As 2011 comes to a close, we draw ever closer to January 1, 2014, the day when the most significant changes wrought by the Affordable Care Act will come into effect. Indeed, we are only weeks away from the halfway point between March, 2010, when the ACA was signed into law and October, 2013, the date when the exchanges will open for enrollment.
Yet few of the states seem to be halfway there. A few states have indicated that they will not be establishing exchanges under any circumstances, but more exchanges are simply stalled in the state legislative process, held up by stiff opposition to reform or by inertia and tight legislative calendars. Some states are also sitting it out, hoping that the Supreme Court makes the whole statute go away (which is, in fact, almost inconceivable as a legal matter).
HHS continues, however, to press ahead, trying to lure and cajole the states into moving forward. At a press call on Tuesday, November 29, HHS revealed two additional steps towards this end. First, HHS announced that it is making additional grants to the states.
All but one of the states received $1 million grants in 2010 to get planning for the exchanges underway. Six states and a multi-state consortium also received $241 million earlier this year in early innovator grants to develop transferable technology to build the exchanges. Level One establishment grants to twelve more states were announced on the November 29 call; these states join seventeen states that have already received Level One grants, in recognition of the progress these states are making toward the 2014 goal. The first Level Two establishment grant, to Rhode Island, was also noted on the call, suggesting that it has progressed furthest toward exchange establishment.
The FAQs: Addressing Unsettled Issues And Offering Maximum Flexibility To States
At least as significant as the grants are the frequently-asked questions (FAQs) (last item under “Affordable Insurance Exchanges”) that were also released on the 29th. Over the summer HHS released a series of proposed regulations addressing the establishment of exchanges and certification of qualified health plans; the risk adjustment, reinsurance, and risk corridor programs; individual and employer exchange standards and eligibility determinations; and Medicaid eligibility changes contained in the ACA. In addition, the Internal Revenue Service issued a proposed regulation on premium tax credit eligibility. The comment period on the initial proposed regulations was extended until the end of October, however, and final regulations are not expected imminently. In the interim, the states are restless, looking for guidance as—or before–they proceed.
The FAQs seek to give guidance on a number of unsettled issues. On the whole, they are intended to provide the states with maximum flexibility, aiming again to attract as many states as possible into playing some role in the exchanges—if not fully operating them, at least partnering with the federal government in some capacity. Arguably this is consistent with the intent of Congress. The ACA clearly gives the states the option of running the exchanges, with the federal exchange available only as a fallback. It also makes sense for the federal government to avoid duplication of effort where a state is already competently performing a task.
On the other hand, there is a risk that too much flexibility can result in lack of accountability or in important tasks falling through the cracks, with neither the state nor the federal government taking responsibility. There is also the potential problem of lack of coordination between the federal and state governments. This is particularly problematic if it interferes with one of the primary goals of the exchange—facilitating seamless eligibility determinations for assistance programs.
The first issue addressed by the FAQs is the availability of federal funding for establishing state exchanges. Under the ACA, HHS must determine by January 1, 2013 whether a state will have a functioning exchange by January 1, 2014 and establish a federally-facilitated exchange in the state if it determines that the state will not make this deadline. Exchanges must be self-sufficient by January 1, 2015, and HHS cannot fund them beyond that point. The FAQs clarify, however, that states can continue to receive funding beyond January 1, 2013 even though they do not have a “fully certified” exchange by that date, and can be awarded grants up until December 31, 2014 that can be spent on establishment activities beyond that date. States will also be offered establishment funding even if they are not going to establish a state exchange but rather engage in activities in support of a federally-facilitated exchange.
These decisions give states that are having a difficult time moving forward some breathing room, but raise the stakes if states demonstrate enough interest to receive funding but do not ultimately get to the finish line. HHS will have to carefully monitor the progress of states that are in questionable shape as of 2013 and be prepared to move in quickly and fully where necessary if they fail.
Second, the FAQs reduce the financial burden of the exchanges on the states. States will not need to contribute to the expenses of the federally-facilitated exchange, including the costs of federal Medicaid and CHIP determinations. State Medicaid and CHIP programs will need to share the cost of establishing, testing, and maintaining interfaces to transfer information and cases between the Medicaid and CHIP programs and federally-facilitated exchanges, although enhanced funding is available to the states for developing Medicaid IT infrastructure. The FAQs also state that HHS does not anticipate charging the states for the services of a data hub to support exchange of data between state and federal programs. Finally, federally-facilitated exchange funding may be used to support some functions if a state establishes a Basic Health Program.
