By Jane Norman, CQ HealthBeat Associate Editor

July 13, 2012 -- There's no deadline for a state to tell the federal government whether or not it plans to expand its Medicaid rolls under the health care law, Centers for Medicare and Medicaid Services (CMS) Acting Administrator Marilyn Tavenner wrote state governors late last week.

Tavenner also said a state can receive extra funding to help pay for Medicaid Information Technology and exchange implementation even if it has not yet decided whether it will expand Medicaid eligibility or run a state-based exchange. "And if a state ultimately decides not to do so, it will not have to pay those resources back," Tavenner said in the letter to the chairmen of the National Governors Association (NGA), Republican Governors Association and Democratic Governors Association. The NGA begins a meeting today in Williamsburg, Va.

Administration officials had said on background earlier that there wouldn't be a deadline for states to inform the Department of Health and Human Services of their intentions. But the letter from Tavenner represents the first official statement.

The letter from Tavenner begins to answer some of the many questions that states, the health care industry and policy experts have been raising since the June 28 Supreme Court decision that upheld the health care law (PL 111-148, PL 111-152) but said states could opt out of the Medicaid expansion. Under the law, states will receive federal funding to expand their programs to adults earning under 138 percent of the federal poverty level.

About a half-dozen Republican governors have said they are opposed to the Medicaid expansion, and others have hinted they are considering opting out. Some Democratic governors have not yet stated a position.

Tavenner, in her letter, said that as states study their options, "they will recognize this is a good deal" because the costs of the expansion will be funded 100 percent by the federal government for the first three years, then gradually phased down to a minimum of 90 percent in 2020 and thereafter.

"The hospitals will get paid for what would otherwise be uncompensated care provided to uninsured patients," she added. "Their local economies will benefit and jobs will be created when their hospitals remain viable and their workers remain healthy."

She added: "We hope states will not turn down the resources and flexibility offered in the Affordable Care Act and will put aside old political battles to move forward with implementation."

By John Reichard, CQ HealthBeat Editor

July 13, 2012 -- What are the key developments to watch for as state and federal officials scramble in the coming weeks and months to create the new insurance marketplaces required under the health care law?

The most obvious one will arrive in November, when the outcome of the elections could lead to the repeal of the health law if Republicans add control of the White House and Senate to that of the House.

But federal officials, along with many of their counterparts in state government, won't be cooling their heels until then waiting for the ballots to be cast. After all, they've only got 14 months from now to get exchanges ready before when the open enrollment period begins on Oct. 1, 2013, and the first customers can start signing up for health coverage that will begin in 2014.

Widespread coverage of state officials who say they won't cooperate with "Obamacare," as well as a long list of logistical and funding challenges, add to the current mood of uncertainty about whether exchanges will get off the ground on time, it at all.

But the Obama administration is trying to counter that by strewing the road ahead with offers of grant money and technical help in order to coax states into accepting the complex challenge of creating their own exchanges.

During the past week, administration officials sought to kindle the can-do spirit by highlighting states that have declared they'll operate their own exchanges. They released letters from the governors of 13 states saying they will do so: California, Colorado, Connecticut, Hawaii, Massachusetts, Maryland, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington and—the day after Texas Gov. Rick Perry declared he would not cooperate with Obamacare—Kentucky.

Last week, Centers for Medicare and Medicaid Services Acting Administrator Marilyn Tavenner, emphasized flexibility in a letter to the Republican Governors Association. "States can run exchanges on their own, in collaboration with other states, or in a transitional or permanent partnership with our department," she said. "A state can receive extra funding for Medicaid IT costs and exchange implementation costs even if it has not yet decided whether to expand Medicaid eligibility or to run its own exchange," she added. "And, if a state ultimately decides not to do so, it will not have to pay those resources back."

Health and Human Services officials plan four regional meetings this summer—one on July 31 and the other three in August—as listening sessions to hear from states what they need to get the job done. States will have 10 more opportunities to apply for grants, the first with an Aug. 15 deadline that could lead to awards as soon as 45 days later. States can apply for financial help as late as the end of 2014, even if they have left the job of opening an exchange entirely up to the federal government. The hope is that even if initially they turn the job over to the federal government, eventually they'll take it on themselves.

There's little chance that state lawmakers will move the remainder of this year to pass laws creating their own exchanges—for the most part, their legislative work is done. Shortly after the elections, they'll have to decide whether to fish or cut bait. Nov. 16 is "declaration day," the HHS deadline for states to formally notify the department whether they will build their exchanges, enter into a "partnership" model in which they agree to divide up the work of exchange creation with HHS, or rely entirely on Washington to create a "federally facilitated exchange."

