Feds crack down on Virginia realtor insurance law

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Virginia lawmakers were warned for years that a bill setting up a health insurance system for realtors conflicts with federal law. Regardless, the General Assembly passed the legislation in 2022 on a near-unanimous vote. 

Now, in a rare move, the federal government is saying it will penalize any entity in Virginia that uses the authority granted by the legislation because it conflicts with federal law. 

The state law in question would allow the approximately 36,000 members of the Virginia Realtors Association to create their own “large group insurance pool” in an effort to access more affordable health care coverage. 

However, the Centers for Medicare and Medicaid Services — the federal agency responsible for enforcing federal market rules — said Virginia’s policy makes it “impossible” for an insurer to comply with reforms in the Affordable Care Act. 

Years of warnings

CMS’ decision to directly penalize any insurer that uses the authority granted by the law shouldn’t come as a surprise to Virginia officials. 

Various versions of the legislation were proposed in 2020, 2021 and 2022. The measure first passed the General Assembly in 2020 but was vetoed by then-Gov. Ralph Northam, who said it “would undermine current efforts to stabilize the Virginia health insurance marketplace” and could drive up premiums for other Virginians. 

The State Corporation Commission’s Bureau of Insurance repeatedly warned lawmakers beginning in 2020 that various versions of the legislation could conflict with federal law. 

The legislation passed last January includes language that a health insurance policy meeting the bill’s requirements “shall be considered to be compliant with the large group insurance regulations under the federal Public Health Service Act,” and the regulation of such policy by the SCC “shall be considered to be substantially enforcing the federal Patient Protection and Affordable Care Act.”

In a fiscal impact statement regarding the bill, however, the bureau wrote that “a declaration that a policy is compliant with, and the Commonwealth is substantially enforcing, federal law, does not appear to be sufficient for determining whether a policy is in fact compliant with federal law.”

CMS also repeated similar warnings in multiple letters to Gov. Glenn Youngkin and the Bureau of Insurance for over a year after the law became effective on July 1, 2022.

In a Sept. 6 final determination letter, CMS Administrator Chiquita Brooks-LaSure wrote that “the commonwealth has not corrected the failure to substantially enforce” federal market reforms. As a result, “CMS may take enforcement action against any issuer in Virginia” that “fails to comply with applicable federal market reforms.”

However, a CMS spokesperson told the Mercury it is “not aware of any health insurance issuers offering or providing coverage to associations of real estate salespersons under the state law.”

Neither sponsor of the 2022 bill, Sen. George Barker, D-Alexandria, or Del. Keith Hodges, R-Urbanna, responded to requests for comment. 

Both lawmakers told legislative committees last year that their proposals complied with all requirements of the ACA. 

Federal market reforms

The general framework for how health insurance operates in the U.S. is that federal law sets the basis of consumer protection standards that all states must abide by. States can enact stronger consumer protections but cannot weaken or directly conflict with protections in federal law.

Sabrina Corlette, founder and co-director of Georgetown University’s Center on Health Insurance Reforms, said the ACA prohibits insurance companies from discriminating against individuals or small employers — those with fewer than 51 employees — by setting premium rates based on their health status and age, among other requirements. 

Before the ACA, Corlette said insurance companies would set lower rates for “healthy” individuals and small groups — for example, a situation where a company’s employees were in their 20s with a low risk of getting sick. Higher premiums would be set if an employer had “a bunch of people in their 50s and they smoke or there’s somebody who’s got diabetes or cancer.”

Federal market reforms under the ACA halted insurers’ practice of setting separate rates for each small employer and individual. Instead, the ACA directed that premiums be determined in each state based on an overall risk pool for small employers and an overall risk pool for individuals enrolled in the federal marketplace. 

According to the State Corporation Commission, Virginia had over 350,000 enrollees in its individual pool and nearly 300,000 enrollees in its small group pool as of March 1, with premiums averaging approximately $500 and $600 a month, respectively.

The ACA also imposed other regulatory standards on small group and individual plans, including a prohibition on insurance premiums for older employees being more than three times the amount of premiums for younger employees, a rule known as the 3:1 ratio. Large group employers — those with over 51 employees — are exempt from several of these standards. 

