On December 10, 2012, the Department of Health and Human Services announced the conditional approval of state exchanges for six states—Colorado, Connecticut, Oregon, Washington, Maryland, and Massachusetts.  HHS indicated that it had received exchange applications from fourteen states plus the District of Columbia, and that the six approvals were only those that were first received.  More approvals are coming.

HHS also issued a series of Frequently Asked Questions that clarified a number of important issues that states and others have raised concerning the implementation of exchanges and the Medicaid expansion.  In this respect, the FAQ are one more step in the process that has been taking place since early November to bring the 2014 Affordable Care Act reforms into much sharper focus.

The headline of the FAQ is that states that elect to expand Medicaid to cover adults previously not covered by Medicaid must expand eligibility up to 138 percent of the federal poverty level (FPL) — including a 5 percentage point income disregard — if they want 100 percent federal funding to cover the expansion.  (The 100 percent federal funding lasts from 2014 to 2016, at which point it phases down gradually to 90 percent by 2020.)

Ever since the Supreme Court decided in June 2012 that HHS cannot terminate the Medicaid programs of states that refuse to take part in the ACA Medicaid expansion, states have been asking the Centers for Medicare and Medicaid Services (CMS) whether they have to comply with all of the terms of the Medicaid expansion to receive the 100 percent federal payment that accompanies the expansion.  States that have decided on a federal rather than a state exchange have also been asking for further clarification as to what costs that decision might impose and what implications it will have for its regulatory authority.  The December 10 FAQ respond to many of these questions.

The Medicaid Options That Are — And Are Not — Available To States

As mentioned above, the FAQ clarifies that states must expand Medicaid eligibility up to 138 percent of the FPL to receive the 100 percent federal match.  States cannot simply expand Medicaid to 100 percent of poverty, leaving adults between 100 and 138 percent of poverty uninsured or enrolled in the premium tax credit program through the exchange.  The FAQ also states that CMS is not open to granting waivers under its 1115 research and demonstration authority to allow states to design their own Medicaid expansions with eligibility levels less than 138 percent of the FPL and with a 100 percent federal match.

States do have considerable discretion under the Medicaid program as to the “benchmark” benefit plans they will offer the Medicaid expansion population, as long as they cover the ten categories of essential health benefits.  States also have some control over the cost sharing they will impose on the expansion population, particularly for recipients with incomes above 100 percent of poverty.  In 2017, states will have the option of receiving comprehensive waivers from many ACA requirements if they meet specific conditions, and may seek 1115 waivers to revise their Medicaid programs as well.

In the interim, CMS will consider 1115 waiver applications at the traditional Medicaid match (and, indeed, just granted a major Medicaid waiver proposal for Kansas).  The FAQ specifically indicates that HHS is willing to “support options for Medicaid expansions that encourage personal responsibility,” an idea that is popular in states that otherwise oppose Medicaid expansion.  But if the states want full federal funding of their Medicaid expansion programs, they must comply with the terms of the ACA.  And the review process for 1115 waivers, which have often been used to evade Medicaid program requirements, were tightened up considerably earlier this year, with much greater opportunity for public involvement.

Other Topics In The FAQ

The FAQ covers a number of other issues of concern to the states as well.  It begins with a series of questions about the exchanges and market reforms.  It clarifies that HHS will not extend the deadline for states to declare their intention to establish a state exchange in 2014 beyond the current date — December 14, 2012.  States that intend to establish a partnership exchange must inform CMS by February 15, 2013.  States that decide later to establish their own exchanges have until December 31, 2014 to apply for establishment grants.

States that establish a partnership exchange can also receive federal grants to establish and test state functions that support the federal exchange.  HHS will allow the states to use the federal data hub without charge for exchange, Medicaid and CHIP activity.

The FAQ next describes the federally facilitated exchange in greater detail.  “To the greatest extent possible,” HHS will work with the states to preserve the traditional responsibilities of state insurance departments.  HHS will coordinate with the states to take advantage of regulatory efficiencies; for example, it will rely on states with effective rate review programs for rate review.  HHS is working with the National Association of Insurance Commissioners to enable state exchanges to use the NAIC’s System for Electronic Rate and Form Filing (SERFF) for the submission and certification process for qualified health plans.

