By Jane Norman, CQ HealthBeat Associate Editor

December 14, 2012 -- When a deadline for a final decision expires at midnight Friday, it appears likely that 18 states and the District of Columbia plan to set up their own state-based health insurance exchanges to launch in 2014.

But in the rest of the nation, either the Department of Health and Human Services will run the exchanges or the states will participate in a state–federal partnership with Department of Health and Human Service (HHS). Iowa's Republican governor announced Friday that his state would pursue a partnership, though he said he also reserved the state's right to withdraw.

In another development late Friday, Utah Gov. Gary Herbert said in a letter to HHS Secretary Kathleen Sebelius that he intends to ask her agency to certify Utah's existing state exchange as compliant with the health care law. While the exchange likely won't meet standards set in the law, and Herbert acknowledged it is "atypical," he also said it should serve as the minimum standard for all exchanges.

He asked that Sebelius closely examine the Utah version. "I am confident that when you do, you will find that it meets the broad goals and objectives" of the law, the governor said.

While HHS officials have vowed that states with federal exchanges will retain their traditional oversight of state insurance, the federal government will still play a larger role than had been anticipated, and many key details about federal exchange operations remain unclear.

In a federal exchange, HHS will make decisions about such policies as which insurance plans will be certified to sell their products in the new marketplace, how to run call centers where residents can get answers to questions about local health plans and what options will be available for small businesses. HHS officials stress that states can change their minds later if they want to move toward a partnership model or a state model in later years.

Meanwhile, New York, Kentucky, and the District of Columbia received conditional approval of their state exchange plans on Friday, joining six other states that received approval earlier this week: Colorado, Connecticut, Massachusetts, Maryland, Oregon, and Washington. Under the health care law (PL 111-148, PL 111-152), HHS must issue all conditional approvals by Jan. 1 for exchanges that can begin enrollment in October for the plan year beginning Jan. 1, 2014.

In a written statement, HHS Secretary Kathleen Sebelius said the approved states will be ready to move ahead in 2014.

"I applaud these states' commitment in achieving this milestone and moving forward to build a marketplace," she said. "Each of these states has made significant progress and in 10 months will be ready for open enrollment, where individuals will be able to purchase private health insurance plans."

Following complaints from governors that they were being forced to choose an exchange type before they had many details from HHS, Sebelius a month ago had extended the deadline for states to declare their intentions on a state-based exchange.

Avalere Health, a consulting firm, estimated that states with their own exchanges will enroll 2.8 million people in 2014, based on an enrollment model developed by the firm.

In a telebriefing with reporters on Friday, Chiquita Brooks-LaSure, director of coverage policy programs at HHS' Office of Health Reform, said officials also plan to announce more conditional approvals in the "near future" and they expect that most states will "play a role" in running their exchanges.

One will be Iowa, where Gov. Terry Branstad, a Republican opposed to the health care law, announced on Friday that the state will pursue a partnership arrangement with HHS for its exchange. Branstad had been under pressure from Democrats in the state legislature to make some kind of move toward an exchange.

He said in a letter to Sebelius that a health benefits exchange "will not improve the quality of health care, lower the cost of health care or make Iowans healthier." He said many questions also remain about how flexible the federal government will be in its requirements. In addition, he said the $15.9 million annual cost of building and maintaining an exchange would not be a "prudent" option.

But Branstad said he also had concerns that the federal exchange would be too intrusive and raise costs for Iowans, and that the state intends to minimize the federal government's regulation of insurance. The state also will retain control over its Medicaid and Children's Health Insurance Program, he said.

And given that HHS has extended deadlines and continues to issue draft rules, "Iowa reserves our right to amend our intentions," Branstad said.

In Utah, Herbert said in his Friday letter to Sebelius that it is becoming increasingly clear to him that there are many potentially detrimental features to a federal exchange. "Consequently, I intend to move forward with Utah's version of an exchange, and am requesting that you certify Utah's version of an exchange" as compliant with the law, he said.

"Utah is indeed atypical because we had already developed a working, consumer-focused, free-market-based plan for health reform, including our version of an exchange that addresses Utah's unique demographics, systems and needs before" the law was passed, he added.

