Search

Obama to Run Most Health Marketplaces as States Opt Out

By Alex Wayne
December 15, 2012 12:01 AM EST 118 Comments
Protestors argue about the Affordable Healthcare Act outside the U.S. Supreme Court on June 28, 2012 in Washington.
Photographer: Kris Connor/Getty Images
Protestors argue about the Affordable Healthcare Act outside the U.S. Supreme Court on June 28, 2012 in Washington.

More than half of the state exchanges to be created under the 2010 U.S. health-care overhaul are expected to be run by the federal government, offering insurers and consumers uniform criteria in those areas.

While a final tally won’t come until at least today, 32 states have said they’ll let the U.S. build all or most of their exchanges or are expected to, according to Avalere Health, a Washington-based consultant. Sixteen and Washington, D.C. said they plan to build their own, with the rest unclear. That puts the onus on the Obama administration to set up the marketplaces at the heart of the Affordable Care Act’s mandate to expand medical coverage to as many as 30 million people.

The first six states to win U.S. approval for their exchange are split on what their programs will look like, with some requiring insurers to compete for access based on pricing and products. For the states likely to adopt the federal exchange plan, U.S. health officials have said any insurer can offer services if minimal standards are met.

“This enables the federal government to ensure there’s some level of consistency nationally,” said Dan Mendelson, chief executive officer of Avalere. “From that perspective, they see that as a positive.”

As of yesterday, 16 states, including California, Utah, Colorado and New York, had confirmed they’ll run their own exchanges, the states and U.S. Department of Health and Human Services said.

State Exchanges

The governor of Idaho, Republican Butch Otter, announced this week he would submit paperwork to build his own. Utah’s governor, Gary Herbert, sent a letter to the health department yesterday asking that its existing health exchange, which serves less than 8,000 small business workers, be certified as compliant with the law.

Mendelson’s firm expects that New Mexico and Nevada would join them. The two states’ governors, both Republicans, had made no announcements as of 6:30 p.m. New York time yesterday.

“State versus federal isn’t the issue,” said Jay Angoff, a former Obama administration health official who is now a partner at Mehri & Skalet in Washington. “The issue is, will the exchange be strong or weak. That is, will the exchange use the bargaining power that it has to drive down rates.”

Four states, Delaware, Illinois, Iowa and North Carolina, plan to contribute some services to a federally built exchange in a partnership with the Obama administration, according to Gary Cohen, who directs the U.S. Center for Consumer Information and Insurance Oversight. Those states may take on functions such as plan selection and customer assistance, while the federal government builds the websites and other infrastructure.

Iowa Partnership

Iowa Governor Terry Branstad, a Republican, confirmed the arrangement yesterday.

Iowa “intends to minimize the federal government’s intrusion into the regulation of insurance,” Branstad said in a letter to Obama’s health secretary, Kathleen Sebelius. “We will continue to regulate insurance plans in Iowa and retain control over our Medicaid and Children’s Health Insurance Plan eligibility.”

Avalere projects that the number of states in partnership with the government may eventually reach 12. The deadline for states to declare whether they’ll assist the U.S. on exchanges is Feb. 15.

Under the law, the exchanges are designed to allow consumers who don’t have medical coverage through their jobs beginning in 2014 to easily compare health plans, and then buy coverage online and through telephone services. The U.S. is subsidizing the cost for those who can’t afford coverage.

Budget Concerns

While federal marketplaces would create a standard for the exchanges in states with widely different demographics from New Jersey to Nebraska, they will also face initial budget constraints that aren’t an issue for states building their own marketplaces.

Funding for states to build their own exchanges is essentially unlimited, and the U.S. has given $1.8 billion so far, including to some states that have said they won’t complete the work, Cohen said in prepared remarks for a congressional hearing on the issue Dec. 13.

Money for the federal exchange is in shorter supply, coming mostly from a $1 billion appropriation made by the health law.

States that build their own exchanges will have to come up with their own money to run the marketplaces. Estimates of those costs vary. Nebraska Governor Dave Heineman, a Republican, said it would cost about $81 million a year to run an exchange while the federal government could do the same job for about 27 percent of that amount.

Nebraska Governor

Heineman said yesterday that he had wanted Nebraska to run its own exchange.

“Like any business CEO a governor wants to make sure they have operational control,” he said in an interview on Bloomberg Television. “It became very clear over our evaluation over two years that wasn’t going to be the case. The federal government’s totally dictating and controlling all the major decisions. We don’t have flexibility.”