The FAQ commits federally facilitated exchanges to assist consumers with personnel trained in the Medicaid programs and relevant insurance rules of their states.  States that participate in partnership exchanges will also provide navigators and consumer assistance programs familiar with state requirements.  Federally facilitated exchanges will be responsible for certifying qualified health plans for the exchange, but will not have authority over the market outside the exchange.  They will rely on state regulatory policies, capabilities, and oversight to the extent possible.

As announced earlier, the federal exchanges will support themselves with user fees, probably in the 3.5 percent range.  Establishment grants will be available to states with federally facilitated exchanges to develop data systems and activities that provide support and provide plan information to the federally facilitated exchanges.  Once establishment grants are no longer available, HHS will find a different means for paying states for services they provide to the federal exchange.

Addressing churning through the Medicaid bridge plan. One of the problems that exchanges will face is the “churning” of enrollees between Medicaid and premium tax credit coverage.  To address this problem, the FAQ endorses the “Medicaid bridge plan,” an approach that has been developed in Tennessee.  A bridge plan would be certified as a Medicaid managed care plan, but it could continue to offer coverage through a single insurer and provider network to households transitioning out of Medicaid, or that have children in Medicaid or CHIP and adults in the exchange.

Bridge plans might be able to limit their membership to these households, but would probably have to demonstrate that their networks were not capable of handling full guaranteed issue to all applicants.  In addition, bridge plans would have to meet qualified health plan certifications requirements and not shift costs from the insured population to Medicaid.  States can also use Medicaid or CHIP premium assistance payments to purchase QHP coverage for Medicaid or CHIP recipients in families where some family members are Medicaid or CHIP eligible and other family members are eligible for premium tax credits.

The Navigator program. The FAQ also describes in greater detail how the navigator program will work.  Navigators are organizations, or in some instances individuals, who will receive grants from the exchanges to educate and assist consumers.  The navigator program is modeled after the State Health Insurance Assistance Program (SHIP), which has successfully helped Medicare beneficiaries better understand their insurance options.

The ACA requires navigators to conduct public education activities; distribute fair and impartial information concerning enrollment in qualified health plans and the availability of premium tax credits and cost-sharing reductions; facilitate enrollment in qualified health plans; provide referrals for any enrollees with grievances, complaints, or questions regarding their health plan or coverage; and provide information in a manner that is culturally and linguistically appropriate.  The federally facilitated and state exchanges will require navigators to be trained and to pass a certification examination.

States may impose navigator-specific licensing or certification requirements on navigators, but may not require them to be licensed as insurance agents or brokers.  States are also prohibited from requiring individuals or entities that carry out the listed navigator functions to have a broker or agent license to do so.  Some insurance agent organizations have been urging states to adopt legislation imposing burdensome requirements on navigators and limiting their activities.  The FAQ clarifies that such laws may be invalid.  The FAQ also notes that state exchanges or partnership exchanges will develop in-person consumer assistance programs.

The FAQ notes that HHS is well along in developing and testing a single streamlined electronic and paper application form which will be available early in 2013.  The FAQ describes how determinations will be made for exemptions from the individual mandate and clarifies that consumers using the exchange will see all available QHPs, but will be able to sort options based on their own preferences.

As HHS has indicated earlier, states are not under a deadline for deciding to expand Medicaid and can drop out of the expansion program later if they participate initially.  The FAQ indicates that the administration is no longer endorsing a “blended” or “matching rate” proposal that would have shifted more of the costs of Medicaid to the states.

The Supreme Court decision, the FAQ clarifies, only releases the states from the Medicaid expansion requirement.  States must still coordinate Medicaid eligibility with the exchanges if they wish to stay in the Medicaid program. They must also convert their income eligibility standards for most groups to the modified adjusted gross income (MAGI) standard used for premium tax credit eligibility.

HHS will continue, however, to provide 90 percent matching money for states upgrading their Medicaid eligibility system through December 31, 2014, regardless of whether a state expands Medicaid or not.  HHS anticipates that the support offered the states for Medicaid eligibility determinations by the federal data hub and by the exchanges will lower state Medicaid per-person enrollment and renewal costs.

Finally, states that have already expanded Medicaid eligibility partially may be eligible in 2014 for 100 percent federal funding for covering expansion populations not yet fully covered.