Third, the FAQs address the relationship between federally-facilitated exchange and state insurance regulators. The FAQs indicate that federally-facilitated exchanges will “work with” states to “preserve the traditional responsibilities of state insurance departments” with respect to a range of regulatory functions such as licensure; review of solvency, rates, benefits, network adequacy, and marketing materials; and addressing consumer complaints.
It makes sense, of course, for the federally-facilitated exchange to not duplicate functions being competently carried out by a state. But the ACA does require the exchanges—including federally-facilitated exchanges–to ensure that qualified health plans meet specific requirements and does not authorize the exchanges to fully cede this responsibility elsewhere. The ACA also imposes requirements on plans, such as providing the section 2715 summary of benefits and coverage—that may be different from requirements imposed by state law. The FAQs do not fully cede regulatory responsibilities to the state. They provide, for example, that the federally-facilitated exchange will “rely on the State for advice and recommendations” regarding network adequacy and that it will rely on state rate review “to the extent practicable and where legally permissible.” But the FAQs commit HHS to working with state insurance departments to harmonize state and federal plan management functions.
The fourth issue addressed by the FAQs is perhaps the most problematic—the relationship between the state and federally-facilitated exchange with respect to eligibility determinations. Under the notice of proposed rulemaking, and arguably under the ACA, the exchange (be it state or federally-facilitated) is fully responsible for determining eligibility for all subsidized insurance programs—premium tax credits, cost-sharing reductions, Medicaid, CHIP, and the Basic Health Program where it exists. The FAQs announce, however, that HHS intends to provide for additional options, including allowing states to make “final” Medicaid and CHIP determinations in states with federally-assisted exchanges “consistent with general guidelines and the terms of the agreement” between the state and federally-assisted exchanges. The FAQs also provide that state-based exchanges can use “federally-managed services” to determine premium tax credit advance payments, cost-sharing reduction payments, exemptions from the individual responsibility provisions, and possibly verification of employer-sponsored minimum coverage.
One can easily imagine why states may want to maintain control over Medicaid eligibility and hive off responsibility for making other decisions to the federal government. It is also, however, very likely that the ACA requirement of “seamless eligibility” will be breached if these functions are separated. Since the eligibility standards for the Medicaid expansion population are uniform nationwide, it is far from clear why states need to retain control over final eligibility determinations for this population, and even what additional requirements they may apply.
A fifth issue addressed by the FAQs is the role of state regulation with respect to the multi-state plans that will be approved by the Office of Personnel Management (OPM). The ACA provides on the one hand that nation-wide plans approved by OPM will be deemed to be certified by the state exchanges, and on the other hand that there must be a level playing field between multi-state and in-state plans with respect to certain regulatory requirements. The FAQs commit HHS and the OPM to work with the NAIC to sort this out, ensuring that multi-state plans do not disrupt existing insurance markets, both inside and outside of the exchange.
Sixth, the FAQs state clearly that neither the federal nor state governments will collect personal data such as names, social security numbers, addresses, or the name of a patient’s doctor for risk adjustment purposes. House Republicans and insurers had raised concerns about the state and federal government collecting personal information for risk adjustment. These FAQs should quell those concerns. Note that the FAQs do not, however, commit HHS to a “distributed model” where insurers would calculate their own risk scores and not share any risk information with government.
Seventh, the FAQs signal that proposed regulations on exchange quality ratings and monitoring of plan quality will not be forthcoming anytime soon. This suggests that quality is not a high priority at this time, and that while states should build capacity for quality monitoring and reporting, HHS will phase in exchange quality oversight functions gradually, beginning with generally available quality information in 2014 and not implementing its full program until 2016.
Finally, the FAQs reiterate that premium tax credits will be available through the federally-facilitated exchange. The claim has been made, based on a drafting error that apparently occurred when the Senate Finance Committee bill became the final ACA, that premium tax credits will only be available through the state exchanges. This “glitch” was arguably fixed through the later Budget Reconciliation Act, however, and the Joint Committee on Taxation and Congressional Budget Office assumed that the tax credits will be available through the federal exchange. This is how the IRS and HHS have interpreted the law, both in proposed regulations and now in the FAQs, and is clearly what Congress intended.
The FAQs pack a great deal of information and some very important decisions into eight pages. Whether this is enough to satisfy anxious states remains to be seen. In the meantime, the FAQs are likely to raise the anxiety level of consumer advocates who are concerned that important consumer protections found in the ACA may be lost as HHS attempts to offer the states ever more implementation flexibility.