When Delaware’s health insurance marketplace goes live in October, the state will be working in partnership with the U.S. Department of Health and Human Services (HHS) to make sure the whole thing runs smoothly. The state will be responsible for certifying the insurance plans sold on the marketplace and overseeing customer service, while the federal government will construct the digital infrastructure for the website and maintain final authority for its operation.
That’s the partnership model for the insurance marketplaces (formerly known as ‘exchanges’). It wasn’t explicitly outlined in the text of the Affordable Care Act (ACA), but once HHS realized that more than half the states would opt for a federal-based marketplace instead of establishing their own, the department started looking for ways to still give states some autonomy—and lighten the administrative workload for its own staff. The partnership concept was born.
So with the deadline for states to declare they’ll create a state-based marketplace long past, HHS is working to persuade as many of the 33 states that didn’t go that route to at least take some ownership of the exchanges through the partnership model. States have until Feb. 15 to decide if they want to partner with HHS or default to a fully federal exchange.
Delaware is one of two states (the other is Arkansas) to already be approved for a partnership exchange. Its experience and reasoning could be instructive to the 20-odd states still making up their minds.
For Delaware officials, the decision to go with a partnership was a matter of simple math. With an estimated 100,000 uninsured residents (about a third of whom should get health coverage through the Medicaid expansion), the maximum size for the marketplace was about 70,000. That’s just not a big enough market for a state-based exchange to be financially feasible, says Delaware Health and Social Services Secretary Rita Landgraf, who has overseen health reform implementation in the state.
“Early on, we had concerns about economies of scale,” she says. An official state study estimated it would cost about $87 per member, per month, to operate a state-based marketplace, more than six times what it would cost for Delaware to just throw its hands up and let the federal government run the show.
“If we couldn't spread costs over larger population, which includes both individuals who are healthy as well as those who have medical challenges, it became cost-prohibitive for us to consider a state exchange,” Landgraf says. In other words, fewer people in the exchange would mean higher premiums for those who were in it and a higher cost for the state to operate it.
The state reached out to some of its coastal neighbors, Maryland and New York, to ask about folding its pool into those states’ marketplaces, a “regional exchange” concept that was floated in the early days of the ACA, but never gained much traction. 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.
That’s why when the possibility of a partnership model was announced in 2011, Delaware officials took another look. A partnership marketplace would ensure the state could continue regulating the insurance market, as it historically has, by certifying the insurance plans sold on the exchange. It would also allow the state to take control of customer service, meaning that a Delawarean would be helping other Delawareans who had questions, instead of outsourcing to somebody in Washington, D.C. At the same time, though, the federal government would do the heavy lifting in setting up the marketplace’s website, one of the most labor-intensive and costly aspects of establishing the exchanges.
Consumer groups and the insurance industry were onboard after being consulting by state officials in various stakeholder meetings. Customers wanted to interact with somebody local, state officials say, and insurance companies didn’t want to have to file paperwork twice, once with the state and once with HHS.
So Delaware started planning for a partnership exchange in earnest last year, submitted its application in December to HHS and received conditional approval this month. Under the approved plan, the state insurance department will receive and verify the plans being sold on the exchange, with minimal duplication from HHS. The state will also authorize and train ‘market assisters’ to answer questions from consumers and businesses about the marketplace.
“It was important for us to retain that responsibility for who would sell on the exchange,” Landgraf says, “and when we were thinking about the consumer base and the small business market, we wanted to be able to have that interaction.”
That was the whole basis of the partnership concept, according to HHS officials. Those particular functions—regulating the insurance plans and interacting with constituents—are two elements of the exchanges that make the most sense to leave in state hands, even if the federal government does a lot of work on the back end.
“From the beginning, this process has been guided by our belief that states know their own needs better than anyone else,” says Amanda Cowley, director of the state exchange group at HHS. “That's why we've worked so hard to give states the flexibility and resources to create and participate in marketplaces that work best for their citizens.”
So though they’re hesitant to say so publicly, HHS officials are working behind the scenes to get more states onboard with the partnership model. When Florida Gov. Rick Scott, a staunch ACA opponent, met with HHS Secretary Kathleen Sebelius this month, the secretary urged him to partner with her department on the state’s insurance marketplace, according to a description of the meeting by an HHS official. Arkansas and Delaware officials have spoken with their counterparts in other states about their plans for the partnership exchange and how they might be applied elsewhere.
Political pressure will probably prevent every state from pursuing a partnership. But, for the reasons stated above, the option is being given a long look by almost every undecided state, says Monica Lindeen, Montana Insurance Commissioner and vice president of the National Association of Insurance Commissioners, who is considering a plan management partnership for her state.
“I think it would be more difficult for us to do our job if there is no partnership. Then there is the potential for discrepancies to occur,” she says. “It could cause the process to be slower, more expensive and just more cumbersome.”