Exchanging Challenges in Health Plan Marketplace

California’s Legislature last month passed two bills that would establish a statewide health insurance exchange to comply with the federal health reform law.

The move was generally hailed as an opportunity for the Golden State to emerge as a national leader on health reform and more quickly ensure that millions of uninsured residents receive health coverage. Moreover, the state has recent experience with exchanges — with PacAdvantage, specifically — which observers say will help get this new marketplace off the ground.

Of course, key questions still remain over what California’s new exchange would look like — and when the governor will sign the legislation into law.

What We Know: It Won’t Be Easy

Launching the exchanges will present numerous fiscal and logistical roadbumps for states, particularly as many face significant budget pressures.

Using models based on Massachusetts’ health insurance exchange, which launched in 2007, CMS recently projected that states will spend $4.4 billion to get the exchanges up and running by 2014 and $37.7 billion to operate the marketplaces through 2019. The agency also forecasted that 30.6 million people will purchase benefits through an exchange by 2020, including some individuals who lose employer-based coverage. About 16 million people nationwide are expected to enroll in an exchange plan during the first year of operations.

To meet these ambitious projections, state administrators must resolve open questions surrounding the exchanges’ administration, while navigating information technology and political hurdles. 

Challenge #1: Deciding on Essentials

While California has the building blocks of its exchange in place, states generally are “all at very different places on how much thinking they’ve done,”according to Chiquita Brooks-LaSure of the HHS Office of Consumer Information and Insurance Oversight.

Many state leaders are still making basic decisions on which groups will administer the exchange and how closely linked the exchange will be to existing programs. For example, Maryland’s acting Insurance Commissioner Beth Sammis said that her state’s exchange could either function as more of an educational tool — where consumers could shop around for different plans from insurance companies and see all of the products an insurer offers — or resemble Massachusetts’ more-comprehensive model, which sets standards for participating insurers.

On the other side of the spectrum, Utah this month debuted its own health exchange, which was conceived before the health reform overhaul — and demonstrates the potential peril of moving out of step with the national effort. The exchange’s administrators are now working to bring the exchange in line with new federal requirements, partly by seeking exemptions for elements like the required basic benefits package. If federal regulators don’t grant flexibility, Utah may need to build a separate health exchange to meet new national requirements.

OCIIO Director Jay Angoff has said that HHS is working with and soliciting comments on the exchanges from states until Oct. 4. HHS is helping states on various subjects related to the exchanges, such as “standards for ensuring a sufficient choice of providers” and factors that could affect the level of competition. The National Association of Insurance Commissioners also is expected to release a draft of a model exchange next month, which states can use for guidance.

Challenge #2:  Attempting New Systems Engineering

The IT challenges accompanying an online exchange are enormous and present “a whole new business model,” according to Rick Howard, chief information officer of the Oregon Department of Human Services. State leaders must decide whether to build a platform on top of existing IT systems or to create a new one. Either way, states will need to link the exchange to eligibility determination programs and identify whether users qualify for certain tax credits that subsidize premiums. For example, West Virginia officials are working to connect their exchange to the state’s Recipient Automated Payment and Information Data System, which determines eligibility for CHIP and Medicaid.

Roughly 40 states currently manage Medicaid and food stamp programs in a single system, which could ease the transition and avoid concerns over interoperability, according to Bobbie Wilbur, co-director of Social Interest Solutions, a not-for-profit that helps expand access to social services. California also currently uses a software system provided by Social Interest Solutions that functions as “middleware,” as it can link different health insurance systems, Wilbur adds.

However, the marketplaces still require levels of systems engineering and integration that most state IT and health program leaders have never attempted. To ease the transition, state leaders around the nation are looking to existing exchanges in Massachusetts and even Utah for best practices.

Challenge #3:  Navigating Political Hurdles

California’s experience in passing legislation to set up the exchange — and advocates’ efforts to hasten or hinder the signing of the bills into law — foreshadows the political fight ahead for other states.

Some observers say the exchange represents a decisive move that not only boosts health coverage but could benefit the state’s political system. The San Jose Mercury News cheered California lawmakers for “seizing the day, rather than dithering.” The Sacramento Bee urged the governor to “seal California’s leadership role” by immediately signing the bills and beginning the lengthy process to set up the exchange.

However, opponents say the exchange — as presently conceived — is poorly constructed. Under the law, California would be allowed to selectively contract with insurance providers, a provision that would restrict patient choice, according to Patrick Johnston, CEO of the California Association of Health Plans. John Graham of the Pacific Research Institute further warns that the selective contracting statute would boost costs. According to Graham, a “best-case scenario” for the California exchange is the Massachusetts model, where uninsurance rates quickly fell but premiums rose at a higher rate than the rest of the country.

Moreover, other states may be waiting to see how this year’s midterm elections play out before committing to a major investment in their exchanges. If Republicans retake a chamber of Congress this fall, California may not receive additional federal grants to help with reform implementation, according to Graham.

While states continue to navigate exchange administration, here’s a look at what else is making news in health reform.

