JULY 18, 2013
Health Insurance Exchanges and State Decisions
Exchanges must be ready to begin enrolling people by October 2013. How is each state preparing?
|What's The Issue?|
The Affordable Care Act (ACA) established health insurance exchanges--also known as "marketplaces"--in each state as a cornerstone of its health coverage expansion and insurance-market reforms. Exchanges will serve as portals through which individuals and small businesses can compare and purchase private health plans that have been "certified" as meeting federal and state standards. Exchanges will also allow individuals with low-to-moderate incomes to access public coverage programs, such as Medicaid and the Children's Health Insurance Program, or financial assistance to purchase private coverage. Certain small businesses also will be able to access tax credits for employee coverage through exchanges. According to the Congressional Budget Office, an estimated 9 million people will enroll in coverage through individual and small-business exchanges in 2014, increasing to 29 million by 2022.
Under the Affordable Care Act, states may establish and run the exchange in their state, or they may defer responsibility to the federal government. Since the law was enacted, the Department of Health and Human Services (HHS) has created multiple variations of these two options that provide greater flexibility to states to take on responsibility for some, but not all, functions.
By January 1, 2014, all states must have an operational individual and small-business exchange, regardless of whether it is run by the state or the federal government. In practice, exchanges are supposed to be ready by October 1, 2013, the start of the initial open--enrollment period. Although all exchanges will be built off a common framework set by the Affordable Care Act, the design and operation of exchanges is expected to vary substantially among states because of the flexibility states have been given.
|What's The Background?|
The attempt to implement exchanges nationwide--along with the Affordable Care Act's broader private insurance-market reforms, Medicaid expansion, and their integration--is unprecedented in our nation's health care system, raising many previously unsolved operational and regulatory questions. Policy experts have noted that previous state or local efforts to establish health insurance exchanges have been stymied by problems such as low enrollment and adverse selection (which is the disproportionate enrollment of sicker, higher-cost individuals, leading to ever--increasing premiums and further discouraging enrollment by lower-cost individuals). To be successful, the Affordable Care Act exchanges must avoid these problems and overcome new challenges, such as the development of first-generation information technology systems that can carry out the law's specifications.
|What's In The Law?|
ORIGINAL ACA OPTIONS: STATE-BASED EXCHANGE OR FEDERALLY FACILITATED EXCHANGE: The Affordable Care Act envisioned that states would either establish a state-based exchange or default to a federally run exchange. In either case, the state or the federal government would take responsibility for implementing core exchange functions: eligibility and enrollment; plan management; consumer assistance, outreach, and education; and financial management. (For more information on core exchange functions, see previous Health Policy Briefs on federally facilitated exchanges, published on January 31, 2013, and on the Small Business Health Options Program [SHOP] exchanges, published on February 9, 2012.)
To ensure that all states would have an operational exchange by January 1, 2014, the law required the secretary of HHS to determine whether a state had taken sufficient action to establish an exchange by January 1, 2013. Any state that did not do so would default to a federally facilitated exchange. To encourage and assist states in setting up their own exchanges, the law included an open appropriation for exchange planning and establishment grants to states (see for more key milestones in exchange development).
Initially, 17 states and the District of Columbia gained conditional approval from HHS to run a state-based exchange in 2014, but one of these states, Utah, later obtained approval for a "bifurcated" approach in which the federal government will run the individual exchange, while the state will run its small-business exchange. Thirty-three states opted for some variant of a federally facilitated exchange, as discussed below.
The Affordable Care Act also gave states the option to join with other states to create regional, or multistate, exchanges or to create more than one exchange serving different parts of their state. As of this writing, no state had elected this option. Although as noted in a recent National Academy for State Health Policy study, some states have explored opportunities to share certain exchange functions, such as marketing, information technology, or data collection, in the future.
REGULATORY FLEXIBILITY: ADDITIONAL EXCHANGE ESTABLISHMENT OPTIONS: Since the ACA's enactment, regulations and guidance have moved away from the basic state-federal divide presented in the law and unfurled a continuum of options for dividing -responsibility for core exchange functions (see Exhibit 2 for an overview of exchange models). For instance, in a state-based exchange, a state is responsible for all core exchange functions, yet it may use federal services to assist with certain activities, such as determining eligibility for federal financial assistance. On the other hand, in operating federally facilitated exchanges, HHS has stated that it will rely on certain reviews traditionally conducted by states--such as reviews of premium rates and network adequacy--when determining whether to certify health plans for participation.
In addition, the federal government has created distinct variations of state-based and federally facilitated exchanges that offer states even greater flexibility to pick and choose which functions they want to take on. In large part, these variations reflect attempts to respond to states' practical and political needs and to minimize federal duplication of state activities.
|What's The Debate?|
HOW STATES DECIDED ON EXCHANGE ESTABLISHMENT: The respective roles of the states and federal government in establishing exchanges were a central point of debate during the drafting of the Affordable Care Act. The House health reform bill called for a single federal exchange with a provision allowing states to opt out and run their own exchange, while the Senate bill--which ultimately became law--created an "opt-in" model, deferring states to choose whether to establish an exchange.
