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State Perspectives On Implementing Insurance Exchanges



September 20th, 2011
 
by Steve Lieberman and Krista Drobac

Editor’s note: Watch for additional posts on insurance exchanges coming soon on Health Affairs Blog.

The National Governors Association (NGA) hosted a two-day workshop entitled, “Timelines, State Options, and Federal Regulations” to assist states in considering the many decisions and tasks associated with the creation of insurance exchanges and related changes to Medicaid enacted in the Patient Protection and Affordable Care Act of 2010 (ACA).  More than 120 state officials from more than 40 states and territories participated, including cabinet secretaries, governors’ representatives, Medicaid and insurance department leaders, and exchange governing board and staff members.

This posting summarizes the concerns voiced at the meeting and presents some of the recurring suggestions made by participants that would allow their states to make informed critical decisions.  Because insurance exchanges must be wholly created in a very short time period, their implementation presents unique challenges.  Additionally, the requirements for interconnected, automated systems to determine Medicaid and subsidy eligibility pose major challenges.  Tight deadlines, severely strained budgets, and human resources shortages further complicate implementation in nearly every state.

Despite having participants with widely disparate views of exchanges, several major themes emerged from the discussions at the meeting:
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  • A need for timely guidance: Federal guidance has yet to be released or finalized on many issues, confronting states with a lack of clarity on many issues – a problem frequently compounded both by insufficient detail and efforts to preserve apparently broad flexibility;
  • Uncertain and challenging timelines: For many states, the resulting uncertainty creates significant challenges in defining the “critical path” and meeting the associated deadlines necessary to establish exchanges and obtain required federal approvals;
  • A lack of clarity and detail: In many states, legislators and governors require more clarity about the policy issues and operational details involved in creating a state-run insurance exchange, pursuing a hybrid or “partnership” model, or accepting a federal exchange;
  • Concerns about costs: States need to understand the short and long-term costs of exchanges under the various scenarios, which have implications for how states seek to design them; and
  • Delegating discretion to states: Many states suggest limiting directive federal guidance to those areas where the statute specifies “shall,” leaving discretion to the states in all other areas involving exchange design and in interpretation of the statute.

Moving Forward Amidst Uncertainty

Creating exchanges engages states in making highly significant policy choices and operationally complex decisions, which require ample lead time for analysis, planning, stakeholder engagement, and procurement. Looming deadlines require states to proceed in a highly uncertain environment.  Even though federal regulations specifying essential elements have not been finalized or, in important instances, proposed, timely implementation places states in a position of needing to make basic decisions about how they will establish and implement insurance exchanges on the basis of incomplete guidance and regulations.

Nonetheless, most states are actively working to chart a provisional course forward, so that they can be operationally ready for political decisions made by their governor or legislature.  The substantial ambiguity involving core elements of exchange and Medicaid implementation, especially in light of the controversies associated with ACA, greatly complicates discussions about how or whether to proceed in some states.

Many states are moving forward on the assumption that if they do not, it will be impossible to meet ACA deadlines, which would lead to a federally operated exchange in their state.  State officials also voiced concern about the capacity of the vendor community to provide timely, effective solutions to the business challenges posed by ACA implementation, especially as timeframes become increasingly compressed.

Lack of Timely Guidance Creates Roadblocks to Moving Forward

Among the many challenges, participants noted ACA implementation requires major changes in existing Medicaid eligibility systems, which need to operate seamlessly with the yet to be detailed federal data hub and exchange systems, providing real-time, online eligibility determinations (under significantly reformed Medicaid income, asset, and eligibility rules). States expressed concern that vendor capacity and the IT workforce are strained.

Even in the best of circumstances the development of information systems often takes longer and is more costly than anticipated.  A number of states implementing Medicaid system changes agreed that the scheduled time to develop the necessary systems changes will take 18 to 20 months after the issuance of a request for proposal (RFP), a step that in most cases has yet to occur.

Questions remain about whether a federal data hub currently under development will be ready by October 2013 to furnish the exchanges with real-time eligibility data such as income verification through planned links to the Internal Revenue Service and other federal agencies.  Some unique data do not currently exist in a consistent, national repository.  As a result, participants questioned the likelihood of implementing by October 1, 2013 seamless, “no wrong door” eligibility and enrollment processes that offer consumers a single portal for eligibility determinations, applications for subsidies, and enrollment in plans.

Retrospective reconciliation of inaccurate determinations of Medicaid and exchange plan subsidy eligibility could result in unanticipated financial liability for consumers, exchanges, and Medicaid agencies. States expressed concerns about how the federal government would compute error rates and determine liability arising from the new, on-line eligibility determinations.

