States must work quickly to design exchanges

Exchanges will be at the center of the individual and small group markets in the states and their impact is projected to be transformational.

Another 35 million people are expected to purchase though the Small Business Health Options Program (SHOP) exchanges, which provide a portal for small employers to make a broad choice of affordable policies available to their employees. In SHOP exchanges, employers with fewer than 100 employees choose a "tier" of plans, and their employees choose the specific policy within that tier that suits their needs and budget.

Under the Patient Protection and Affordable Care Act (PPACA), every state must conduct a decision-making exercise to determine if they will establish an exchange or allow the federal government to do so in lieu of state action. To be clear, PPACA gives states the option to establish the exchange-not whether there will be an exchange operating in the state.

In October, the Department of Health and Human Services (HHS) awarded states grants of roughly $1 million each for the data collection, analysis, legislative and regulatory work needed to design their exchanges. Sometime in 2012, the secretary of HHS will assess the progress of each state.

If she determines that a given state will not have a fully operational exchange by January 2014, the federal government will step in and establish an exchange on the state's behalf. In addition, states will face significant policy choices that will affect how, where and in what form insurance is sold both inside and outside the exchanges.

States have approximately two years to:

This column is written for informational purposes only and should not be construed as legal advice.

Cindy Gillespie is managing director in the public policy practice at McKenna Long & Aldridge, LLP. Previously, she served as counselor to the Massachusetts governor when the state passed its healthcare reform law.