Eye on the Administration

  • On Monday, Donald Berwick delivered his first major speech as CMS administrator and pledged that government officials would not try to overhaul the U.S. health system by rationing care. Speaking at an event organized by America’s Health Insurance Plans, Berwick said that slowing the growth of health costs should not involve “withholding from us, or our neighbors, any care that helps” or “harming one hair on anyone’s head.” During the speech, Berwick also urged insurers to cooperate with efforts to implement provisions in the health reform law (Alonso-Zaldivar, AP/Washington Post, 9/13).
  • Last week, HHS Secretary Kathleen Sebelius urged state health officials to increase efforts to boost enrollment in CHIP or Medicaid, after recently released data indicate that as many as 65% of uninsured children are eligible for the programs but are not enrolled, HealthLeaders Media reports. During a briefing on the data, Sebelius said, “I’m challenging everyone … to take this conversation about children’s coverage to the next level — to find and enroll those five million kids.” Sebelius noted that $120 million in federal funding through the health care reform law and the CHIP Reauthorization Act will be provided for outreach efforts (Simmons, HealthLeaders Media, 9/8).
  • The Government Accountability Office recently ruled that a four-page brochure distributed by HHS in May does not constitute propaganda in violation of federal law, as Republicans alleged. The brochures, which were mailed to Medicare beneficiaries, touted benefits of the health reform law. The 15-page GAO report stated, “Although the HHS brochure contains instances in which HHS presented abbreviated information and a positive view of [the law] that is not universally shared, nothing in the brochure constitutes communications that are purely partisan, self-aggrandizing, or covert” (Pecquet, “Healthwatch,” The Hill, 9/9).
  • Several of President Obama‘s responses to a report issued last week by CMSOffice of the Actuary included “discrepanc[ies]” and “fell short of a full accounting,” according to an Associated Press analysis. The CMS report, which was published in the journal Health Affairs, found the federal health reform law would do little to control rising health care costs (Werner/Woodward, AP/San Francisco Chronicle, 9/10).

Opponents Speak Out Against Reform Law

  • The new advocacy group Revere America — whose members include former New York Gov. George Pataki (R) — has launched an advertising campaign criticizing at least 12 House Democrats who voted for the federal health reform law. At the news conference, the group showed an ad that said “[c]osts will go up” while “[c]are will go down” under the reform law. The ad also predicted “[l]onger waits in doctor’s offices and your right to pick your own physician taken away” (Herszenhorn, “The Caucus,” New York Times, 9/8).
  • The Heritage Foundation, the U.S. Chamber of Commerce and a number of agriculture groups all are objecting to a provision in the federal health reform law that would mandate additional tax-reporting requirements for small businesses. Last week, the U.S. chamber sent a letter to Senate members expressing support for an amendment (S 3578) by Sen. Mike Johanns (R-Neb.) that would repeal the entire requirement. Meanwhile, the conservative Heritage Foundation recently distributed an analysis finding that the burden the requirement will impose on small businesses will be especially “immense” (Norman, CQ HealthBeat, 9/10).
  • As the midterm elections draw near, Republicans and like-minded candidates are seizing on lower public support for federal health reform to help rally their campaigns (Kuhnhenn, AP/Washington Times, 9/12). The GOP is including the health reform law as one of many complaints against Democrats’ handling of the economic recession. Analysts say the strategy could sway independent voters concerned with jobs and the economy, as recent polls find U.S. opinion on health reform to be more evenly divided (Arsenault, Boston Globe, 9/11).

Possible Effects on Businesses

  • A group of venture capitalists and entrepreneurs have launched a national alliance, called the Medical Innovation and Competitiveness Coalition or MedIC, to promote policies and regulations that foster medical innovation. The coalition grew out of concerns that the federal health reform law and other initiatives to reduce health care costs could lead to lower prices for pharmaceutical drugs and medical devices, which would make it less appealing to invest in the life sciences industry (Weisman, Boston Globe, 9/8).
  • Employers expect to spend an average of 5.9% more per employee on health coverage in 2011, after making some changes to benefits, according to a survey of 1,091 companies conducted by Mercer. Without the adjustments, costs for each worker would increase by an average of 10.1%, including an average 2.3% increase attributed to complying with provisions in the federal health reform law. According to the survey, 57% of employers will ask workers to pay more for their health coverage next year (Hobson, “Health Blog,” Wall Street Journal, 9/8).

In the States

  • As states continue to face growing budget deficits, experts are predicting that increasing Medicaid enrollment rates will compound the problem and force more budget cuts. Forty-four states say they will surpass their Medicaid enrollment and spending growth projections for 2010, according to a report from the Kaiser Commission on Medicaid and the Uninsured. Medicaid spending growth in several states also has increased dramatically, with Florida seeing a nearly 50% increase. California has seen a 24% increase in spending growth, while New York has experienced a 16% increase (Yarrow, Fiscal Times/Kaiser Health News, 9/8).
  • Iowa Gov. Chet Culver’s (D) office recently announced that federal authorities have approved an extension of the state’s IowaCare program, which offers limited health care benefits to low-income residents who do not qualify for Medicaid. The three-year extension will allow the 40,000 residents currently enrolled in the program to receive benefits until the federal health reform law is fully implemented in 2014 (Leys, Des Moines Register, 9/3).
  • An $85 million expansion of Maryland’s high-risk insurance program — funded by the federal health reform law — will allow an additional 3,500 residents to receive health insurance. State officials said that premiums under the expanded plan will range from $135 to $474 per person under age 30, depending on the type of plan (Walker, Baltimore Sun, 9/1).
  • Enrollment in Michigan’s high-risk insurance program for residents with pre-existing conditions started on Aug. 31, offering coverage to an estimated 3,500 residents. Monthly premiums under the plan will range between $182 and $687, depending on the individual’s age. The coverage will be offered through Physicians Health Plan of Mid-Michigan (Martin, AP/Detroit Free Press, 8/28).
  • A Washington state program offering health insurance to businesses with 50 or fewer employees opened enrollment on Sept. 1, with coverage slated to start in 2011. Under the Health Insurance Partnership, employers will contribute about 40% of the coverage cost, with some workers receiving premium subsidies based on family income (AP/Seattle Times, 9/1).

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