A state that fails to issue a declaration by Nov. 16 will be saying it's going to rely on a federal exchange.

A number of states whose governors oppose the health law (PL 111-148, PL 111-152) say they will wait until the November elections to make a decision on whether or not to run their own exchange. However, an insurance industry official who would speak only on background said that if they haven't solicited information for technical help by now they will have great difficulty being ready on time.

The next key date after this fall's declaration day is Jan. 1. That's when HHS will notify the states whether they have approval to run their own exchanges for 2014, have conditional approval contingent on their complying with certain requirements, will be a partnership exchange, or purely a federally facilitated exchange.

Analysts say there are about 15 states likely to be able to operate their own exchanges on time. That means many if not most states will rely on the federally facilitated exchange. White House officials say the money and staffing is in place to do the federal exchange, including an all-important "federal data hub" bringing together huge databases allowing computer searches to determine whether an exchange customer is a U.S. citizen and how much income she or he has to determine eligibility for federal subsidies to buy coverage, and if so, the size of the subsidy.

But there have been long periods where the government has said little about the federal data hub, leading observers to wonder if the feds will be ready. There's also uncertainty about how much money is available to fund the federal exchange.

The official said however that, more recently, officials have disclosed test runs relating to the data hub and signs are growing that it will be ready. "This is the heart of the beating animal and they know they can't screw it up," the official said. More broadly, the federally facilitated exchange appears to be on track.

"The real challenge is how smoothly it will be implemented." The official said "it's a real hardship on the insurance industry" because plans will have to comply with requests not only from state regulators but also federal officials in states with a federally facilitated exchange. "The insurance industry now has to go two places."

By Jane Norman and Rebecca Adams CQ HealthBeat Associate Editors

July 9, 2012 -- The federal health care law always envisioned a prominent role for states in the quest to expand coverage. But the Supreme Court's surprising ruling that upheld the law but allowed states to opt out of its Medicaid expansion now also promises political fights, intense health stakeholder lobbying, and pressures galore in state capitals, panelists at an Alliance for Health Reform briefing said last week.

How many states eventually bow out of the expansion remains uncertain—despite promises to do so by some Republican governors. And what happens will depend greatly on how and whether partisan control changes in state houses after the elections, panelists said. The latest governor to declare his intention to out opt was Republican Rick Perry of Texas, joining at least a half-dozen others.

"It really is going to function as a result of the politics in each state," said Sheila Burke, a health policy expert who served as chief of staff to former Senate Majority Leader Bob Dole, a Kansas Republican. "You're going to see a number of them wait to see what happens in November." Despite the media attention paid to objectors, many Republican governors with large numbers of uninsured residents haven't yet said what they will do, Burke pointed out.

In addition, many state legislatures don't meet until next year, and lawmakers will take part in the decision as well.

It's also possible states could split the difference and request waivers that would cover some subset of the Medicaid beneficiaries who would have been covered by the expansion in the law (PL 111-148, PL 111-152), Burke said. "They could choose to use waivers for certain populations," she said. "You're going to see legislators respond in certain ways. You're going to see governors respond in certain ways."

Consultant Chris Jennings, president of Jennings Policy Strategies and a senior health policy adviser to President Bill Clinton, cautioned that some governors with an immediate negative reaction might modify their positions later, particularly when they see how much Medicaid money the state stands to leave behind if it refuses to participate in the expansion.

They will face business community pressure as well, Jennings said. For stakeholders, including hospitals, pharmacists, insurers and others, "leaving those dollars on the table has tremendous implications," he said, because it means shifting the costs of the uninsured on to them will continue. "I think you will see a substantial effort . . . to push all governors and state legislatures to accept those dollars."

Due in part to that pressure, Jennings added, "I suspect at the end of the day we will have a lot more states coming in than we are hearing."

Burke, a senior public policy adviser at Baker, Donelson, Berman, Caldwell & Berkowitz, also predicted that hospitals and insurers will mobilize. "But again, I think the elections will make a huge difference and the battle will be played out state by state," she said. There should be no assumptions made right now about how many states eventually will opt out, she said.

Under the law, the federal government will pay the states 100 percent of the expansion costs from 2014 through 2016, then 90 percent in 2020 and thereafter.

