Medicaid Expansion Complicates Health Insurance Exchanges

Health-care executives and public officials say complexity and uncertainty reign as states continue to build online insurance marketplaces.
by | July 11, 2012

By Brian Heaton, Matt Williams

Last month’s landmark Supreme Court decision on health care -- upholding the Affordable Care Act (ACA), but making the expansion of states’ Medicaid programs optional -- is adding another layer of complexity to the online marketplaces where Americans will shop for insurance.

Industry executives working with states to build these marketplaces, called health insurance exchanges, say that the policy decision each state makes on Medicaid -- affecting how many people will gain health insurance -- will directly impact the back-end IT systems used to determine insurance eligibility.

In a recent interview with Government Technology, Patrick Howard, leader of Deloitte Consulting’s public-sector state health-care practice, said the optional Medicaid expansion probably won’t cause states to miss the Jan. 1, 2014 deadline for standing up health insurance exchanges. But it could make writing the code and business rules a more difficult task, Howard said.

“You’re going to have a few more complicated business rules that are going to be state-specific depending on what they opt in or opt out of,” Howard said.

The Affordable Care Act introduced a new income definition for determining Medicaid eligibility. The definition is called MAGI -- for Modified Adjusted Gross Income.

States had a good handle on this new MAGI arithmetic, Howard said, adding that it presented a fairly standard set of rules across the U.S. The back-end code required to implement the MAGI formula in the health insurance exchanges also was fairly straightforward, he said. Basically the formula dictates that people and families living at or below 133 percent of the federal poverty line are eligible for the expanded Medicaid coverage set forth by the federal health-care legislation.

But now that at least some states have announced that they are opting out of the Medicaid expansion, the eligibility formula -- and the computer programming needed to support those equations within the health information exchanges -- will be more complicated than it was before.

“The biggest issue is they have to come up with a new way of calculating eligibility, and that has a technology implication,” said Jan Ruff, senior vice president of business development with MAXIMUS Health Services. “And then they’ve got a whole new set of rules to follow in terms of timeliness and all the hurdles you have to clear.”

Those eligibility rules and income thresholds may or may not be cut and dry. The National Association of Medicaid Directors sent a letter to the Obama administration last week asking for clarification on a range of issues, including how much flexibility states should expect regarding the Medicaid expansion. Some states have floated the idea of a “partial” opt-out, which likely would create further complexity.

“If a state decides to opt out and defer to the federal [health insurance] exchange, does that mean that they get to keep the Medicaid categories and Medicaid eligibility rules as is and forego any involvement in MAGI?” Ruff asked. “Or does the law actually change Medicaid eligibility regardless of whether you opt in to the expansion or not?”

The eligibility determination systems tied into the health insurance exchanges might have to make those types of distinctions.

No matter what happens, Howard said it’s important that states decide quickly on the Medicaid expansion.

“History has told us that you don’t want IT to drive policy,” Howard said. “The lesson learned is the quicker [the states] get on that the more likely these systems will be successful in the long run.”

Business as Usual?

The Supreme Court’s upholding of the ACA on June 28 hasn’t changed much for the states in regard to the development of HIEs themselves. Whether a state is doing the development work itself, or waiting for the feds to come in and establish an online exchange for them, the ACA still mandates the sites to be live by Jan. 1, 2014.

Some states are farther along in developing the exchanges than others, however. Fourteen states and the District of Columbia have authorized exchanges to be built, but 33 have taken only initial steps or none at all, and three states have declared that they won’t create an exchange at all. The ACA mandates the federal government to build and operate the HIE if a state refuses to do so.

View a map tracking each state's implementation of health exchanges.

Illinois is one of the 33 states lagging behind in HIE creation. In an email to Government Technology, Sean Vinck, CIO of Illinois, said his state has yet to finalize the legal and policy architecture for its exchange. But now that the Supreme Court has declared the mandates in the ACA constitutional, he expects a renewed emphasis on resolving those issues.

Vinck added that the ruling has reaffirmed the state’s dedication to building an HIE and other health IT projects such as an integrated eligibility system for Medicaid, Temporary Assistance for Needy Families (TANF) and Supplemental Nutrition Assistance Program (SNAP).

“In sum, [the] decision reaffirms our commitment to completing the work we started,” Vinck wrote.

Bruce Caswell, president and general manager of MAXIMUS Health Services, said the same is probably true for most of the other 33 states that are in the same boat as Illinois. He said states that put HIE work “on the shelf” waiting for the Supreme Court ruling are now re-engaging their teams to make sure they can access the Level 2 establishment grant funding the feds have made available for HIE development.

The clock is ticking to get the exchanges online, however. Various state officials have expressed concern that the 2014 deadline is too tight, particularly due to the complexity of information sharing that needs to happen in the system.

To address the short timeframe, Caswell suggested that states should be doing an inventory of existing resources they have that could help build the exchanges. Everything from technology infrastructure to existing purchasing vehicles needs to be on the table.

“For those considering the [state-run exchange] path, the dialog turns immediately to ‘what do I have that I can leverage?’” Caswell said. “With the time being short, the path of least resistance is trying to find ways of working with current contract vehicles to find a path to success.”

In an interview with Government Technology last year, Hawaii and Utah were two of the states that questioned whether 2014 was a realistic deadline.

Lloyd Lim, health branch administrator for Hawaii’s Insurance Division, said last October that the federal government had promised access to a data services hub that states could link to for verifying information with federal agencies, but he hadn’t seen any movement on that.

Although Utah already had an exchange online, Patty Conner, director of the Utah Health Exchange, said the state remained in the dark on what services states were expected to provide.

“There is no definition today on how we need to deliver some of these services and what exactly their expectation is,” Conner said in October. “It’s really hard to say that we’re going to make the timeline, because we don’t know all of the components at this point.”

In an email to Government Technology last week, Lim said the Supreme Court ruling didn’t really impact the state’s efforts. The Aloha State is working to get its exchange online a few months ahead of the deadline.

“The [Supreme Court] ruling means that work on the Hawaii Health Connector (Hawaii’s exchange) will continue in full force so that we can [be] in the market by October 2013,” Lim wrote.”

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