HHS encourages states to press on

April 1, 2012

HHS issued a final rule to guide states in establishing health insurance exchanges by the end of 2013.

WASHINGTON-After months of anticipation, the Department of Health and Human Services (HHS) issued a final rule to guide states in establishing health insurance exchanges by the end of 2013. Although the 646-page regulation provides many specifics on structuring and operating the marketplaces, state health officials and insurance executives still face uncertainty.

HHS leaders have been painting an optimistic picture on state progress, noting that 45 states have conducted background research on exchange operations, and 44 states have initiated IT gap analyses. Yet fewer than 20 states are in a position where they are likely to establish operational exchanges in time.

HHS has provided grants totaling $900 million to help states update information systems and develop exchange policies and procedures. To encourage more states to press on, HHS is handing out additional funds through the end of the year to those states moving forward more slowly.

HHS also plans to grant conditional certification to states that plan to establish an exchange but do not meet all the criteria for being operational by the end of this year. Yet, even with this extra flexibility, analysts predict that less than half the states will have exchanges ready for business by October 2013.

Many unknowns about how the exchanges will operate stem from the government's decision to let each state determine certain specifics. States must decide whether to structure an exchange as a non-profit or government agency and how to oversee the entity. Specifically, the final rule stipulates that at least one member of an exchange governing board has to represent consumers, while up to half of board members may come from industry and insurance companies.

A key issue for health insurers is whether a state permits all qualified health plans to be marketed through the exchange or if plans have to bid competitively. Related to this, states will establish marketing standards to ensure that approved plans don't cherry-pick healthier customers.

ESSENTIAL BENEFIT PACKAGE

States also will define the Essential Health Benefits package, and most are likely to choose the largest small-group plan as the local benchmark. Additional state-mandated benefits do not have to be finalized for another year. HHS has received thousands of comments on the guidance, primarily on benefit substitution, dollar limits and state mandates.

To handle the influx of newly subsidized enrollees, the final rule calls for states to establish Web-based systems and common application forms for individuals to apply for coverage. Last month, HHS clarified approaches for coordinating Medicaid eligibility and enrollment processes with exchange operations.

However, modernizing Medicaid enrollment processes will be a huge undertaking for most states. Even for those that actively support health reform, the timeframe "is brutal," according to Joshua Sharfstein, secretary of Maryland's department of health, speaking at the AHIP conference. He said that establishing Maryland's exchange involves replacing a 30-year-old legacy system.

In states that decide not to establish exchanges, consumers will be able to purchase coverage through a federal system. The Obama administration has requested an additional $800 million to operate the federal exchange, and Congress is balking at the amount.