The literature on exchanges is vast, but a useful sampling of recent papers would include A. Lischko, Health Insurance Connectors & Exchanges: A Primer for State Officials, Academy Health Stateside, September 2007, available at <http://www.statecoverage.org/files/Health%20Insurance%20Con-nectors%20and%20Exchanges-A%20Primer%20for%20State%200fficials.pdf> (last visited June 15, 2009); Haislmaier, E. F., “State Health Reform: How Pooling Arrangements can Increase Small-Business Coverage,” Heritage Foundation WebMemo 1563, July 23, 2007, available at <http://www.heritage.org/Research/HealthCare/wm1563.cfm> (last visited June 15, 2009); Solomon, J., “Health Insurance ‘Connectors’ Should Be Designed to Supplement Public Coverage, Not Replace It,” Center on Budget and Policy Priorities, January 29, 2007, available at <http://www.cbpp.org/1-29-07health.htm> (last visited June 15, 2009); Kofman, M., “Group Purchasing Arrangements: Issues for States,” State Coverage Initiatives Issue Brief, 4 no. 3 (April 2003): 1–6. One older article also worth reading is Hall, M. A., “The Role of Insurance Purchasing Cooperatives in Health Care Reform,” Kansas Journal of Law & Public Policy 3 (1993-1994): 95. Empirical studies of health insurance exchanges include, Bender, K. and Fritchen, B., Government-Sponsored Health Insurance Purchasing Exchanges: Do They Reduce Costs or Expand Coverage for Individuals and Small Employees, Oliver Wyman Actuarial Consulting, Inc., 2008, available at <http://www.oliverwy-man.com/de/pdf-files/health_ins_purchasing_arrangements.pdf> (last visited June 15, 2009); Insurance Markets: What Health Insurance Pools Can and Can't Do, California Health Care Foundation Issue Brief, 2005, available at <http://www.chcf.org/documents/insurance/WhatHealthInsurance-PoolsCanAndCantDo.pdf> (last visited June 15, 2009); Wicks, E. K., “Health Insurance Purchasing Cooperatives,” Commonwealth Fund Issue Brief, November 2002, available at <http://www.commonwealthfund.org/usr_doc/wicks_coops.pdf?section=4039> (last visited June 15, 2009); Curtis, R. E. et al., “Consumer-Choice Purchasing Pools: Past Tense, Future Perfect?” Health Affairs, 20, no. 1 (2001): 164-168; Long, S. H. and Marquis, M. S., “Have Small-Group Purchasing Alliances Increased Coverage?” Health Affairs, 20, no. 1 (2001): 154-163; Wicks, E. K. and Hall, M. A., “Purchasing Cooperatives for Small Employers: Performance and Prospects,” Milbank Quarterly 78 (2000): 511.Google Scholar

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These arrangements, authorized by section 125 of the Internal Revenue Code, allow employees to pay for various benefits with their own income on a pretax basis.Google Scholar

See Moffit, R. E., “State-Based Health Reform: A Comparison of Health Insurance Exchanges and the Federal Employees Health Benefit Program,” Heritage Foundation WebMemo, June 20, 2007, available at <http://www.heritage.org/research/health-care/wm1515.cfm> (last visited June 15, 2009).+(last+visited+June+15,+2009).>Google Scholar

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Some commentators attempt to draw a clear distinction between the purchasing cooperatives and health alliances that were widely discussed in the 1970s, ‘80s, and ‘90s and were at the heart of the Clinton Health Security Act, and the contemporary health insurance exchange. See Lischko, supra note 1, at 2; Moffit, supra note 6. Because the terms purchasing cooperative, health alliance, and health insurance exchange cover or have covered a broad assortment of models among which there is considerable variety and overlap, I do not believe it is possible to draw a clear line between the modern insurance exchange and its antecedents. (See Bender and Fritchen, supra note 2, at 12, for an analysis of exchanges written for the Blue Cross/Blue Shield Association that strongly supports this conclusion.) Insofar as there are differences, they are the following: (1) that health insurance exchanges, as some commentators define them, do not act as purchasing agents or regulators but rather simply connect insurance purchasers with insurers, and (2) that some commentators in the past have included as purchasing cooperatives entities that purchase services directly from providers, while contemporary health insurance exchanges generally contract only with insurers. Believing that the terms are in fact largely interchangeable, I will use the term insurance exchange throughout this paper instead of the terms purchasing cooperative (or pool) or health alliance.Google Scholar