An announcement was expected on Friday from the governor of Virginia, where there likely will be either a federal exchange or partnership.

In Florida, Republican Gov. Rick Scott believes there's not yet enough information available from HHS on which kind of exchange to build, press aides said Friday. But by not submitting a blueprint in time for the Friday deadline, Scott essentially is opting for a partnership or a federal exchange.

Scott on Nov. 16 asked for a meeting with Sebelius, but it hasn't yet taken place. "We are in contact now with the secretary's office and look forward to scheduling a time for the governor to discuss his concerns about the costs of an exchange and the expansion of Medicaid on Florida families," said Scott's press secretary, Jackie Schutz, in an emailed statement.

"At this time we do not have sufficient information on the cost of implementing a state health care exchange to Florida taxpayers, Florida businesses or Florida health insurance purchasers. We are looking forward to getting more information from HHS and the president," she said.

Here's a roundup of state decisions on exchanges as of late Friday:

• Will operate a state exchange: California, Connecticut, Colorado, District of Columbia, Hawaii, Idaho, Kentucky, Maryland, Massachusetts, Minnesota, Mississippi, Nevada, New Mexico, New York, Oregon, Rhode Island, Vermont, Washington, and Utah.
• Will do a state-federal partnership: Arkansas, Delaware, Illinois, Iowa, Michigan, North Carolina, West Virginia.
• Leaving it to a federal exchange: Alabama, Alaska, Arizona, Georgia, Kansas, Louisiana, Maine, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Wisconsin, Wyoming.
• No on state exchange; may do partnership or leave to federal exchange: Florida, Indiana, New Jersey, Virginia.

By Caitlin McGlade, CQ Staff

December 12, 2012 -- Health insurance premium increases far outpaced the average hike in wages for low- and middle-income workers, while deductibles in small and large firms more than doubled from 2003 to 2011, according to The Commonwealth Fund.

The Fund recently released a report that chronicles a 62 percent spike in family plan premiums in the United States, saying they reached an average of $15,022 in 2011.

"Workers that have jobs with benefits have been trading off wage increases to hold on to health insurance for the past eight years," Cathy Schoen, senior vice president for policy, research and evaluation at The Commonwealth Fund, said during a teleconference. "Health insurance is expensive no matter where you live."

Her research found that premiums rose three times faster than wages during those eight years, leaving residents of New Mexico, South Carolina, and West Virginia—the states with the highest imbalance—paying premiums that exceeded 25 percent of workers' median incomes.

Schoen found that the average deductible for all companies for individual plans reached $1,123 in 2011, compared to $518 in 2003.

Most states follow the trend, except for Hawaii, which has experienced little change in deductibles. Schoen attributed this to Hawaii's mandate that employers must provide health insurance coverage to employees who work at least 20 hours a week. But health insurance premiums there rose to $4,868 from $3,020 for single plans and to $13,738 from $7,887 for family plans over eight years, a percentage change that does not differ much from most other states.

The report cautions that family premium rates across the board could hit $25,000 by 2020 if the trend continues. However, Schoen and Sara Collins, vice president of affordable health insurance at The Commonwealth Fund, hailed the health care overhaul (PL 111-148, PL 111-152) as a mechanism to change such a forecast.

"The Affordable Care Act has begun to lay the groundwork to address costs and provide a platform for further action," Schoen said. The fund has been a strong supporter of the health overhaul.

The report cites a number of changes the law makes that might help lower premiums: Medical loss ratio mandates that require insurance companies to devote at least 80 percent of their expenses to medical payments; state and federal review of premium increases that reach 10 percent; Medicaid expansions; state insurance exchanges that could spark competition among insurance companies; rules prohibiting insurers from declining to cover certain patients; and payment incentives for doctors and hospitals that adopt more prudent resource use.

But the report does not cite other implications of the health care law that could drive up premiums, said Robert Zirkelbach, spokesman for America's Health Insurance Plans.

New taxes for health insurance companies will affect premiums, as will new minimum coverage packages that will encompass more services than some insured people are accustomed to, Zirkelbach said.

