State of the states: insurance exchanges

Federal health insurance exchange
kicks in if states fail to act

By Jan Greene
healthinsurance.org™ contributor

There's a lot of activity in state capitols right now as state leaders debate whether, and how, to get a health insurance exchange up and running. But things are busy in Washington, D.C., too, as federal officials work out contingency plans for states that don't participate.

If states choose not to set up their own insurance exchanges – also known as helath insurance marketplaces – or can't prove to the federal government on Jan. 1, 2013, that they are on track to get it done, the federal government is authorized to run an exchange in that state.

So what would that look like? It's unclear at the moment. The Department of Health and Human Services, which is in charge of all this, has not yet explained in any detail what federal exchanges would look like.

The Affordable Care Act language on this says that if the federal government steps in, it can operate an exchange – either directly or through agreement with a non-profit entity.

For some state leaders, the idea of handing the expense and effort of setting up an exchange to someone else is a good option in tight economic times. But for others, particularly fans of local control, it's the last thing they want.

A July analysis by a consultant to the Indiana Family and Social Services Administration listed some of the pros and cons to having a federally run exchange in your state. Among the negatives would be the potential for fewer health plan offerings for consumers; insurers having to deal with two levels of government; the feds would get involved with Medicaid eligibility determinations, since those would also be handled through the exchange; and limited state influence over policy and consumers' experience with the exchange.

Given the lack of detail about what a federal exchange would look like, and the lack of federal funding designated to build one, there's been speculation that it won't actually happen, according to an Oct. 18 CQ HealthBeat article. In it, a top HHS official assured attendees at a health care conference that there will indeed be a federal exchange.

“We've made investments in 2011, we're making further investments in 2012 – in terms of IT, business process, resources that are needed to be able to bring up the exchange,” Hill said. All the things that need to happen to develop a federal exchange are moving forward, CQ HealthBeat reported.

Hill told the conference that even if the federal government steps in, it would make efforts to customize the exchange to fit local market conditions.

At the same time, HHS is telling state officials that the exchange question is not all-or-nothing – that the agency recognizes the challenges facing states in creating these marketplaces on a short timeline, and is offering help to run them. In an August letter to states, HHS Secretary Kathleen Sebelius described a state partnership model as a third alternative. In September, HHS clarified further various ways the states and HHS could share the work, and noted that partnerships could last only until the state was able to take over the exchange itself.

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