These include, by one list, California, Connecticut, Georgia, Kansas, Maryland, Michigan, Minnesota, Missouri, Montana, New Jersey, Oregon, Texas, Virginia, Washington, and Wisconsin. See Schneider, J. E. et al., “Legal and Economic Analysis of Health Insurance Exchange Mechanisms,” Health Economics Consulting Group, 2007, available at <http://www.hecg-llc.com/health_care_regulation.htm> (last visited June 15, 2009).+(last+visited+June+15,+2009).>Google Scholar

See Hager, C. L., “Massachusetts Health Reform: A Social Compact and a Bold Experiment,” University of Kansas Law Review 20 (2007): 1313–1329. Chirba-Martin, M. A., “Universal Health Care in Massachusetts: Setting the Standard for National Reform,” Fordham Urban Law Journal 35 (2000): 409-449.Google Scholar

See Hager, , supra note 13; Zelinsky, E. A., “The New Massachusetts Health Law: Preemption and Experimentation,” William and Mary Law Review 49 (2007): 229–287, at 235.Google Scholar

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See Wicks, E. K. and Hall, M. A., “Purchasing Cooperatives for Small Employers: Performance and Prospects,” Milbank Quarterly 78 (2000): 511.CrossRefGoogle Scholar

See, e. g., Quadagno, J., One Nation Uninsured: Why the U.S. Has No National Health Insurance (New York: Oxford University Press, 2005).Google Scholar

See Greely, H. T., “Policy Issues in Health Alliances: Of Efficiency, Monopsony, and Equity,” Health Matrix 5 (1995): 37–81.Google Scholar

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This is the approach Congress took with the portability provisions of the Health Insurance Portability and Accountability Act, 42 U.S.C. §§ 300gg-22(a)(2) and 300gg-44(b)(3)(2007), and with eliminating state limits on high deductible policies coupled with health savings accounts. See Jost, T. S. and Hall, M. A., “The Role of State Regulation in Consumer-Driven Health Care,” American Journal of Law & Medicine 31 (2005): 395–418.CrossRefGoogle Scholar

See South Dakota v. Dole, 483 U.S. 203, 206 (1987); New York v. United States, 505 U.S. 144 (1992). Another issue that might arise involves the provisions of the Constitution that require uniform taxation among the states. See U.S. Const. Art. 1, Sec. 23, cl. 3; U.S. Const. Art. 1, Sec. 8, cl. 1. If the federal government were to require individuals to purchase insurance through purchasing exchanges, the premiums might be characterized as taxes, and if premiums varied from state to state or region to region, as would be likely, the question of whether these “taxes” were direct and uniform would need to be reached. This is a difficult question, but would probably ultimately not prove an insurmountable barrier to the establishment of exchanges by federal law. It is discussed comprehensively by Greely, supra note 17, and will not be addressed further here.Google Scholar

See Schwartz, B., The Paradox of Choice: Why More Is Less (New York: Harper Perennial, 2004).Google Scholar

If exchanges are private entities, on the other hand, their exclusionary or regulatory practices will not raise constitutional issues, as private entities are not bound by the constitutional provisions discussed here.Google Scholar

U.S. Const. Art. 1, Sec. 10, cl. 1. The Due Process and Takings Clauses are found in the 5th Amendment, and the States' Due Process and Equal Protection Clauses are found the 14th Amendment.Google Scholar

See, e.g., Exxon Corp. v. Eagerton, 462 U.S. 176 (1983); Williamson v. Lee Optical Co., 348 U.S. 483 (1955). Some states, however, have interpreted their state constitutions more restrictively to strike down economic regulation. See, e.g., In re Certificate of Need for Aston Park Hosp. Inc., 193 S.E.2d 729 (N.C.1973).Google Scholar

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See O'Gorman & Young, Inc. v. Hartford Fire Ins. Co., 282 U.S. 251 (1931); Gerling Global Reinsurance Corp. of America v. Low, 296 F.3d 832 (9th Cir. 2002); Stephens v. State Farm Mut. Auto. Ins. Co., 894 S.W.2d 624 (Ky 1995) (discussing the application of the takings clause to insurance regulation cases).Google Scholar

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See, e.g., Massachusetts Indem. and Life Ins. Co. v. Texas State Bd. of Ins., 685 S.W.2d 104 (Tex. App. 1985) (limiting the number of temporary life insurance agents available to an insurer); Matter of Plan for Orderly Withdrawal from New Jersey of Twin City Fire Ins. Co., 591 A.2d 1005 (N.J. Super. A.D.1991) (prohibiting an insurer from continuing to do business in some insurance lines if it dropped others). Although insurance regulations generally survive due process challenges, they are usually challenged in state court and some states have their own particular lines of doctrinal development. In Florida, for example, statutes that prohibit discounted sales of insurance have been held unconstitutional. Chicago Title Ins. Co. v. Butler, 770 So.2d 1210 (Fla. 2000); Department of Insurance v. Dade County Consumer Advocate's Office, 492 So.2d 1032 (Fla.1986).Google Scholar