As a result, following enactment of the Affordable Care Act, the exchange establishment debate shifted to the states. Despite holding different viewpoints on the merits of the Affordable Care Act itself, every state took one or more steps to analyze options for exchange establishment, including applying for federal exchange planning funding; convening working groups to evaluate options; soliciting public input through surveys, forums, or other mechanisms; or relying on private or public consultants to help them decide on a course of action. The inherently political environment in which states made their decisions, along with compressed time frames for implementation, led some states to change course during the process. Some states initially planned for a state-based exchange but ultimately defaulted to a federally facilitated exchange, or opted for one of its variants.
WHAT'S AT STAKE IN DIFFERENT EXCHANGE MODELS? States considered a range of practical issues when deciding on their level of involvement in creating and running exchanges, including the anticipated level of flexibility they would be given in designing their exchanges; their ability to maintain control over their insurance markets and tailor consumer outreach and assistance to their populations; the ability of the exchange to coordinate with other state agencies and the federal government; and funding and resource constraints.
Consumers can get coverage effective as soon as January 1, 2014, with the first open--enrollment period slated to run from October 1, 2013, to March 31, 2014. A recent Commonwealth Fund study demonstrates that states have made substantial progress in designing their exchanges to date; however, certain policy and operational decisions remain to be made.
Although GAO and others have questioned exchanges' ability to be fully operational in time for open enrollment, particularly given the compressed time frame in which exchanges and supporting infrastructure are being developed, HHS maintains that exchanges will be ready on time. Key milestones to be completed in the months before open enrollment include testing state and federal information technology systems, certifying plans, and training and certifying navigators and in-person assisters.
A number of factors will affect the initial and long-term success of exchanges, including the extent to which consumers are aware of the exchange, receive help determining their eligibility for and enrolling in appropriate health coverage, and find exchange coverage affordable. Other key factors will be SHOP exchanges' ability to add value for small employers, the extent of insurer participation, and the success of state and federal efforts to limit adverse selection.
The substantial flexibility afforded to states throughout the implementation process, along with state-specific factors, such as rates of uninsurance and market dynamics, is likely to lead to variability among states in both exchange design and outcomes, even among states with the same model. It will be critical to watch how differences in state decisions impact insurance markets and, ultimately, consumers' access to adequate, affordable health care.
This Health Policy Brief is based on the authors' previously published paper, supported by the Commonwealth Fund. Dash S, -Monahan C, Lucia K, "Implementing the Affordable Care Act: State Decisions about Health Insurance Exchange Establishment," Georgetown University Health Policy Institute, April 2013.
Arons A, Miller C, Mooney K, Gauthier A, "State Sharing of Insurance Exchanges: Options, Priorities, and Next Steps from the West Virginia Regional Exchange Study." National Academy for State Health Policy, June 2013.
Blumberg L, Rifkin S, "State-Level Progress in Implementation of Federally Facilitated Exchanges: Findings from Alabama, Michigan, and Virginia," Urban Institute, June 14, 2013.
Congressional Budget Office, "Effects on Health Insurance and the Federal Budget for the Insurance Coverage Provisions in the Affordable Care Act--May 2013 Baseline," Congressional Budget Office, May 14, 2013.
Dash S, Lucia C, Keith K, Monahan C, "Implementing the Affordable Care Act: Key Design Decisions for State-Based Exchanges," Commonwealth Fund, July 2013.
Dash S, Monahan C, Lucia K, "Implementing the Affordable Care Act: State Decisions about Health Insurance Exchange Establishment," Georgetown University Health Policy Institute, April 2013.
Government Accountability Office, "HHS's Process for Awarding and Overseeing Exchange and Rate Review Grants to States," GAO 13-543, May 31, 2013.
Government Accountability Office, "Seven States' Actions to Establish Exchanges under the Patient Protection and Affordable Care Act," GAO-13-486, April 30, 2013.
Government Accountability Office, "Status of CMS Efforts to Establish Federally Facilitated Health Insurance Exchanges," GAO-13-601, June 19, 2013.
Government Accountability Office, "Status of Federal and State Efforts to Establish Health Insurance Exchanges for Small Businesses," GAO-13-614, June 19, 2013.
Jost T, "Health Insurance Exchanges and the Affordable Care Act: Key Policy Issues," Commonwealth Fund, July 2010.
Kaiser Family Foundation, "Health Insurance Exchange Establishment Grants," cited July 3, 2013.
Kingsdale J, Aurori J (Wakely Consulting Group), "Impact of National Health Reform and State-Based Exchanges on the Level of Competition in the Nongroup Market," State Health Reform Assistance Network, June 17, 2013.
|About Health Policy Briefs||
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Health Policy Briefs are produced under a partnership of Health Affairs and the Robert Wood Johnson Foundation. The Commonwealth Fund supported the initial research on which this brief is based.
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