Several large health insurers have announced that they would suspend child-only insurance plans “rather than comply with a new federal healthcare law that bars them from rejecting youngsters with preexisting medical conditions.” Most Democrats have remained mum about how to address the problem, but this afternoon Rep. Loretta Sanchez (D-CA) appeared on MSNBC’s Chris Matthews and suggested that states should prohibit such “bad faith” insurers from participating in the exchanges in 2014. Under the health care law, states can exclude certain insurers from the exchanges if they demonstrate a pattern or practice of excessive or unjustified premium increases.

Sanchez said that states — rather than the federal government — would be primarily responsible for holding insurers accountable and encouraged Gov. Arnold Schwarzenegger to sign a California bill that would prohibit insurers that stop offering child-only policies, from participating in the exchanges for a period of five years:

SANCHEZ: So obviously, one of those things is when we do set up exchanges in three years, we are going to get to choose. We are going to have a commission that is going to get to choose what policies are put in there. Certainly, I would call a company that is not writing children’s insurance a bad faith company and I would suggest they wouldn’t be found in that new 30 to 40 million-person market that we will create.

Watch it:

Some insurers may have decided to leave the child-only market because the new take-all-kids regulation made that product less profitable, but it’s also possible that other companies suspended their plans in order to avoid possible premium increases (that could have made them ineligible for the exchanges.) Still, the very notion that members of Congress are calling on states to use their regulatory authority to clamp down on “bad faith” insures, is quite encouraging.

Despite bragging that they had proposed and supported “new insurance market rules and consumer protections to achieve universal coverage, remove restrictions on preexisting conditions,” insurers across the country are preparing to suspend child-only insurance plans “rather than comply with a new federal healthcare law that bars them from rejecting youngsters with preexisting medical conditions.” Insurers had first challenged the law’s pre-existing requirements in March, insisting that the provision would increase premiums and was not required by the law. Pressed by HHS Secretary Kathleen Sebelius, however, AHIP, the industry’s lobby, eventually relented. Karen Ignagni issued a letter promising to “fully comply with [the] regulations.”

But that has not been the case. Some insurers began pulling out of the market even after the administration tried to alleviate concerns of adverse selection by establishing a defined enrollment period, and now many others are following suit. The Wall Street Journal:

“The new federal rules required guaranteed-issue coverage for individuals under 19 without regard to affordability,” said Matt Wiggin, an Aetna spokesman. “So folks seeking coverage would be those who need immediate services for high-cost conditions.” [...]

Golden Rule also recently discontinued the sale of policies to children individually. “Given current health-insurance market dynamics and regulations, it is necessary to require a parent to be on a policy in the same manner as is required on an employer group plan,” said Ellen Laden, a spokeswoman. “We continue to believe that regulations can be structured that will enable child-only plans to be offered and we are working toward that goal.”

Addressing bloggers on a call yesterday, Nancy-Ann DeParle — Director of the White House Office of Health Reform — implied that there is nothing else the administration can do to prevent issuers from leaving the market. “Our response is one of disappointment and displeasure,” DeParle said. “I think the important thing to remember is that families will have more options now than they did before. And the family policy — which is a more desirable form of coverage and what most children get — they can’t be discriminated against. So going forward, if you’re getting a family policy you can’t have an insurer say, ‘we’ll cover your family except for the child who has a heart murmor. And there is also expansions of the CHIP program and other ways this law makes children’s coverage more affordable and more accessible overall.”

Peter Harbage, a health care policy consultant, agrees. He told me that there is little else the White House could have done, outside of limiting benefits, allowing insurers to increase premiums, or making the application process somehow more complicated — in other words, allowing issuers to throw children under the bus. Moving forward, the administration will have to focus on enrolling eligible children into Medicaid, CHIP, and possibly the new high risk insurance pool programs, he says.

But given the political context, this is also an opportunity for the plans to reiterate the importance of the mandate. They may be hesitant to dramatically increase premiums for fear of being excluded from the exchanges, but weakening support for the law is not entirely without benefit.

Yesterday, during a conference call with bloggers about the new health care benefits that will begin tomorrow, Nancy-Ann DeParle — the director of the White House Office for health reform — said that the White House was not worried about GOP efforts to defund or repeal the law, but suggested that any part of it could be defunded. Replying to a question from the Wonk Room, DeParle admitted that “any aspect of this could be defunded,” but reiterated her belief that Democrats will retain control of the House and the Senate, forestalling that possibility:

DEPARLE: Through the appropriations process, what they can do and something they’ve done in the past with reforms. So they would defund in the appropriations bill maybe spent program that would be spent to issue regulations on competitive bidding program for dual medical equipment, so they can do things like that. Any aspect of this could be defunded. There is funding in here for insurance authorities to do a better job of rate review. They can take that away. So there are things they can do. But I’m confident that Democrats are going to be running the House in November, and the Senate as well. So I don’t expect to see any of those things. I’m not making plans for that. We are looking forward towards implementing the law.

Similarly, DeParle told the Huffington Post’s Sam Stein that HHS was not concerned about the constitutional challenges to the health care law, insisting that the administration will prevail in court. She argued that the lawsuits aren’t “occupying a whole lot of time and space” as implementers in some states are busy establishing exchanges and “getting legislation enacted in their legislatures.”

Should they regain power, however, the Republicans have pledged to pursue different channels to undermine the health care law. As the New York Times reported yesterday, the GOP could “withhold money that federal officials need to administer and enforce the law,” “prevent aggressive enforcement of the requirements,” “scale back the expansion of Medicaid” and even “override or rewrite some of the regulations issued by the Obama administration without a full opportunity for public comment.”