Federal rules for the Basic Health Plan have not been issued, leaving states with inadequate information to analyze its implications.  Similarly, guidance on the essential health benefit package, which might affect the type of purchasing model a state would elect, has not yet been issued.  For many states, bills must be filed as early as November, making timely release of details imperative for crafting legislation in the upcoming session.

Lack of Clear Timelines Complicates Decisions

The time remaining for implementation and limited guidance currently available are increasingly affecting design and implementation decisions.  For example, the remaining time is less than normally required to procure major IT systems or amend Medicaid state plans.

Procurement serves as an example.  Time constraints weigh heavily on IT decisions for four reasons.  First, IT systems design and development presupposes specifying in advance the policy requirements and resulting business processes.  Second, the timelines for developing major systems typically requires years, in part because of public procurement rules designed to ensure fair and efficient expenditures of public monies.

Third, the multiple new systems that are simultaneously being implemented require testing of both the individual systems and the interface of federal and state systems.  States repeatedly cited concerns about the lack of sufficient capacity on the part of experienced vendors to meet the “peak load” demand for Medicaid and exchange systems development.  Finally, experience suggests that systems contracts frequently underestimate costs and take longer than expected to complete.

States are considering a variety of strategies to deal with those challenges. One approach entails partnerships and outsourcing, allowing states to buy capabilities they feel they do not have time to build.  Another potential strategy may involve bundling procurement needs into general or modular contracts, where vendors may bid on all or just parts of RFPs. States expressed interest in having the federal government designate a list of approved systems or vendors, which would allow a streamlined approval process for any state adopting these systems.

But those strategies pose risks of their own, potentially presenting accountability problems, timeline disruption, and contract management headaches.  States are wary that accelerating the procurement process could be costly because hastily issued RFPs could leave out or mismanage important details, which take more time and money to fix on the back end.  State representatives expressed hopes that HHS might still be able to make some products, such as risk adjustment and eligibility and IT systems, available to states as modules at minimum cost and with ready availability.

Lack of Clear Guidance:  Exchanges and Medicaid Programs

Alongside the considerable challenge of greatly expanding their Medicaid programs, states are also charged by the ACA with creating a single, seamless point of entry for all of the insurance affordability programs affected by the Act: Medicaid, the Children’s Health Insurance Program (CHIP), the Basic Health Plan (where offered), and advanceable tax credits for individual and Small Business Health Options Program (SHOP) exchange enrollees.

Because income changes will create constant movement in and out of those programs, it is necessary to have well-developed systems with tight integration between them.  As previously discussed, systems challenges for creating integrated enrollment platforms could tax vendor capabilities in some areas and test the agility of the states that are already in the midst of Medicaid systems redesign.

Some states expressed worry that commercial plans participating in exchanges may reimburse providers more generously than Medicaid.  That would aggravate problems with access to care by higher-paying exchange plans drawing providers away from Medicaid.

Several states cited the importance of having more leeway to initiate meaningful beneficiary cost sharing in Medicaid before 2014. Given the expected frequency of beneficiary shifting between Medicaid, CHIP, Basic Health Plans (where available), and exchange plans, additional cost sharing would smooth transitions and facilitate cost containment in the post-ACA world.

States highlighted the need for a more simplified path to gain HHS approval of exchange and Medicaid plans than the current state plan amendment process, which can be time consuming at both the state and federal levels.  Additionally, some expressed concern arising from the lack of policy and operational clarity about how a federal exchange would function.  For example, states worry that if a federal exchange were the single point of entry to all the state’s insurance affordability programs, they could lose control of their Medicaid programs.

Lack of Clear Guidance:  SHOP Exchanges and Small Businesses

Depending on the regulations, the structure of the SHOP exchanges could lend itself to use of defined contribution plans. The predictability of premiums under defined contributions plans have made them increasingly popular with small businesses, many of whose employees tend to be lower-income workers potentially eligible for tax credits.  The degree to which a defined contribution is compatible with the federal government’s definition of affordable coverage is unclear, as is how eligibility for premium subsidies may be determined in that context.

Some states raised questions about the potential for discrepancies in the rules governing individual and SHOP exchanges, especially when aligning requirements for individuals and small business pursuing a defined contribution strategy.  Many states commented that the attractiveness of the SHOP exchanges will ultimately depend on how well they control costs.

Lack of Clear Guidance:  Exchanges and Impact on Insurance Markets

Most states report that they are undertaking efforts to understand the characteristics of their current individual and small group markets, as well as their uninsured population. After completing market assessments, they are analyzing the expected effects of ACA insurance reforms, which affect individual and small group plans operating inside and outside exchanges. The as yet unissued rules on essential health benefit plans have the potential to substantially change currently offered benefit plans, potentially resulting in price increases in many states.