He added that medical loss ratio (MLR) mandates are also forcing insurers to cut back on services that are non-medical coverage-related, such as developing partnerships with providers, such as accountable care organizations, credentialing health care providers, and providing patients with online and mobile access to claims history and personal health records.

"MLR completely ignores what's driving health insurance premiums," Zirkelbach said, adding that the driver is a spike in medical costs.

While the cost increases have varied state to state, according to The Commonwealth Fund, the jurisdictions racking up the largest premium bills are Massachusetts, New Hampshire, New York and Vermont, as well as the District of Columbia.

Massachusetts—whose overhaul is seen as the model for the federal health care law—tops the list with the average family plan premium reaching $16,953 in 2011.

"It's a cautionary tale: Much like the ACA, Massachusetts reform focused more on expanding coverage than bringing down underlying medical costs," Zirkelbach said.

Schoen said Massachusetts already had the highest costs for decades, and now that most of its population is insured after the enactment of the state's insurance law, "the entire state is now solidly around the need to control costs."

Massachusetts recently passed a law pledging to keep health care spending increases equal to the state's gross domestic product rate for five years, then lowering health care spending below that in years following. Schoen pointed out that her research stops at 2011 statistics, so the law's implications are yet to be seen.

Schoen said that price changes will require action beyond the health care overhaul, citing an influx of accountable care organizations as a driver for change.

"We need to take a marketwide approach that examines and focuses on the prices that being charged for care," Schoen said. "We know we can do better."

By Rebecca Adams, CQ HealthBeat Associate Editor

December 10, 2012 -- The health care law does not allow states to partly expand their Medicaid programs, administration officials recently announced in an 18-page letter to governors. Health and Human Services (HHS) Secretary Kathleen Sebelius also has given conditional approval to six states to go ahead with their exchanges.

The news will disappoint governors, particularly Republicans, who had hoped they would be able to expand their programs beyond the eligibility level of people who are covered now, but not as much as 138 percent of poverty (or about $31,810 for a family of four), as the overhaul law (PL 111-148, PL 111-152) outlines.

"The law does not provide for a phased-in or partial expansion," said the letter from Sebelius.

In June, the Supreme Court ruled that the federal government cannot strip states of all their Medicaid funds if they do not expand the Medicaid program as of 2014 as called for in the law.

Soon afterward, governors began discussing the idea of partly expanding Medicaid. Many legal experts supporting the overhaul have said publicly from the outset that they do not believe that Obama administration officials have the legal authority to allow partial expansions.

Last week Louisiana Gov. Bobby Jindal, chairman of the Republican Governors Association, said in a statement that HHS's refusal to allow a partial Medicaid expansion "is as disheartening as it is short-sighted. The President knows the current Medicaid system is broken, and it is an inefficient mechanism for expanding coverage. While the Administration's answer will make a state's decision on Medicaid expansion more difficult, governors will continue to ask the President to pursue real Medicaid reform and we hope he will join us." Last week, Jindal and 10 other Republican governors sent the president a letter asking him to meet with them about overhauling Medicaid.

In her letter, Sebelius once again urges governors to create a state-based exchange. The deadline is Friday for states to tell HHS if they want to do that. Sebelius has given conditional approval to Colorado, Connecticut, Massachusetts, Maryland, Oregon, and Washington to go ahead with their exchanges.

"It is my hope that all states will seriously consider establishing a state-based exchange, or running components of an exchange," Sebelius wrote. This letter comes not only as the state exchange deadline approaches but also after several letters from Republican governors to Sebelius and to President Barack Obama saying they need more information before making a decision on how to proceed.
The letter answers 39 commonly asked questions about the Medicaid expansion allowed in the law and the creation of exchanges.

Some States on Track

As for the states given conditional exchange approvals on Monday, Acting CMS Administrator Marilyn Tavenner they "are all on track to meet all exchange deadlines."

The health care law allows states to expand their Medicaid programs and provides the full cost of expansion for the first three years, with that matching rate falling to 90 percent by 2020.