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United Seniors Ass'n, Inc. v. Shalala, 2 F.Supp.2d 39 (D.C.1998).Google Scholar

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These can be found at the Open Government Guide, available at <http://www.rcfp.org/ogg/index.php> (last visited June 15, 2009) and the Freedom of Information Center of the Missouri School of Journalism, available at <http://www.nfoic.org/state-foi-laws> (last visited June 15, 2009).+(last+visited+June+15,+2009)+and+the+Freedom+of+Information+Center+of+the+Missouri+School+of+Journalism,+available+at++(last+visited+June+15,+2009).>Google Scholar

Presumably much of the information received by insurance exchanges would be exempt from public disclosure under state law equivalents to the federal freedom of information act exemptions for “commercial and financial information obtained from a person and privileged and confidential,” 5 U.S.C. § 552(b)(4)(2008), and “personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.” 5 U.S.C. § 552(b)(6) (2008).Google Scholar

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The MEWA provisions of ERISA, however, allocate responsibility between the federal and state government to regulate private purchasing pools. See section III below.Google Scholar

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One commentator has observed that if a state requires every resident to be covered by a health insurance policy, meeting specific minimum coverage requirements, it effectively requires employers to provide that level of coverage, which could raise ERISA concerns. See Zelinsky, supra note 14, at 276.Google Scholar

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Cf. Retail Industry Leaders Ass' v. Fielder, 475 F.3d 180 (4th Cir. 2007); Retail Industry Leaders Ass'n v. Suffolk County, 497 F.Supp.2d 403 (E.D.N.Y. 2007) (finding ERISA preemption of Maryland and New York pay or play laws) and Golden Gate Restaurant Ass'n v. City and County of San Francisco, 546 F.3d 639, 2008 WL 4401387 (9th Cir. 2008) (finding no preemption). This issue is discussed in another “Legal Solutions in Health Reform” paper authored by Peter Jacobson, J.D., M.P.H. See also Monahan, A. B., “Pay or Play Laws, ERISA Preemption, and Potential Lessons from Massachusetts,” University of Kansas Law Review 55 (2007): 1203–1232; Butler, P. A., ERISA Implications for State Health Care Access Initiatives: Impact of Maryland “Fair Share Act: Court Decision, Academy Health State Coverage Initiatives, 2006, available at <http://www.statecoverage.net/SCINASHP.pdf> (last visited December 16, 2008).Google Scholar

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For the analysis in this section and in the section on HIPAA that follows, I am greatly indebted to Amy Monahan, Mark Hall, and Pat Butler. A monograph on “Section 125 Plans for Individual Insurance and HIPAA's Group Insurance Provisions,” by Amy Monahan and Mark Hall was made available to me as I was drafting this paper and is now available at <http://www.phs.wfubmc.edu/public/pub_insurance/HIPAA_125_Policy_Brief_final.pdf> (last visited June 15, 2009). See also Butler, P., Employer Cafeteria Plans: States' Legal and Policy Issues, California Healthcare Foundation, October 2008, available at <http://www.chcf.org/topics/download.cfm?pg=insurance&fn=EmployerCafeteriaPlans%2Epdf&pid=511167&itemid=133770> (last visited June 15, 2009). (last visited June 15, 2009). See also Butler, P., Employer Cafeteria Plans: States' Legal and Policy Issues, California Healthcare Foundation, October 2008, available at (last visited June 15, 2009).' href=https://scholar.google.com/scholar?q=For+the+analysis+in+this+section+and+in+the+section+on+HIPAA+that+follows,+I+am+greatly+indebted+to+Amy+Monahan,+Mark+Hall,+and+Pat+Butler.+A+monograph+on+“Section+125+Plans+for+Individual+Insurance+and+HIPAA's+Group+Insurance+Provisions,”+by+Amy+Monahan+and+Mark+Hall+was+made+available+to+me+as+I+was+drafting+this+paper+and+is+now+available+at++(last+visited+June+15,+2009).+See+also+Butler,+P.,+Employer+Cafeteria+Plans:+States'+Legal+and+Policy+Issues,+California+Healthcare+Foundation,+October+2008,+available+at++(last+visited+June+15,+2009).>Google Scholar