Burke also said there's a growing sense on the part of states that they need to change their Medicaid programs and do a better job of managing them. That includes increased attention to so-called dual eligibles who qualify for both Medicare and Medicaid, she said. Burke predicted that a National Governors Association meeting in Williamsburg, Va., will feature intense discussion among state executives about the directions they might take on Medicaid.

Jennings said that if states don't expand their Medicaid rolls they will face a "huge problem" in providing for childless adults below 100 percent of the federal poverty level, who won't be eligible for federal subsidies under the law, and so likely would remain uninsured.
Under the Supreme Court's ruling, the health care law was left intact except for the justices' determination that the Medicaid expansion was like a "gun to the head" of states because if they declined to do it, they would lose all their federal Medicaid funds. Such funds make up a large portion of many state budgets.

What's more, it remains unclear how states will signal to the federal government if they plan to opt out—not to mention who in the state decides and how.

Alan Weil, executive director of the National Academy for State Health Policy, said in a July 2 blog post for the publication Health Affairs that if history is followed, states that want to cover their uninsured adults through Medicaid will file an amendment to the state plans they submit to the federal government. States that don't want to do so just won't file an amendment, he said.

But when and how that happens and who decides remains unclear, said Diane Rowland, executive vice president of the Kaiser Family Foundation and the Kaiser Commission on Medicaid and the Uninsured. Rowland said in an interview that the Centers for Medicare and Medicaid Services (CMS) likely will have to promulgate rules to clarify those questions. The problem was the law assumed that the expansion went into effect for all states—though clearly some legislatures would have to take action because of budget effects, she said.

"It's hard to tell, and this is one of the areas where the administration will have to give some real guidance on how they plan to do it," Rowland said. She added that in "most states, it's unlikely it would be totally executive action."

MaryBeth Musumeci, a senior health policy analyst at Kaiser, said "there's real variation" among states as to how the decision might be made.

Rowland said she's also unclear on the deadline by which states will have to tell the federal government what they're doing. "They are supposed to be ready to implement in 2014," she said.

One controversial question is whether states are required to follow maintenance of effort (MOE) rules in the health care law. Some states are exploring whether they can reduce eligibility.

On a recent conference call with state policy makers moderated by a Bipartisan Policy Center official, Weil said that his interpretation of the court ruling is that the MOE rules will remain intact until they expire in 2014 for adults. Weil cautioned that his reading of the ruling was his own take, "not official guidance from any federal agency," but that he did not see anything that invalidated the rules requiring states to keep eligibility standards the same under the existing Medicaid program.

But Dennis Smith, Wisconsin Department of Health Services secretary and a former director of the Center for Medicaid and State Operations under George W. Bush, disagreed. He said the maintenance of effort provisions are located in the law in the same section as the language expanding Medicaid coverage.

"It does raise very serious questions about the maintenance of effort requirement, which is in the same section" as the expansion, Smith said.

By Rebecca Adams, CQ HealthBeat Associate Editor

July 11, 2012 -- If a state decides to opt out of the health care law's Medicaid expansion, its low-income residents who would then not be eligible to enroll in the health care program for the poor could get a hardship exemption from the overhaul's individual mandate, Health and Human Services (HHS) Secretary Kathleen Sebelius said in a letter to governors last week.

HHS officials also are responding to governors' threats to forego the expansion of Medicaid and sharp questions about implementing the health care law (PL 111-148, PL 111-152) by scheduling four information sessions around the country this summer.

Sebelius said her department would exercise authority in the overhaul law "to establish any hardship exemption that may be needed" to allow more low-income people to avoid the individual mandate to get health care coverage.

She also said that the Supreme Court's decision last month that allows states to opt out of the Medicaid expansion without losing all of its funds for its existing program "did not affect other provisions." For example, she said that the federal government is still expected to provide full federal funding for newly eligible people in the years 2014-16 but less than that in future years.

An administration official said that the requirements that remain intact include provisions requiring states to maintain eligibility for adults until 2014. Some states had questioned whether the ruling frees them from the maintenance of effort provisions, but HHS officials are holding firm in their interpretation that those requirements are not impacted by the court's decision.

"I am mindful of the concerns that some governors have shared about the law," Sebelius said in her letter.

The Republican Governors Association sent a letter last week outlining some of those concerns.

In her letter, Sebelius encouraged governors to send officials to the forums and continue asking questions through regularly scheduled conference calls. The sessions will be held July 31 through Aug. 15 in Washington, D.C.; Chicago; Denver; and Atlanta.

