Path to Partnership: More States Opt for HHS’ Hybrid Exchanges

New Hampshire: We’re in.

North Carolina: We’re not.

The two states on Tuesday were the latest to announce their intentions on the Affordable Care Act’s health insurance exchanges. States have until Feb. 15 to tell HHS whether they’ll retain even some control over the exchanges, or let the Obama administration run the exchanges for them.

And while New Hampshire made clear that it wants to partner with the federal government to launch an insurance exchange, North Carolina backed out of a previous plan to do exactly that.

By Friday, we’ll know where half a dozen other states stand, too.

Background on Partnership Model

The Affordable Care Act didn’t originally spell out the partnership model; under the law, states faced a binary choice of running their own insurance exchanges or punting the responsibility to the government.

But HHS officials realized they needed to tweak the ACA’s approach, as more than 30 states — increasingly led by Republicans, who took over 11 statehouses in the 2010 election — announced they planned to opt out of the exchanges altogether. This would leave HHS officials with “an awesome task in establishing and operating exchanges in [so many] different states and coordinating those operations with state Medicaid programs and insurance departments,” before open enrollment begins in October 2013, Paul Starr writes in The American Prospect.

As a result, the agency in 2011 introduced the partnership model in hopes of shifting some of the responsibility for running exchanges back to the states.

Under the hybrid approach, the federal government takes on setting up the exchange’s website and other back-end responsibilities, while states keep functions such as approving health plans and setting up consumer assistance programs. HHS also hopes that the partnership model will be a path for states that weren’t ready to run their own exchanges to take them over eventually.

“The best case for the government is a state setting up [its own] exchange and operating it well,” Avalere Health President and CEO Dan Mendelson tells California Healthline. But “the worst case … is that a state tries to run it, and run it badly.”

“A partnership is somewhere in between.”

As of press time on Wednesday, seven states — including New Hampshire — have signaled that they will participate in partnership exchanges, and Avalere anticipates that five more states will do so by Friday. Those states are Ohio, New Jersey, Tennessee, Virginia and West Virginia.

Politics Matter

Where states stand on the insurance exchanges has emerged as an important battleground over implementing the health reform law, albeit less publicized than states’ decisions to opt into the ACA’s Medicaid expansion. About 27 million Americans are expected to gain health coverage through the new marketplaces.

In general, “Democratic governors moved aggressively” to set up the exchanges, Mendelson says, with most of those leaders choosing to run their own marketplaces.

But GOP leaders tended to dawdle on announcing their plans, in hopes that the health reform law would be overturned by the Supreme Court or repealed after last year’s election.

Friday’s deadline represents a final chance for undecided states to take part in an exchange, but also represents a difficult decision. Many conservative governors who traditionally support states’ rights are weighing whether to hand over more responsibility to the federal government, or retain some control over implementing a law that they’ve opposed. Seven of the states that Avalere has identified as likely participants in partnership exchanges are led by Republicans.

Meanwhile, local politics in Arkansas — which has a Democratic governor who favors the ACA, but a GOP-controlled Legislature that refused to approve legislation for a state-based exchange — played a role in that state’s decision to pursue the partnership model, an official told American Medical News.

Size Matters, Too

But for Delaware, the decision to go with a partnership exchange wasn’t politics. It was dollars and sense.

Specifically, the decision to pursue a partnership model meant Delaware would benefit from “economy of scale,” Rita Landgraf, the state’s health secretary, told HealthLeaders last month.

Delaware’s small population — with fewer than 100,000 residents likely to enroll in an insurance exchange — meant that a state-based exchange would be “cost-prohibitive.” As Governing‘s Dylan Scott reported, Delaware officials estimated that it would cost about $87 per member per month to run their own health insurance, or roughly six times as much as if the federal government ran the exchange.

“If we couldn’t spread costs over [a] larger population, which includes both individuals who are healthy as well as those who have medical challenges,” premium costs for insurance participants would rise, Landgraf told Scott.

And while Delaware officials did approach neighboring states like Maryland to ask about folding its pool into those states’ exchanges, “officials in those states weren’t interested, particularly because insurance regulation — traditionally a state government’s responsibility — gets messy when you start crossing state borders,” Scott writes.

Here’s a look at what else is happening around the nation.