For some states, new community rating standards, which limit variation in premiums to a maximum of 3:1, represent a sharp departure from their current rules and could substantially change current pricing.  Rate compression may occur even in states that already have some version of community rating in place.  As a result, rates may increase for large segments of the population currently enrolled in individual and small group plans.  In light of expected changes in many markets, states recognized the importance of creating robust communications and outreach plans to prepare the public.

A foundational decision facing states is whether they wish to create exchanges that operate, at one end of the spectrum, as an active purchaser (e.g., selectively contracting with a limited number of plans), or, at the other end of the spectrum, as a neutral market facilitator (e.g., a “Craig’s List”).  State preferences vary widely on this dimension, with some expecting to function as active purchasers, others as neutral market facilitators, while some states are either undecided or expect to fall somewhere in the middle.

States may choose among tactics for qualifying plans to meet goals of promoting competition in the health insurance marketplace.  Some states are looking at factors such as provider networks, IT capabilities, or readiness for payment innovation as criteria for participation.  However, they also recognize the importance of carefully calibrating requirements to create viable markets.

Lack of Clear Guidance:  Questions about Federal Role

State officials at the NGA meeting exhibited differing policy preferences on many issues, including fundamental choices such as whether to pursue a state-run exchange, a federal exchange, or a mixture of federal and state responsibilities. However, nearly every state raised questions about how the federal government will support the establishment and ongoing operation of exchanges.

For some states, having a detailed understanding of the proposed federal exchange would create a useful “straw man” that would facilitate finalizing policy choices by their legislatures or governors. Other states that had already finalized key policy decisions viewed having a detailed understanding of the federal exchange as helping inform their operational decisions and implementation strategy.

States interested in sharing the responsibilities of establishing and operating exchanges with the federal government in a partnership model are eager to learn which functions states will unquestionably need to retain, and which they may be able to share, such as premium aggregation and management of a coverage appeals process for public programs.  Even states that may ultimately choose to have the federal government fully operate the exchange will still have significant responsibilities in areas — such as the determining Medicaid eligibility — that are intimately connected with exchange functions, and states have large questions about how these responsibilities and costs will be divided between the states and the federal government.

Concerns about Costs – Importance of No Surprises

In an opening session, a speaker from HHS raised the possibility that states would have to pay for information provided through the federal data hub. Throughout the meeting, states frequently expressed concerns about the costs of establishing and operating exchanges.

Attendees articulated the importance of the federal government clearly and immediately identifying any areas where it will impose costs on states of which the states are not currently aware. It is critical to states that any fees associated with interfacing with the federal government be stated clearly upfront, from both policy and operational perspectives.

Limit Requirements to Those Imposed by the ACA, Delegating Discretion to States in All Other Areas

Many states requested that federal rules and guidance be directive only in those instances where the statute itself is directive.  Some states also requested the authority to exercise discretion when the statute delegates discretion to the Secretary of HHS.

States expressed a mixed view of federal efforts to articulate state flexibility in proposed rules. On the one hand, states appreciated having flexibility and not having unnecessary prescription. On the other hand, allowing for a range of potential options without providing clear decision making authority to states greatly complicates state-federal relations and state-level policy making. Some states indicated that this flexibility without clear transfer of authority from the outside translates into uncertainty, resulting in implementation difficulties, delays, and increased costs.

Conclusion

The states and territories participating in the NGA meeting ranged from those that will rely on a federal exchange to those that will implement a state-run exchange. States also varied on whether they have already created exchanges or still require enabling legislation. Similarly, states ranged from those awarded Early IT Innovator grants to those that have rejected federal funds. Despite these differences, many of the challenges that state officials described were echoed throughout the meeting by the entire range states participating.

As a response to the challenges described in this report, some state representatives expressed the view that states, given appropriate flexibility and guidance, may be able meet most ACA requirements with existing authorities and current capabilities.  How that flexibility is applied may be a major determinant to how states address the challenges of the next two years.

To make informed decisions, states need as much clarity as possible, including details about essential health benefit requirements and the design of the federal exchange, among other specifics that are currently unavailable.  Moreover, there is deep concern that if deadlines for federal guidance issuance move further back, states will be unable to make further progress.  Addressing the issues summarized under the themes discussed in this report, in a timely manner, would significantly enhance the chances for success.

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2 Trackbacks for “State Perspectives On Implementing Insurance Exchanges”

  1. Health Wonk Review: Muppets Edition! | American Think Tank
    September 29th, 2011 at 8:28 am
  2. State Perspectives On Implementing Insurance Exchanges | Insurance Insight Now
    September 27th, 2011 at 9:09 am

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