“Once you get past 50 employees, you’ve got a kind of a broader pool of people,” Corlette said. “So if you’ve got a couple sick people, you’ve also got plenty of healthy people — the policymakers kind of worried less about discrimination for large players.”

Under Virginia’s law, the 36,000 Virginia Realtors Association members — most of whom are independent contractors — would be categorized as belonging to a “large group.” That would mean premiums could be set according to the association’s composition as a whole, rather than basing rates on Virginia’s individual and small group pools.

Virginia’s law would also allow the older members to have rates up to four times the amount as those set for the youngest members, or a 4:1 ratio.

Federal response

CMS, however, said Virginia’s law conflicts with federal insurance rules. Several of the problems it flagged are that the law permits realtors to receive large group coverage instead of remaining in their respective individual and small group markets and that it allows a greater premium disparity based on age. 

Virginia Realtors Association Chief External Affairs Officer Martin Johnson said the 4:1 age ratio was determined as a compromise between federal policy and the 5:1 industry standard for most large group plans. 

The Virginia law “was designed to be in conflict with the [federal] law because the 3:1 ratio doesn’t work,” Johnson said. “That’s the exact reason why our members can’t afford what’s there.” 

Virginia Association of Health Plans Executive Director Doug Gray said taking people out of the individual and small markets is a concern for regulators because the loss of members could risk undermining those pools.

The thinking is that “when you undermine the pool, there are less people to share the cost, which generally raises the cost for everyone in the pool,” said Gray.

However, Johnson argued taking a few thousand people out of those pools compared to the hundreds of thousands currently in Virginia would not have a significant impact.

Timothy Jost, an emeritus professor of law at Washington and Lee University, agreed that statistically, the loss of realtors from the small group and individual pools wouldn’t have a huge impact. But regardless, he said, allowing the realtors association to take its members out of those plans could be a slippery slope. 

“Ok, the realtors do it. So is the next risk pool going to be people who work in retail stores? Walmart?” Jost said. “The next group could be much larger.”

Affordable health care for realtors

Johnson said creating the large group option is essential for the 7,000 association members who are uninsured because they don’t make enough money to afford federal marketplace coverage or qualify for subsidies in the small group and individual plans.

“We want good quality health insurance that covers the wants and needs of our members,” Johnson said.

While creating a large group pool for realtors may not automatically guarantee lower premiums for members, Johnson said it gives the association the ability to explore health plans that could. He also contended the law exceeds ACA requirements because it requires the association to offer essential health benefits, which isn’t federally mandated for large group plans.  

Johnson said he “vehemently” disagrees with CMS’ decision to prohibit the realtors law from being used.

“It’s unfortunate that regulators in Washington, D.C. have determined that our laws conflict, so we’re not even able to pursue it,” Johnson said. “These same regulators get to wake up every day with good quality health insurance.”

Johnson said he also believes the “spirit of federal laws mean” state law “doesn’t have to be identical, just ‘substantially similar’” and “‘substantially equivalent.’”

However, a CMS spokesperson told the Mercury, “There is nothing in the ACA or the Public Health Service Act that refers to a state law being ‘substantially similar’ to federal law.”

CMS said states are expected to substantially enforce federal market reforms, and if they don’t, CMS has the responsibility to enforce those provisions. 

Del. Sam Rasoul, D-Roanoke, was the only member in either chamber to speak in opposition to the bill in 2022. He told the Mercury he understands the frustration and need for affordable health care, but at the end of the day, state law cannot conflict with federal law. 

“People are frustrated with rising health insurance costs, and we see health insurance companies continue to make record profits and insurance premiums continue to increase, and people want answers,” Rasoul said. “I spoke against it because I just think it’s illegal and undermines the ACA, but that frustration is real.”

Johnson said while the association initially had several insurance companies interested in developing the organization’s health plan after the bill passed last year, those opportunities dried up once CMS began sending warnings. 

“We will continue to look for any and every reasonable option at our disposal to provide options to our members,” Johnson said. “Affordable, accessible, comprehensive health insurance is too important to go without simply because they are considered independent contractors.”