Cindy Mann, Centers for Medicare and Medicaid Services (CMS) Deputy Administrator and Director of the Center for Medicaid and CHIP Services, said on a conference call with reporters that states could ask for waivers to partially expand their Medicaid populations in 2017 when states are allowed to request such exemptions if they can show that they can deliver care in a different but equally effective way. Mann said that "we would consider a waiver under the enhanced match" at that time.

But for the first three years, if a state proposes a waiver that would expand coverage to part but not all of the newly-eligible population, states would only get the pre-health care law matching rate. The federal matching rate to states varies, but on average, the federal government picks up 57 percent of Medicaid costs.

Mann said that she hopes state leaders will decide to expand their Medicaid programs, despite the agency's decision to not allow states to partially expand initially.

"It's a very significant financial support for states and we're optimistic that they will move forward," she said.

Safety net hospitals said that they were "greatly encouraged" by the guidance.

Because states face fewer consequences now if they do not expand, more people could remain uninsured—which could take a toll on medical providers, as the National Association of Public Hospitals and Health Systems (NAPH) noted in a statement. The group said that by 2019, six million to 10 million more people than Congress expected when it passed the health law could remain uninsured.

"NAPH hospitals and other providers who care for society's most vulnerable people face severe funding challenges," said NAPH President and CEO Bruce Siegel. "This swelling demand for safety net services, along with planned cuts to federal funding for the very hospitals that provide it, could take a terrible toll on access to care for the uninsured and underinsured. We look to the promise of reform to expand health care coverage as broadly as possible and call on lawmakers to preserve the funding we have. We also urge the administration to work with states to ease their transition to an expanded Medicaid program and support innovative approaches to enhancing access to care."

More Medicaid Details

The letter also says that the administration no longer supports blending the Medicaid rates, an idea put forward last year in President Obama's fiscal 2013 budget. The proposal is being considered by some lawmakers who are looking for budget savings.

In response to a question about whether Obama still backs the idea, the administration wrote, "No...The Supreme Court decision has made the higher matching rates available in the Affordable Care Act for the new groups covered even more important to incentivize states to expand Medicaid coverage."

The letter also said that more information on Medicaid is coming. "States also have significant cost-sharing flexibility for individuals above 100 percent of the federal poverty level, and we intend to propose other cost-sharing changes," the letter said.

Federal officials did not close the door on the idea of approving global waivers that would provide a set allotment for states and give them more flexibility if they broaden coverage. The letter said that CMS would review proposals under the standard of "furthering the interests of the program."

CMS also will issue more information "early next year" about the reduction of payments to hospitals, the letter said. Payments for disproportionate share hospital allotments will fall in 2014 using a methodology based on the reduction of the number of people without insurance.

"We have heard from states and health care providers about their concerns related to this change and are exploring all options," the letter said, adding that the public will be able to comment on the methodology that will be released next year.

The letter includes details about funding, including the provision of a 90 percent matching rate for states to redesign their eligibility and enrollment systems, which will be available through Dec. 31, 2015.

Federal officials also encouraged the use of programs that can help a family all be enrolled in the same health plan, even if part of the family's insurance is paid by one source, such as Medicaid or CHIP, and the other family members get their insurance through the exchange.

The letter also confirms information released earlier this year, such as the fact that states do not face a deadline for making their decisions on Medicaid expansion, and if they initially expand the program they can reverse that decision.

By Jane Norman, CQ HealthBeat Associate Editor

December 10, 2012 -- New details emerged last week on how federal exchanges will operate in states that decline to establish their own exchanges, accompanied by a pledge from the Obama administration that it will strive to allow states to continue their traditional oversight of insurance plans.

The question of control enters a sensitive political territory, since states that likely will be home to federal exchanges generally also have Republican governors who have been the most resistant to implementing the health care law (PL 111-148, PL 111-152).

A federally run exchange's role and authority will be limited to certifying and managing the participating qualified health plans that will be sold in the exchange, the Department of Health and Human Services said in a 17-page question-and-answer document as well as in a telebriefing with reporters. "States have significant experience and the lead role in insurance regulation, oversight and enforcement," the Department of Health and Human Services (HHS) document says.

