens of the state, which is where it had traditionally rested. Although Dobbs significantly changed the core holdings of Roe and Casey, it did not contradict their statements about the essential and valid state interest in protecting life, but rather echoed those statements.

The implications of Dobbs are wide-ranging, given the reliance of insurance consumers and the insurance industry on Roe. This article will address these developing issues.

The Anticipated Impact of Dobbs on Health Insurance

Whether you are a lawyer who practices in the area of insurance or are involved with insurance in some other way, Dobbs promises to have (and is already having) a significant effect on the insurance industry, especially in the context of health insurance.

Defining Health Insurance

Broadly, health insurance is a contract by which an insurer contracts with another party (an insured) to pay money because of an accident, sickness, hospitalization, or disability. Health insurance can be issued on either an individual basis (privately purchased and issued, for example, to cover a single individual or a family) or on a group basis (purchased and issued, for example, to cover the employees of an employer or members of a bona fide association). With group health insurance, other factors may come into play, such as the Employee Retirement Income Security Act, but those factors are beyond the scope of this discussion.

State Licensure and Regulation/Issuance of Health Insurance Policies after Dobbs

Health insurance policies are issued by insurers having licenses (certificates of authority) issued by states to issue that form of insurance. The companies may also be authorized to issue life insurance, disability insurance, annuities, and related risk-bearing products. A state’s legislature may have joined all those types of insurance under a statutory umbrella called life and health insurance. However, a particular insurer may decide to issue only one or several, but not all, of the types of insurance that come under that umbrella.

The focus here relative to Dobbs is on health insurance, irrespective of what other specific types of insurance an insurer is authorized to or decides to write. More specifically, the focus is on that element of health insurance that provides a source of payment for expenses connected with hospital expenses, surgery, physicians, and other kinds of healthcare providers and their services. It is critical to emphasize that point because the insurance statutes of some states define health insurance to include what is more commonly called disability insurance. Disability insurance is intended to replace income if a covered illness, sickness, or injury occurs, and is not at issue here.

State Financial Regulation of Health Insurers

Depending on the jurisdiction where an insurer chooses to transact health insurance, state law imposes financial requirements to obtain and maintain a license (certificate of authority). The requirements include regulatory approval of the rates (from which premiums derive) to ensure that they are not inadequate, excessive, or unfairly discriminatory. Health insurers and other kinds of insurers must also meet statutory reserve and reinsurance requirements, to ensure the insurer’s solvency and ability to pay claims as they are incurred.

The financial requirements are actuarial/mathematical and not subject to what might be considered popular vote. Instead, they are objective and based on calculable economic probabilities for paying expected claims under the health insurance policies. Those probable claim amounts vary, in part, according to the benefits provided by the policy. Thus, a health insurer offering policies with fewer benefits can generally anticipate fewer claims, or at least claims with lower financial impact, because fewer benefits are provided, a reduced benefit is available, or some combination of those. As such, rates may be lower, translating into lower premiums than policies with greater benefits, and these are issues of hard financial calculation rather than a legislative mandate. Still, even when state law mandates coverage, such as coverage for elective abortion, the actuarial/financial cost of providing it is considered and factored into the rate ultimately charged. Therefore, either way, the financial regulation of health insurance isn’t subjective or based on what might be regarded as being akin to the social desires of the public, as evidenced by laws legislators enact, like those regarding the availability of therapeutic abortion.

State Regulation of Health Insurance Policy Forms

In contrast to the objectivity of financial regulation of insurers is the regulation of policy contracts (usually called forms). State insurance regulators must approve policy forms that an insurer proposes to use. To obtain regulatory approval of a policy form, insurers must comply with general state law and state insurance law, some of which may mandate, permit, or prohibit coverages, exclusions, exceptions, and other limitations on benefits. Otherwise stated, the policy’s provisions cannot circumvent state law or, in some cases, federal law.

The mechanism of form approval differs by state. The continuum ranges from a strict approach whereby a regulator must formally approve the policy before it can be used at all, to one so flexible that the form may be used until it is officially disapproved by the insurance regulator, irrespective of how long that may take. The middle ground is an approach involving an advanced filing of the proposed policy form and the allowance of its use unless the regulator disapproves it within a particular time. When the state uses the first or last approach, there is often interim communication and negotiation between the insurer and the regulator to facilitate ultimate approval.

There is a correlation between the coverage provided by the policy form and the rate (from which the premium derives) charged. Low policy benefits may correlate with an excessive premium (because the policyholder may not be getting adequate benefits to justify the premium charged). In contrast, a rate that is too low for the benefits provided may not generate sufficient funds for the insurer to pay expected claims. If that happens, an insurer could become insolvent because the claim payments are greater than the premium collected plus investment income on those premiums. It is part of the insurance regulator’s function to balance policy benefits fairly with the rate (premium) and in a way to promote the insurer’s solvency and ability to remain in business.

The thrust of Dobbs is to return to each state the freedom to legislate the allowance of abortion within that state and under what circumstances. Before Dobbs, states differed on their abortion legislation, but where abortion was an element of covered medical treatment, Roe was a touchstone. While some health insurance policies, by their very language, gave abortion benefits, some did not. As long as state law did not require that health policies provide abortion benefits, neither a policy that did not so provide nor the insurer issuing that policy ran afoul of the law. Since Dobbs, the risk exists that a state legislature may outlaw abortions or place new restrictions on them, such that a health insurer whose policy benefits are inconsistent becomes non-compliant with state law and subject to regulatory or civil sanction.

Will Dobbs Affect Managed Care?

Managed care is usually defined as a type of delivery system for healthcare services more than it is health insurance as such. It has existed for decades and generically refers to a defined scope of medical services, a mechanism for accessing (delivering) them, and paying for them. An overall goal is to reduce costs for participants (called members) through a closer oversight of service utilization than in a traditional indemnity health insurance arrangement.

