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Setting The Standards For Health Insurance Exchanges

 Many states are struggling to get their health exchange plans ready by deadline.  

By SARAH KLIFF | 7/11/11 11:34 PM EDT

The Obama administration’s newest health reform regulation, laying the groundwork for health insurance marketplaces in all states, may raise more questions than those it answers.

The administration released a proposed regulation Monday that sets the standards for new marketplaces — health insurance exchanges — that are supposed to launch in every state by 2014. They’re supposed to be where individuals and small businesses can browse a wide selection of easily comparable health plans and pick the one that’s best for them. If the exchanges don’t work well, it’s a good bet that the rest of President Barack Obama’s health care law won’t work, either.

But a lot of states have struggled to get ready fast enough to have their exchange planning well under way by 2013. And if they haven’t made enough progress by then, the law calls on the Department of Health and Human Services to prepare to run exchanges for them — an outcome that the law’s opponents could easily depict as a “federal takeover” of health care.

The proposal includes allowances for states that might not be ready in time. In the rule released Monday — one of the most eagerly anticipated regulations since the law was enacted — the Obama administration announced that it may issue “conditional approval” of health exchanges that are not quite ready to meet federal deadlines for the marketplaces by then.

The new regulatory provision could extend the timeline for states that want to establish health exchanges but can’t meet the statutory Jan. 1, 2013, deadline to have the marketplace certified.

HHS Secretary Kathleen Sebelius said that “somebody could have their information technology in pretty good shape but haven’t kicked the tires or haven’t test-run it.”

“That could be a situation of conditional approval, assuming it may be in the stages of getting toward those component parts,” she said.

The health exchanges are a centerpiece of the Patient Protection and Affordable Care Act meant to drive down costs and increase transparency in the individual insurance market. But just how flexible the Obama administration will be on health exchanges — and what role the administration will play in oversight — remains a subject of much debate.

“There’s still a lot of questions,” said Alissa Fox, a senior vice president at Blue Cross and Blue Shield Association, which is still reviewing the new rule.

Fox said she likes the fact that HHS left much of the decision making to the states. She sees one red flag, though: the suggestion that the exchanges may review insurance rates.

“There was some language we didn’t quite understand, suggesting the exchange might have some additional responsibilities reviewing premiums,” she said. “We’re looking at that as something that might be duplicative of what a state insurance commissioner already does. We’re making a list that we’ll be going through.”

Eyebrows were also raised at the suggestion that the federal government could have a heavy hand in approving state changes to health exchanges, similar to the current process for any larger revisions to state Medicaid programs.

“I was surprised they suggested using a process similar to Medicaid State Plan Amendments,” said Cindy Gillespie, a managing director at McKenna Long & Aldridge, who will present on exchanges at the National Governors Association meeting this weekend. “That’s subject to a lot of federal oversight and involvement. … I’m sure a lot of states will be reacting to that.”

The 244-page health exchange regulation also addresses the standards for establishing exchanges, including the small-business marketplaces, the process for health plans to be certified to sell on the exchanges and provisions meant to ensure the exchanges’ stability.

But it also left many crucial topics unaddressed, such as what health benefits insurers will be required to cover and what a federally run exchange would look like.

So far, states have varied greatly in their interest and ability to lay groundwork for the exchanges. Twelve have passed bills that either establish exchanges or express the state’s intention to do so, most recently, Hawaii this past weekend.

But other states have steadfastly opposed implementation, with 15 state-level exchange bills dying in legislatures across the country. Three states — Florida, Louisiana and South Carolina — have pledged not to take additional federal funds to create health exchanges.

“We’re going to have states moving at different paces for a whole host of different reasons,” Steve Larsen, director of HHS’s Center for Consumer Information and Insurance Oversight, told reporters on a Monday call. “But I don’t think we’d view it as dragging their feet.”

The Obama administration has repeatedly said it would prefer all 50 states to set up their own exchanges.

But preparing for the prospect that some states will not, the administration has also begun planning for a federal fallback — although the issue was not addressed in the proposed regulation.

The regulation did, however, clarify that states that do not set up their own exchanges might be stuck with the federal fallback for a good period of time. The federal government would need 12 months to transition a state from a federally administered exchange to a state-based one, the regulation says.

Joel Ario, who directs the Office of Health Insurance Exchanges at HHS said there were two primary steps states need to take by 2013 to make adequate progress for certification. They’d have to set up some form of structure to govern the exchange, he said, and they would need an information technology infrastructure to manage its operation. He declined to specify additional benchmarks that states would need to reach by 2014 to avoid having the feds step in.

“We will work as hard as we can to come to some form of partnership arrangement. There are no absolute deadlines here,” he said.

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