Setting Up Health Insurance Exchanges, States Face Big Decisions
By Christine Vestal, Staff Writer
Working under crushing deadlines, often with staffs thinned by layoffs, states have a massive job ahead of them: to essentially reorganize the entire health insurance industry within their boundaries. The goal of the exchanges is to make it easier for individuals and small businesses to shop for comparable coverage.
They're also intended to make it easier for low-income people to apply for Medicaid and help business owners and moderate-income individuals apply for federal tax credits. States must have simplified insurance offerings and a standardized application - plus a consumer-friendly online presentation - ready to pass muster with federal regulators by December 31, 2012. If they don't, the federal government will step in and run the exchanges for them.
Between now and the deadline, "states have a herculean task ahead of them with multiple decision points," says Anne Gauthier, senior analyst with the National Academy for State Health Policy. "There will be leaders and followers, but every state will want to create an exchange that reflects its own environment and culture. To do that, they need to get started now."
It's hard to find a state official, Democrat or Republican, who is opposed to the concept of an insurance exchange. Individuals and small groups are expected to get a better array of insurance choices; more people should buy coverage; and the resulting boost to competition will likely drive down skyrocketing premium costs. The federal government sweetened the deal by promising to foot the bill for setting up the exchanges, and gave states wide latitude to tailor their exchanges to meet their individual needs.
The exchange concept, in fact, has deep roots with Republican governors. In 2005, long before the Affordable Care Act was enacted, then-Governor Jon Huntsman, a Republican, called for an exchange to make sense of Utah's overly complicated insurance industry. Another Republican, Governor Mitt Romney, was at the helm in 2006 when Massachusetts launched historic legislation that became the model for the federal bill. And last September, it was California Republican Arnold Schwarzenegger who signed the first state law initiating a health insurance exchange under the federal act.
Many Republican governors who would prefer to see the federal health law repealed are nevertheless moving forward with an exchange. Indiana's Mitch Daniels is one of them. "There seems no alternative but to prepare for the possibility that Indiana will try to operate an exchange of some kind," he said a couple of weeks ago when he signed an executive order initiating the process.
Still, the power shift resulting from the Republicans' electoral wave may slow movement on exchanges in a few states. Wisconsin, for example, was seen as a leader in developing the IT component for its own brand of insurance exchange under Democratic Governor Jim Doyle. The state remains a contender for a federal grant to develop its technology so that other states can use it. For the moment, however, the project is in limbo as the state's new Republican governor, Scott Walker, decides how he wants to proceed.
Other states have embraced the exchanges with unbridled enthusiasm. Maryland, for example, has been charging full speed ahead ever since the day the Affordable Care Act was signed, says the state's new health secretary, Joshua Sharfstein.
Sharfstein, who left his post as deputy commissioner of the U.S. Food and Drug Administration to take the job, says he did it because national health reform created "tremendous opportunity for progress at the state level." Less than two weeks into his new post, Sharfstein expects legislative hearings on the exchange and other reform issues will take up a big chunk of his time. "I don't expect it to slow down any time soon," he says.
So far, Maryland has created six study groups, held 35 public hearings and completed an economic analysis of the fiscal impact national health care reform is expected to have on the state. The final report , delivered to Democratic Governor Martin O'Malley on January 1, projects the state has the potential to cut the number of uninsured in half by providing insurance to some 350,000 people. Maryland expects to save more than $800 million over the ten years starting in 2014, in part because fewer people are expected to show up in the state's emergency rooms.
So far, only a handful of state legislatures have entered bills needed to set up state exchanges. Maryland is not among them. But it's likely a bill will be ready for consideration there in the coming weeks.
According to Rachel Morgan, health care analyst with the National Conference of State Legislatures, some states will choose not to enact legislation this year. That's because the U.S. Department of Health and Human Services has said it will not provide details on what is known as the "essential benefits package" until September. By then, most legislatures will be adjourned for the year.
Under the Affordable Care Act, states will be required to provide Medicaid coverage for all adults up to 133 percent of poverty, starting in 2014. For most states, this represents a major Medicaid expansion.
The exchanges will cater to people who earn too much to qualify for Medicaid. For people above the new Medicaid income level but below 400 percent of the federal poverty line, state exchanges will offer federally defined benefit packages from private insurance companies. In addition, the Internal Revenue Service will provide a tax credit to help these consumers pay the premiums.
For some states, uncertainty about federal benefits requirements will deter progress, says Morgan. "No insurer is going to sign a contract with a state unless they know what they're required to offer," she says.
Although states can do a lot of the groundwork prior to enacting legislation — and many have — experts caution that states that fail to enact insurance exchange laws this year may fall behind and end up with fewer choices about how they want to tailor their insurance markets.
Striking a balance
To enact legislation, states have a number of decisions to make. First, they must decide whether the exchange will be governed by a state agency, a nonprofit or an independent commission. They must decide whether to create one exchange for individuals and a second for small businesses, or to combine them. And they must decide whether to provide marketing and administrative services for insurance companies in order to reduce their overhead costs, or let them advertise on their own.
Maryland, for example, has decide its exchange will be governed as an independent public entity. California set up a similar governing arrangement.
Numerous other decisions must be made along the way. But the biggest decision states will make is how tightly to regulate the insurance industry. In general, Republican-led states are expected to develop exchange models closer to Utah's, which simply serves as a clearinghouse for insurance companies. In contrast, Democratic governors are expected to gravitate to an exchange design closer to the one Massachusetts set up, allowing the state to exercise more control over the insurance industry and negotiate for the lowest premiums.
"The art of the exchange is striking a balance between getting carriers to participate and providing consumers with the best competitive choices," says health care policy analyst Linda Blumberg of The Urban Institute. "You won't get that balance if you let all carriers in and charge anything they want." Likewise, too many restrictions may force some insurance companies out of the exchange market.