An important factor to understand is that different managed care models allow differing degrees of latitude to members about obtaining care from providers and entities (hospitals, labs, etc.) and also allow a greater or lesser range of services. Some managed care models are essentially self-contained in that they resemble clinics where employed providers can deliver most healthcare services that members need. When they can’t, members are referred to outside specialists. Others use a network of approved and affiliated independent professionals and service providers with whom the managed care entity has contracted to furnish specified services for specified charges. In all cases, the member pays to participate in the arrangement, akin to an insurance premium.

While managed care differs from traditional health insurance in those services for which traditional health insurance pays are delivered unbundled, some similarities are pertinent to Dobbs.

How services are financed and specified in the members’ contract gives managed care arrangements their closest resemblance to health insurance; in fact, many individuals do not distinguish between the two. Notably, a managed care contract, like an insurance policy, specifies the healthcare services and supplies to which a member is entitled, as well as related exclusions, exceptions, conditions, and other terms. Also importantly, a managed care arrangement, whether an HMO or a PPO, is risk-bearing—which means that members pay in advance for the suite of services and supplies to which they are entitled under the contract. As such, the financial soundness of both insurers and managed care arrangements are among insurance regulators’ concerns.

Also similar to health insurance per se, state law invests an insurance regulator (or equivalent state regulator that oversees managed care) with authority over the contract forms used by managed care entities. To the extent that Dobbs leaves it to legislators to rule on abortion for their states, and because health insurance and health insurance-like contracts must comport with state law, the issuers of managed care contracts will be affected. Needless to say, this is a new issue for all health-related risk bearers, and they must keep abreast of developments, including insurance regulatory bulletins that affect their business. Too, some states, such as Florida, dually regulate some managed care entities with oversight coming from insurance and health regulators. To the extent that state health-related law and regulation changes from what it had been pre-Dobbs, health law should also be monitored.

The Ultimate Health Insurance Complexity

To say that Dobbs has exacerbated the complexity of health insurance coverage for abortion is an understatement.

Women had come to rely upon Roe and, later, Casey, for nearly two generations as at least a partial grounding to a federal constitutional right to obtain an abortion. While Casey slightly modified aspects of the right that Roe found, it upheld that a period did exist during which the state could not interfere with an elective abortion. Roe is the usually-cited authority for the right, but Casey embellished the metes and bounds of the right. Notwithstanding, Roe is usually cited as the source of the constitutional right. Concomitantly, when women had health insurance, they anticipated that the insurer would pay for at least a part of the abortion costs.

The essence of Roe was that during the first trimester, the decision to terminate a pregnancy rested entirely with the pregnant woman. After the first trimester, the state could regulate procedure. During the second trimester, the state could regulate abortions in the interests of the mother’s health but not render them illegal. After that, it was deemed that the fetus was viable, and the state could both regulate and outlaw abortions in the interests of the potential life. There were, however, exceptions, mostly when the mother’s life or health was jeopardized. Some states addressed by statute third-trimester abortions even before Dobbs. Florida, for example, required showings by physicians that an abortion was necessary to save a woman’s life or to avert the impairment of a major bodily function and imposed other requirements.⁴

Dobbs changes all that by returning to states full autonomy to legislate on abortion as they see fit without the constraints of Roe.

For insurers, although Roe did leave a patchwork of state abortion laws in place, it imposed some commonality and predictability through the restrictions that it imposed: an essentially unrestricted right to an abortion during the first trimester declining to an abolition of the right as pregnancy progressed.

Initial Next Steps for Health Insurers

Following Dobbs, those commonalities and predictabilities are gone—both for each state’s citizens and its health insurers. When they existed, a rough analogy might have been drawn to factors relevant to actuarial calculations that health insurers could use to calculate premiums: individuals of a certain gender, a certain age group, and in a certain geographic area were likely to incur costs related to an abortion for which insurers had to pay. When Roe was the law, insurers had a more stable base (a fixed measure of when abortion was allowed and when it wasn’t) with fewer variables (i.e., changes in what had been stable law on abortion) on which to transact business.

Insurers that transact health insurance business in multiple, if not all, states, will face these complexities on a large scale. Some of the jurisdictions in which they do business will allow elective abortions, some will not, and some will impose restrictions of various kinds.

Multistate insurers will need to rethink business strategies, redraft forms to comport with differing abortion laws of the states in which they do business, and get the new forms approved. They will also have to recalculate rates to be consistent with the benefits offered in those states.

Insurers will also have to adapt quickly. In anticipation of Dobbs, some states enacted trigger laws designed to put abortion regulations that predated Dobbs or, in some cases, Roe in place. While litigation is pending about the validity of those actions, insurers must stay abreast of them and all Dobbs-related activity in all jurisdictions in which they conduct business or have policyholders.

Looking Ahead

In conclusion, the potential ramifications of Dobbs for health insurers and their products cannot be over-amplified. As examples, Dobbs will motivate insurers’ rethinking of where they wish to do business, the products they decide to sell, how the products are designed and priced, and the markets for them. These matters will in turn affect insurance consumers in states that do not change their abortion laws as well as those that do. Insurers that transact health insurance in multiple states will be affected the most to the extent that they may have to comply with the law of jurisdictions that differ in their approach to elective abortion. It is foreseeable that insurers will have to confront situations where individuals travel to states where abortion is permitted from states where it is not for the procedure. If an insurer pays for the procedure, issues may be raised concerning the aiding and abetting of an unlawful act.

Go to Practical Guidance to review additional coverage on the implications of Dobbs for employers, individuals, policyholders, physicians, and other medical providers.