Connecticut anticipates a cost of about $30 million a year, said Kevin Counihan, the CEO of the Connecticut Health Insurance Exchange. Maryland’s exchange is expected to cost about $35 million in its first year, declining to $32 million in future years, said Rebecca Pearce, its executive director.

Playing Politics

Politics, not practical concerns, has driven most Republican governors’ decisions to opt out of building an exchange, said Robert Blendon, a health policy professor at the Harvard School of Public Health in Boston. Kansas Governor Sam Brownback decided to let the federal government build his exchange against the recommendation of the state’s insurance commissioner, Sandy Praeger, who is also a Republican.

“The majority of his voters really do not favor the Affordable Care Act,” Blendon said in a phone interview. “For a number of Republicans, they still have some uncertainty that this thing could just sort of fall apart -- that when they try to set it up it’s not going to work, it’s going to be too expensive.”

Heineman said he isn’t trying to bring down the law.

“At this stage of the game the president of the United States, President Obama, won re-election,” he said in the Bloomberg TV interview. “The new federal health care law, the Affordable Care Act, is not going to be repealed. What I’m faced with right now as governor and what my focus has been, what’s the most cost-effective way to implement this program at the state level because it’s clearly going forward.”

Competing Constituencies

Angoff said the Republican governors are caught between two constituencies: conservative voters and insurance companies.

Insurers “want Republican governors to establish exchanges in their states, particular conservative governors, because they know those governors will make sure the exchange is weak,” Angoff said in by phone. “The exchange will allow insurers to sell whatever policies they want and charge whatever they want and doesn’t use the bargaining power they have.”

The governors also can wait to see if exchanges work, Blendon said. The law lets them take over their state exchange any year after 2014, allowing them “to watch this without taking a great political risk,” he said in a phone interview.

“If these things are working and people who favored them do well in the 2014 election, I think these governors will just discover it’s worth having and the legislature will think it’s worth doing because of practical reasons,” he said.

At least one state, Idaho, faces hurdles on its decision to build its own exchange and may present a challenge to federal regulators.

Contract Issues

Otter can’t sign contracts to begin work on Idaho’s exchange before winning approval from the state legislature, which doesn’t convene until Jan. 7, according to Bill Deal, the state’s director of insurance.

“Time is our enemy at this point,” Deal said in a telephone interview.

If Idaho’s plans aren’t immediately approved, it can take over the federal exchange at some future time or pursue the partnership.

“If you take a federally facilitated exchange then basically, as we understand it, it’s pretty much a one-size-fits all,” Deal said. “I just would rather be at the table, working with them, than not have that opportunity.”

Cohen’s agency awarded a $93.7 million contract to CGI Group Inc. (GIB/A) in September 2011 to build the federal exchange, Bloomberg Government reported. Quality Software Services Inc., a unit of UnitedHealth Group Inc. (UNH), the largest U.S. insurer, has a $69 million contract to build a system that states and the federal exchange will use to verify customers’ eligibility for insurance subsidies.

Setting Rules

Insurance companies have encouraged states to build the exchanges, partly because “it enables a nice level of communication” with the people who run them, Mendelson said. “If you’re operating the Blue Cross Blue Shield company in that state you also get a close familiarity with all the legislators who are setting the rules.”

Rules for the federal exchange aren’t yet final. So far, insurers are pleased that the government won’t limit the number of plans allowed into the exchanges, as long as they meet federal standards, said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, an industry lobbying group.

“That should be permanent,” he said in a telephone interview. “That encourages more plans to participate.”

Congressional budget projections show that more than half of the 30 million uninsured targeted by the Affordable Care Act will eventually buy subsidized plans through the exchanges and 11 million will become eligible for Medicaid, the state-federal insurance program for the poor.

Next Step

The next step for the U.S. is to certify by Jan. 1 that states that will build their own exchanges meet an Oct. 1 deadline to begin enrollments. The Obama administration appears to be on schedule, Avalere’s Mendelson said.

The government said yesterday that Washington, D.C., New York and Kentucky had won conditional approval as meeting requirements for their exchanges, adding to the six states announced Dec. 10.

“The exchanges are a major legacy item for the president and he is not going to let up on that,” Mendelson said in a telephone interview. “The administration will find the resources to get done the things they need to get done.”

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

More related content »