HHS officials did not issue a proposed rule on federal exchanges last week. Instead, agency officials and leaders of the Centers for Medicare and Medicaid Services offered what was called "information" to the press, states, and the public. There was no indication if or when a proposed rule might be issued.

According to the document, when consumers go to an online site to look through the various plans that will be offered, they will see every qualified health plan that's offered in their service area, officials said in response to a question about whether consumers will only see plans that are "best" for them. That would be different from a stronger "active purchaser" model in which some health plans might not be sold on the exchange because those running the marketplace have deemed to be less cost-effective or of lower quality.

HHS officials also said in the document and briefing that they won't allow states to partly expand Medicaid and announced the approval of exchange structures in six states.

As for qualified health plans that will be sold in a federal exchange, they must be offered by issuers that meet state licensing requirements and are in good standing with the state, HHS said. In some cases, the standards for certifying a plan might rely on reviews that the state doesn't currently conduct. In that case, HHS will either defer to the state licensing system or do its own review if necessary, the document said.

So far 15 states have decided they will opt for the federal exchange, according to insurance industry officials, although several other governors publicly have said that their states likely will be home to a federal exchange rather than a state exchange or a state–federal partnership, the two other arrangements for an exchange.

Help for Consumers

In those states with federal exchanges, the federal government will operate a call center and website designed to assist consumers with their insurance choices. Call center employees will be trained on state insurance laws as well as Medicaid and Children's Health Insurance Program (CHIP) eligibility, the HHS document said. The document doesn't say whether contractors might be hired or if the staff would be made up of federal employees.

HHS officials also said in the document that they are working to determine the extent to which state activities like the review of rates and policy forms could be recognized as part of certifying qualified health plans by the federal exchange. For example, most states have an effective rate review process, and HHS could rely on the state process to decide whether a plan can be certified for the exchange.

Officials said they also will collect state-specific Medicaid and CHIP policy data so that federal exchanges are able to evaluate eligibility for those programs.

States that choose to provide some services to a federal exchange may in some circumstances be reimbursed for their costs, officials said. They could seek funding provided in the health care law if they: develop a data system that works in tandem with the federal exchange; coordinate the transfer of plan information from the state insurance department to the federal exchange; and perform other activities to support exchange operations.

Once that health care law money expires, HHS officials said they expect to continue providing money "under a different funding vehicle," which wasn't specified.

How federal exchanges will operate their navigator programs, which are designed to link consumers and insurance products, has been open to question as well. HHS officials said the entities that receive navigator grants must successfully take part in a training program developed and administered by HHS, which will include a certification exam. The number of navigators per state will depend on how many apply and how much grant funding is available. An announcement is expected early next year on the availability of navigator grant funding, officials said.

States have complained that they do not have enough information to make decisions about whether to run a state exchange, partner with the federal government or rely on the federal exchange. Some have expressed doubts that the exchanges will be ready to start enrolling people in October.

"We are all keenly aware that open enrollment is coming quickly, and we will be ready," Gary Cohen, Center for Medicare and Mediaid Services (CMS) deputy administrator and director of the Center for Consumer Information and Insurance Oversight, said on the call.

Cohen also said that governors' fears about their share of administering exchanges are overblown.

"We'll pay for the cost to establish the exchange," he said. The law requires exchanges to be self-sufficient, by generating revenues through such mechanisms as running online ads or imposing user fees, after January 2015.

By John Reichard, CQ HealthBeat Editor

December 14, 2012 -- Hospitals in the Medicaid program have sharply increased their use of health information technology (IT) in response to about $12 billion in incentive payments available to them between 2011 and 2019 under the economic stimulus law, the Government Accountability Office (GAO) says.

In 2009, the year the law (PL 111-5) was passed, only 9 percent of hospitals had adopted electronic health records, the report says. The GAO found that in 2011, the first year of the payments, 1,964 hospitals, or 39 percent of the 5,013 hospitals eligible, got a total of $1.7 billion in Medicaid incentive payments to adopt EHRs.

Payments awarded to each hospital ranged between $7,528 and $7.2 million. The median payment amount was $613,512.

