States Will be Pushed to Take Control of Health Exchanges

Insurers will likely lobby states to transition from federal to state control, an idea that's already on some states' minds.
by | February 8, 2013
 

One way or another -- whether overseen by the states, the federal government or in a partnership -- the Affordable Care Act’s health insurance marketplaces will be up and running by the end of this year. But that’s not the end of the story. The U.S. Department of Health and Human Services (HHS) has said that states can take more ownership of them in later years, and states are expected to be pushed to do so.

Various health insurance industry sources have said that they’ll be lobbying states in the next few years to take more control of the marketplaces, also known as exchanges, which are expected to serve up to 24 million people by 2023, according to the latest federal estimates. HHS has said in recent guidance that states could move from a federal exchange to a partnership or state-run exchange in 2015 and beyond.

The idea is that states, which have traditionally regulated the insurance industry, are better positioned to oversee the marketplaces, websites where people will shop for health coverage and access federal tax subisides to purchase it. That's a perspective shared by insurers.

“We’ve always been supportive of having state-based health exchanges,” Alissa Fox, senior vice president at the Blue Cross/Blue Shield Association’s office of policy and representation, said at a briefing with reporters Thursday in Washington, D.C. “We’re going to make that a priority.”

The position is shared by America's Health Insurance Plans (AHIP), the largest trade organization representing the health insurance industry. “States are in the best position to run exchanges because they have the experience, infrastructure, and local market knowledge to ensure exchanges are meeting the needs to consumers and employers in the state," Robert Zirkelbach, an AHIP spokesman, said in an email.

It’s a notion that’s already on the mind of some states. One state-level source, who asked not to be identified because states have not yet made these plans public, tells Governing that state officials are worried that the current HHS rules applying to federal-run exchanges will be valid only through 2014 and 2015. Coupled with other concerns about maintaining states’ regulatory authority, some states are already thinking about how they would transition to a state-run exchange by 2016, the source says.

One state has already announced that it intends to move from a partnership to a state-run exchange. In his letter to HHS stating that his state would seek a partnership for 2014, Illinois Gov. Pat Quinn said: "I’m committed to working with the Illinois General Assembly to pass legislation with governance and financing language that will allow us to operate a state-based exchange beginning in 2015."

Given the current exchange landscape, there could be a lot of room for movement toward more state control. At the moment, 18 states and the District of Columbia have been conditionally approved for a state-based exchange. Another seven are reportedly planning for a partnership -- the official number will be known Feb. 15, when applications for partnership exchanges are due to HHS -- which leaves 25 states defaulting to a federal-run exchange.

That means more than 30 states would be positioned to seek more control of the exchanges in 2014 and 2015. But they’ll have to make up their minds somewhat quickly: under the HHS guidance, states need to apply by Nov. 18, 2013, if they want to assume more authority in 2015 or by Nov. 18, 2014, to make a change for 2016. However, keep in mind that HHS has provided some flexibility about more recent deadlines in the wake of President Obama’s reelection. To make the transition, states will have to submit the full exchange blueprint that the 18 states currently pursuing state-based exchanges have already filed.

Pressure from the insurance industry will be one factor in states’ decisions to assume more authority over the exchanges. Another could be changes in political make-up.

Take New Hampshire, where control of the House flipped from Republicans to Democrats in the November elections. The previously GOP-led legislature had been resistance to a state-run exchange, with one lawmaker going so far as to introduce legislation to block one from being established. So New Hampshire is defaulting to a federal exchange for now, but the new Democratic House majority might be more interested than its predecessor in moving to a partnership or state-based model in the next few years.

But the general rule, analysts say, is that states will be watching how the first year of exchange operations plays out before deciding what to do next.

"We don't quite know what the federal exchange will look like, and we don't know how it will play out in each state," says Martha Salazar, who tracks exchange planning for the National Conference of State Legislatures (NCSL). "It could work really well, or it can take a little more time than was originally expected, and that could affect decisions that states make. I think it really will be a wait-and-see game."

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