Administration Actions

• This month, the Obama administration is expected to issue rules outlining the type of mental health coverage insurers must provide under the Affordable Care Act. After the mass-casualty shooting in Connecticut in December 2012, President Obama promised that his administration would release new rules that build on the 2008 mental health parity law (Kennedy, USA Today, 2/6).
• Last week, HHS announced that Medicare beneficiaries have saved a collective $5.7 billion since January 2011 through an ACA provision that requires drugmakers to offer discounts to those who reach the Medicare Part D “doughnut hole.” HHS also said the provision helped beneficiaries save $2.5 billion in 2012 and $2.3 billion in 2011, while 34.1 million beneficiaries used preventive services with no deductibles or copayments in 2012 (Kennedy, USA Today, 2/7).
• Last week, the Obama administration announced that implementation of the Basic Health Program — created to provide an insurance option for low- and moderate-income families who do not qualify for Medicaid — has been delayed until 2015. HHS said it does not have enough time to issue the guidelines necessary to launch the program as scheduled in 2014 (Galewitz, “Capsules,” Kaiser Health News, 2/7).

Inside the Industry

• Health insurers nationwide are overhauling their business strategies in preparation for several provisions under the ACA. Beginning in 2014, insurers will be prohibited from denying coverage or charging higher premiums for individuals with pre-existing medical conditions. Some health insurers also are preparing for anticipated growth in the Medicaid market after the program expands in 2014 (Abelson, New York Times, 2/5).

In the States

• On Tuesday, North Carolina Gov. Pat McCrory (R) announced that his state will not expand Medicaid or establish its own health insurance marketplace (AP/Myrtle Beach Sun News, 2/12). State officials conducted a comprehensive analysis and concluded that it is “abundantly clear that North Carolina is not ready to expand the Medicaid system and that we should utilize a federal exchange,” McCrory said (Binker/Burns, “@NCCapitol,” WRAL, 2/12).
• Last week, Mississippi Insurance Commissioner Mike Chaney announced that HHS had rejected the state’s application to establish and manage a state-based health insurance exchange (Tillman, AP/U-T San Diego, 2/7). Although HHS did not publicly announce the reasons for its decision, officials suggested the request was denied because of Gov. Phil Bryant’s (R) public opposition to a state-run marketplace (Radnofsky, Wall Street Journal, 2/7).
• Last week, Michigan Gov. Rick Snyder (R) said his state will expand Medicaid, making Michigan the sixth Republican-governed state to agree to participate in the expansion (Gray/Erb, Detroit Free Press, 2/7). Snyder’s plan would extend Medicaid benefits to about 320,000 eligible residents in the first year and more than 470,000 residents by 2021, reducing the uninsured rate by about 46% (Martin, Lansing State Journal, 2/7). He said his plan contains safeguards that will ensure the financial stability of the program and protect against changes in the government’s financial commitment to the expansion (Office of Gov. Snyder release, 2/6).
• Last week, Pennsylvania Gov. Tom Corbett (R) said his state will not participate in the Medicaid expansion, but left open the possibility that it might in the future (Worden, Philadelphia Inquirer, 2/5). Corbett said he told HHS Secretary Kathleen Sebelius about his concerns about the expansion plan’s lack of flexibility and the potential costs to the state, adding that the expansion would cost nearly $1 billion in new taxpayer dollars through fiscal year 2015-2016 and a total cost of more than $4.1 billion by the end of FY 2020-2021 (Viebeck, “Healthwatch,” The Hill, 2/5).

On the Hill

• A bipartisan group of senators has introduced a bill (S 232) that would repeal a 2.3% medical device tax created by the ACA. Many of the senators co-sponsoring the bill represent states that are home to some of the medical device industry’s biggest players, such as Medtronic in Minnesota (Dixon, Reuters, 2/7). A companion House bill (HR 523) also has been introduced with the support of a bipartisan group of about 180 lawmakers (Kasperowicz, “Floor Action Blog,” The Hill, 2/7).
• Sens. Tom Coburn (R-Okla.) and Claire McCaskill (D-Mo.) have introduced legislation that would eliminate an ACA provision that sets a minimum Medicare hospital wage index for hospitals nationwide. The provision allowed two small Massachusetts critical access hospitals — where labor costs are unusually high — to reclassify themselves as rural hospitals. As a result, Medicare payments for Massachusetts’ 60 urban hospitals increased by 8%, but reduced hospital payments in other states (Herman, Becker’s Hospital Review, 2/4).

Rolling Out Reform

• In a speech at the AcademyHealth National Health Policy Conference last week, HHS Secretary Kathleen Sebelius renewed her call for states to work with the Obama administration to implement the ACA, specifically urging them to participate in the Medicaid expansion (Pittman, MedPage Today, 2/4). She also said that states have an obligation to try new payment models that can help reduce health care costs, such as patient-centered medical homes and accountable care organizations (Millman, Politico, 2/5).

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