The GAO conducted the study to learn the impact of the payments on the adoption of health IT. It also wanted to identify characteristics of hospitals that hadn't applied for the payments. "Hospitals with the highest number of total beds were two times more likely to have been awarded an incentive payment than hospitals with the lower number of beds," the study said.

The largest proportion of the hospitals getting the payments, 46 percent, were in the South, and the smallest, 15 percent, were in the Northeast. Major teaching hospitals, for-profit hospitals and chain hospitals were 1.3 to 1.4 times more likely than other hospitals to be awarded payments.

All told, the stimulus included an estimated $30 billion in Medicare and Medicaid incentive payments between 2011 and 2019, the Congressional Budget Office estimated, with $12.4 billion of that being Medicaid money.

The study also examined Medicaid payments made in 2011 to individual doctors and other health care professionals. The 45,962 professionals awarded a payment made up 33 percent of the 139,600 eligible. Almost all got the maximum amount available in 2011: $21,250.

Four-fifths of the professionals practiced in urban areas; three-quarters were doctors. Almost half of the doctors receiving payments had signed agreements to get technical help from regional extension centers created under the stimulus to help providers adopt health IT.

By Emily Ethridge, CQ Roll Call

December 11, 2012 -- Lawmakers are continuing to look for ways to save money by improving care for "dual eligibles," a costly group of beneficiaries who qualify for both Medicare and Medicaid.

In 2010, about 9.9 million people qualified for both programs, according to the Medicare Payment Advisory Commission (MedPAC). Those beneficiaries tend to have lower incomes and more medical needs than seniors in traditional Medicare.

And they account for a disproportionate share of the two programs' costs. According to MedPAC, dual eligibles represent 18 percent of Medicare's patient population but 31 percent of the program's spending. They make up 15 percent of Medicaid enrollees and 40 percent of Medicaid spending.

The Senate Finance Committee will hold a hearing on the group, with testimony from three state medical officials and Melanie Bella, director of the Medicare–Medicaid Coordination Office at the Centers for Medicare and Medicaid Services (CMS).

"We need to keep up our efforts to make sure our federal health programs work better to lower costs and protect patients' rights," Finance Chairman Max Baucus, D-Mont., said in a written statement. "We made progress in health reform coordinating between Medicare and Medicaid, and there's more for us to do."

CMS is working to move up to 2 million dual-eligible beneficiaries into state-run pilot programs over the next few years to determine whether they can improve care and save money. One of the programs would move dual eligibles into managed care plans, under which plans get a prospective payment to provide comprehensive care.

The administration says managed care plans could provide better coordination for beneficiaries. Currently, many dual eligibles have to see a variety of doctors and take several medications, with no one in charge to oversee their care.

But some critics, including West Virginia Democrat Jay Rockefeller, have questioned whether managed care plans would work well for beneficiaries in that group and their complex health care needs. Unlike those in fee-for-service plans, patients in managed care plans can have less choice when it comes to providers.

Rockefeller, Baucus, and four House Democrats requested a report from the Government Accountability Office on the consumer protections and different requirements in Medicare and Medicaid, especially when it comes to managed care plans.

The report found that dual eligibles face a variety of standards from Medicare and Medicaid. For example, while some states require Medicaid beneficiaries to enroll in managed care plans, Medicare enrollment in managed care is voluntary. In addition, the two programs can have different consumer protection requirements and have different appeals processes that don't correspond with each other.

"I continue to be very concerned with the administration's efforts to move Americans who are eligible for both Medicare and Medicaid into Medicaid managed care plans," Rockefeller said in a written statement. "This report reinforces the need to focus on the best ways to provide care to these patients, including essential consumer protection requirements, which vary dramatically across state and health programs. This report makes clear that we still have a lot of work to do to determine the best path forward to effectively provide care for these patients."

Other groups have looked at making changes to treatment of dual eligibles in order to find federal health care savings. Last year, the deficit reduction group led by Vice President Joseph R. Biden Jr. discussed finding savings by better coordinating care.

President Barack Obama's fiscal deficit commission proposed moving all dual eligibles into Medicaid, saying it would save $12 billion through 2020 because Medicaid's bigger managed care system would result in better coordination.