Health Exchanges: States Avoid 'Partnership' But Claim Regulatory Power

Some states are defaulting to a federal-run insurance marketplace, but hoping to keep their regulatory authority.
by | February 15, 2013

The last few months have proven that it’s hard to be a conservative state official and go along with any part of the Affordable Care Act (ACA). Arizona Gov. Jan Brewer and Ohio Gov. John Kasich received a talking-to from their Republican brethren after agreeing to expand Medicaid under the law.

That might explain why, as the deadline for states to declare they will partner with the federal government to run the health insurance marketplaces created by the law arrives, some of those officials are avidly avoiding the “partnership” moniker -- but still fighting to play a role in their operation.

Feb. 15 is the last day for states to submit applications to participate in a state-federal partnership on the marketplaces, also known as exchanges. (For a broad overview of how the partnership model is supposed to work, check out Governing’s profile of Delaware). It remains to be seen exactly how many states will decide to go that route, probably a half dozen or so.

But a few states are consciously foregoing a partnership and defaulting to a federal-run marketplace -- but still saying they want to have a role in regulating the insurance plans sold on the exchanges.

That was supposed to be a main feature of the partnership model. States could take responsibility for two functions of the partnership exchange: maintaining customer service and overseeing the plan management, i.e. accepting and certifying insurance coverage to be sold. It was intended to be part of the appeal of a partnership, because insurance regulation has traditionally been the state’s role.

But maybe the harsh reactions to Republicans accepting the Medicaid expansion led some of those same officials to reconsider a “partnership.” After all, it’s always been politically toxic for conservatives to appear to embrace any part of so-called ‘Obamacare.’ But that doesn’t mean they want to give up their authority to regulate insurance either.

So, this week, Ohio Gov. Kasich and Virginia Gov. Bob McDonnell both told the feds: we’re not doing a partnership, but we want to keep our regulatory power.

It's an unexpected move by states, says Caroline Pearson, director of health reform at Avalere Health, a consulting firm. Regardless of what exchange model a state has, it will still review all plans sold in the state, including those on the exchange. But the concept of "plan management", which means officially certifying plans to be sold on the marketplaces, would seem to require a partnership model.

"I'm perplexed at the moment. I don't know where the line (between partnership and federal exchange) is anymore," Pearson says. "I'm certain HHS is going to do their best to accommodate states doing as much as what they want to do... but such a situation is not clearly laid out in the way these states are presenting it."

In other words, it’s unknown if the U.S. Department of Health and Human Services (HHS) will let the states have their way. In guidance on the various models of health exchanges, the department wrote that it would work with states, regardless of exchange model, “to ensure the best, most effective experience for the state and its residents.”

But the guidance doesn’t include any provisions for the state to oversee plan management in a federal-run exchange. It could also be messy for insurers: will they have to submit paperwork to both the states and HHS?

HHS officials declined to comment until next week. But Joel Ario, a former HHS official who now works as a consultant at Manatt Health Solutions, says the department has a lot of incentive to work with states on the issue. He also notes that HHS has several avenues -- whether rate review rules or new guidance on federal exchanges -- to accommodate the wishes of Ohio, Virginia and any other states.

"There are good reasons for HHS to do it. States have the experience and expertise in this area. They're tremendously valuable," Ario says. "And it's better to have the states be cooperative and working with the feds to make this succeed."

So those questions still need to be answered. But the posturing probably makes sense from the perspective of Kasich and McDonnell. They aren’t ‘partnering’ with the feds on the exchange, a political win for them, but they aren’t relinquishing state power either.

“Continuing this regulation at the state level, as Ohio has done for decades, will preserve the high quality oversight of the industry for which Ohio is known, and also help provide stability to our state’s insurance market at this time of considerable volatility,” Ohio Lt. Gov. Mary Taylor, who directs the state insurance department, wrote in a letter to HHS, according to the Associated Press.

Likewise, McDonnell wrote to HHS that Virginia “will choose to evaluate whether a plan or issuer meets particular certification standards and conduct other specified plan management activities as part of its long-standing regulatory role and in connection with market reform standards,” according to the AP.

His health secretary Bill Hazel seemed to acknowledge, however, that Virginia had a limited ability to ensure that HHS would honor the state’s authority under a federal exchange. “It can take our recommendation or ignore it,” he told the AP.

More than 20 million Americans are expected to purchase insurance on the exchanges in the next decade. Under the ACA, they’re supposed to open for enrollment on Oct. 1, 2013, to sell coverage that takes effect on Jan. 1, 2014.

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