Will State Officials Moving to New Federal Agencies Affect Policy?

By Robert Holden, Esq., Senior Vice President

State officials have always found career paths that led to service in the federal government. In areas where state law has historically been developed within a federal statutory framework, many aspects of environmental protection being an example, state officials moving into federal positions is nothing new. Two recent major pieces of federal legislation, the Patient Protection and Affordable Care Act (PPACA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), have created new law in policy areas previously directed by the states. For the first time, the federal government will be taking a lead role in insurance regulation and, accordingly, experienced state insurance regulators have made the jump to Washington,D.C.

While these relatively new federal laws will certainly have a direct affect on state regulation, it is worth noting that the movement of state officials to the federal level can itself affect both state and federal policies.

New Agencies Under the PPACA and Dodd-Frank

Enacted in 2010, the PPACA engaged state regulators directly. The language of the Act recognized the need for direction from the states by specifically requiring recommendations from the National Association of Insurance Commissioners (NAIC) on a variety of topics. As new departments were established in the United States Department of Health and Human Services (HHS), current and former state insurance commissioners were logical candidates to fill key positions.

While this trend arguably started with the appointment of HHS Secretary Sebelius, former Kansas Governor and Insurance Commissioner, prior to the enactment of the PPACA, it certainly intensified after enactment. Former Maryland Insurance Commissioner Steve Larsen served as Director for the Division of Insurance Oversight for less than a year before his appointment as Deputy Administrator and Director of the Center for Consumer Information and Insurance Oversight (CCIIO) in the Centers for Medicare & Medicaid Services (CMS). This was followed by the appointment of the then current Pennsylvania Insurance Commissioner Joel Ario to direct the new Office of Insurance Exchanges within CCIIO.

The enactment of the Dodd -Frank Act only a few months after the PPACA created a similar dynamic, establishing the Federal Insurance Office (FIO) in the Treasury Department. While implementation of Dodd-Frank has taken longer to begin, Illinois Department of Insurance Director Michael McRaith left his state position this summer to head FIO.

Affects on Policy

We have already seen some of the ways in which these former state officials have affected federal policy towards the states. This maybe clearest in the case of Joel Ario at the Office of Insurance Exchanges, as he moved directly from being a key member of the NAIC Health Insurance and Managed Care to leading the development of recently proposed federal rules addressing the creation of state health benefit exchanges. While these rules have not yet been finalized, their current provisions allow the states flexibility in their implementation efforts. That flexibility has been a frequent request from both the NAIC and the states themselves. As these rules are only an early step in federal direction of PPACA implementation, it will be interesting to see if this trend continues in future federal rulemaking. As Director Ario is scheduled to leave his position in late September, there may be a change in direction from the administration.

The affect of state officials on policy under the Dodd-Frank Act is more difficult to see. The PPACA moved much of the high level policy making concerning health insurance to the federal level; however, fewer state insurance laws were preempted by Dodd-Frank, which focused FIO’s direct authority on international insurance issues and the Terrorism Insurance Program. Director McRaith will also be informed by analysis and information from the Federal Advisory Committee on Insurance (FACI), composed in part by state insurance commissioners and other state policy makers appointed by the Department of Treasury. While FIO’s role is confined mostly to monitoring, it will have the ability to propose greater regulation of specific insurance entities through recommendations to the Treasury Department’s Financial Stability Oversight Council.

If the movement of state officials to federal positions under the PPACA encouraged flexibility on the part of HHS as it directs initial implementation, this may not be the long term result. If health care insurance policy is driven more aggressively at the federal level, states will have fewer policy decisions to make. While less likely, FIO and the FACI could bring more state conformity to recommended federal policies. Ultimately, states will be increasingly dealing with policymakers at the federal level that have emerged from their own ranks. Will former state officials bring their experiences to bear as federal policy makers? Will current state officials look to work more collaboratively with their new federal counterparts?

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