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See New England Mut. Life Ins. Co. v. Baig, 166 F.3d 1 (1st Cir. 1999); O'Brien v. Mutual of Omaha Ins. Co., 99 F.Supp.2d 744 (E.D. La. 1999). Where employers are more involved in the insurance relationships or individual insurance policies seem to be part of a larger employee plan, however, the arrangements will be held subject to ERISA. Burrill v. Leco Corporation, 1998 WL 340781444 (W.D. Mich. 1998).Google Scholar

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See, e.g., Butero v. Royal Maccabees Life Ins. Co. 174 F.3d 1207 (11th Cir. 1999); Hrabe v. Paul Revere Life Ins. Co., 951 F.Supp. 997, 1001 (M.D.Ala. 1996). There is also a line of ERISA cases that have held that a scheme under which an employer pays for individual insurance premiums on a payroll deduction basis is a group policy if the employee receives a discount that is otherwise not available for purchasing through the employer. See Tannenbaum v. Unum Life, 2006 U.S.Dist. LEXIS 6623 (E.D. Pa. Mar. 18, 2005); Kuehl v. Provident Life & Accident, 1999 U.Dist. LEXIS 22946 (September 30, 1999). One case has even held that a disability plan was an ERISA plan because it was funded with pretax income, Brown v. Paul Revere Life Ins. Co., 2002 WL 1019021 (E.D. Pa. 2002), although that court seems to have inappropriately applied COBRA regulations in interpreting ERISA and the case is in any event distinguishable from our situation on several grounds. See Butler, supra note 51. Other courts have held, however, that the fact that employees receive a discount for purchasing through their employer does not in itself make a plan an ERISA plan. See, e.g., Rubin v. Guardian Life, 174 F.Supp. 2d 1111 (D.Or. 2001). If the only discount that is offered employees participating in a state insurance exchange is the benefit of paying for insurance using pretax income available under §125, this alone is unlikely to turn the § 125 arrangement into an ERISA plan.Google Scholar

See Schwartz v. Provident Life and Accident, 280 F.Supp. 2d 937 (D.Ariz. 2003); Murdock v. Unum Provident Co., 265 F.Supp. 2d 539 (W.D. Pa. 2002); Merrick v. Northwestern Mutual Life, F.Supp.2d, 2001 WL 34152095 (N.D.Iowa 2001); Byard v. Qualmed Plans for Health, Inc. 966 F.Supp. 354 (E.D. Pa. 1997); Levett v. American Heritage Life Ins. Co., 971 F.Supp. 1399 (M.D. Ala. 1997).Google Scholar

Although there is no authority addressing this question, it would seem that participation by an employee in a state-mandated § 125 arrangement would still be “voluntary” under the terms of the safe harbor because it would not be required by the employer, which is the concern of the regulation.Google Scholar

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U.S. Dept. of Labor, Advisory Opinion 96–12A, July 17, 1996. In the particular situation at issue in the opinion, the § 125 arrangement was used to pay premiums for an ERISA plan, and thus became part of the ERISA plan.Google Scholar

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Section 125 also has its own non-discrimination provisions that apply to discrimination in favor of highly compensated employees and key employees. These provisions are not discussed here (see Butler, supra note 52, at 3–4 for thorough analysis of these provisions.) If they are violated, however, favored employees may not be able to take advantage of the tax advantages offered by § 125.Google Scholar

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See Butler, , supra note 51; Monahan, supra note 51 at 3. The one case that has interpreted the tax code definition (for the purposes of a different law that uses the same definition) held that the fact that individual policies paid for on a payroll deduction basis were issued to employees rather than through a group policy conclusively determined that the policies were individual rather than group policies. Brooks v. Blue Cross & Blue Shield of Florida, 116 F.3d 1364 (11th Cir. 1997) (interpreting the definition for the Medicare as secondary payer statute.) This would not, of course, be persuasive authority for interpreting the definition for HIPAA purposes. The tax definition of group plan is also used for COBRA continuation coverage requirements. Regulations implementing COBRA regulation seem to extend the reach of that definition. 26 C.F.R. § 54.4980B-2 provides that insurance provided through individual policies by an employer could constitute group coverage “even if the employer or employee organization does not contribute to it if coverage under the plan would not be available at the same cost to an individual but for the individual's employment-related connection to the employer or employee organization.” This definition is not directly relevant to HIPAA coverage, but might be used by a court to interpret ERISA.Google Scholar

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It should be noted that the line between private and public purchasing exchanges might not always be bright. The state may become so entwined with private actors that their actions can become state action for purposes of constitutional constraints. See Brentwood Academy v. Tennessee Secondary School Athletic Ass'n, 531 U.S. 288 (2001) (stating actions of private entities will be viewed as state actions when the two are irreparably entwined).Google Scholar

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