Build Them and They Will Come

States must have insurance exchanges up and running by 2014

Alex Wayne, with Jennifer Oldham and David Mildenberg

Virginia Republican Governor Bob McDonnell wants the U.S. Supreme Court to strike down the 2010 health-care overhaul. That hasn’t stopped him from taking $1 million from the federal government to uphold one of the law’s top provisions. Virginia is using the money to help design a statewide market, or exchange, where uninsured people and small businesses can buy health coverage, starting in 2014. Under the law, if a state hasn’t drawn up plans for its own exchange by next January, the administration will build one for its residents instead.

McDonnell’s hold-your-nose-and-hedge approach represents a middle ground among governors and legislatures responding to the overhaul. A handful of states led by Democratic governors has embraced the law and are rushing to set up exchanges. A handful led by Republicans wants nothing to do with them. More than half, including Virginia, are creating exchanges without committing to run them, waiting to see what the high court says. “We’re trying not to lose any time if the Supreme Court decision doesn’t go the way the governor would like it to,” says Cindi Jones, Virginia’s health-reform director.

The exchanges aim to simplify complex private insurance markets for people required to have coverage who don’t get it through their jobs or from government programs. Individuals today face bewildering choices with widely varying prices and terms depending on age, illness, and other factors. Exchanges are designed to offer easy-to-compare policies, similar to booking airline flights on travel websites.

The exchanges will also determine whether consumers are eligible for Medicaid, which will be expanded to cover people earning near-poverty wages, or for subsidies to reduce the cost of private premiums.

The Obama administration on March 12 released guidelines for these local markets. States will be able to operate their exchanges in partnership with other states, are obligated to ensure universal access to insurance, and can charge fees to insurers that participate to cover their operations.

U.S. officials haven’t disclosed rules for the federal exchange, raising the prospect that it might not be ready in time. That would make the states’ job even tougher, as they need to get tax and immigration data from Washington to identify who’s eligible for policies and whether they qualify for subsidies. “I believe they will get the federal exchange built, but to connect that up to a large number of state systems, each of those will take some time and effort,” says Joel Ario, a former Pennsylvania insurance commissioner who headed the federal office supervising exchanges until September.

McDonnell’s ambivalence is tied to a central issue before the Supreme Court: the law’s requirement that most Americans buy insurance. If the requirement is struck down, younger, healthier people may not sign up for coverage, leaving exchanges filled with older and sicker residents whose care is more expensive. “This is an enormous undertaking under the very best of circumstances, even if we pull the politics out of it,” says Kim Holland, a former Oklahoma insurance commissioner who is executive director for state affairs at the Blue Cross Blue Shield Association in Washington, a federation of insurers.

The states now oversee health insurance for their neediest residents through Medicaid. The health law will expand eligibility in that program to people earning up to 133 percent of the federal poverty level and provide subsidized coverage through the exchanges for individuals not poor enough to qualify. The efforts may add at least 30 million people to the ranks of the insured by 2020, according to the Congressional Budget Office.

States are better off complying with the health-care law instead of losing their power to regulate health services for millions of their residents, says former Tennessee Democratic Governor Philip Bredesen.

That’s not the sentiment in Louisiana, whose officials view the overhaul as unconstitutional and “just bad public policy” because it adds bureaucracy and doesn’t do enough to control health-care costs, says Bruce Greenstein, secretary of the state’s Department of Health and Hospitals. The state declined to start planning an exchange.

Arkansas also is sitting out the process because of disagreements between its Republican-controlled legislature and Democratic Governor Mike Beebe. Beebe won a $7.7 million federal grant last month to develop technology links between his existing Medicaid program and the exchange the federal government will run in the state.

Colorado, with the same partisan split between its governor and legislature, opted to strike a compromise and pass a law authorizing an exchange. The state has received $19 million in federal money so far and is weighing bids from 12 vendors to build the system.

Preparations for the exchange in Virginia have left the state’s top Republicans in an odd spot, rooting for the court to overturn the law but striving to meet its requirements. “We’re working toward lining everything up except turning on the lights,” says health-reform director Jones.

The bottom line Several states are hedging by building health insurance marketplaces, even as they hope for the health-care law to be overturned.


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