By Rebecca Adams, CQ HealthBeat Associate Editor

July 9, 2012 -- The number of accountable care organizations (ACOs) in Medicare is growing faster than industry leaders had predicted when the program's rules were finalized last fall. As of July 1, 89 new ACOs had begun serving 1.2 million people, bringing to 154 the number of groups in the Medicare shared-savings effort in 40 states and Washington, D.C.

The 2.4 million Medicare beneficiaries participating in ACOs is still a minority in the 46-million-patient Medicare program. But as Centers for Medicare and Medicaid Services (CMS) principal deputy administrator and Center for Medicare director Jonathan Blum noted in a call with reporters, when the regulations for the program were first proposed, "there were many doubts about whether ACOs would come into the program."

ACOs bring groups of doctors and other medical providers together to coordinate care for Medicare patients.

The federal government could save up to $940 million over four years from the initiative, according to CMS. Almost half the ACOs are physician-driven groups serving fewer than 10,000 beneficiaries.

The interest from medical providers who want to participate in 2013 is greater than those participating this year. Groups that want to join the shared-savings program next year needed to file a notice of intent last month indicating that they will apply. They will need to complete their applications between Aug. 1 and Sept. 6. CMS officials said that more than 400 groups have notified the agency that they will submit applications.

"That gives us even more confidence that this program will grow over time," Blum said.

The wide array of groups that have signaled interest also should dispel doubts about whether the program will survive, Blum suggested.
"Obviously we are pleased with the overall numbers of the program, but we're more pleased with the diversity of the program," he said.

Medical providers throughout the nation are also participating in other ACO-type initiatives led by private industry or the federal-state Medicaid program seeking to increase the coordination of care for patients and save money.

"This is not a trend only for the Medicare program but for all payers trying to move in this direction," Blum said.

All Medicare ACOs that cut the rate of spending growth in the cost of care without compromising the quality of care may share in the Medicare savings. ACOs will have to demonstrate high-quality care by reporting 33 different performance measures.

Five of the ACOs that were announced last week are in a version of the program that allows them to get a higher share of any savings by also putting themselves at risk for sharing in any losses if the costs of care for their patients rise, said CMS officials. In the future, all of the 89 ACOs will have to accept the risk of losses in their next contract period.

The 154 ACOs include the group recently announced, the 27 that joined the Medicare shared-savings program in April, the 32 in the Pioneer ACO demonstration and six Physician Group Practice Transition Demonstration groups that started in January 2011. The final rule for the shared-savings program was published on Nov. 2, 2011.

The most common reason that an organization may have been rejected is that it does not meet the requirement set out in the health care law (PL 111-148, PL 111-152) that the groups care for at least 5,000 patients, said Blum. Some groups asked for more time to grow their patient base and delayed their applications until the Jan. 1, 2013, start date.

By CQ Staff

July 9, 2014 -- The Supreme Court's decision to largely uphold the health care overhaul (PL 111-148, PL 111-152) protects provisions already in effect and clears the way, barring changes to the law, for full implementation. Although some aspects of the overhaul have been in place since the law was enacted in 2010, many central elements will not take effect until later this decade, such as the state health insurance exchanges and the mandate to obtain coverage or pay a penalty. Some of the major changes made by the law are listed below.

ALREADY IN EFFECT

Expanded Coverage

A temporary national high-risk pool provides coverage to adults with pre-existing conditions.

A temporary reinsurance program assists employers in providing coverage to retirees over age 55 who aren't eligible for Medicare.

Covered dependents must be allowed to stay on health policies until age 26.

Insurance Regulation

Health care plans are barred from placing lifetime limits on coverage; from rescinding coverage, except in cases of fraud; and from excluding coverage for children who have pre-existing conditions.

Health care plans must report annually how much premium income goes for clinical services, quality improvements and non-claim costs.

Wellness

Chain restaurants and vending machines are required to report the nutritional value of their food.

A Prevention and Public Health Fund supports preventive care and other public health priorities.

Medical Malpractice

The Health and Human Services secretary is authorized to spend $50 million over five years on grants to states to design alternative methods of resolving medical malpractice claims and to encourage more detailed reporting of medical errors.

Prescription Drugs

Manufacturers are required to provide a 50 percent discount on brand-name prescriptions filled while a patient is in the Medicare Part D coverage gap; federal subsidies for generic prescriptions begin to be phased in.

The rebate percentage for drugs provided under Medicaid is increased.

The Food and Drug Administration is authorized to approve generic versions of biologic drugs.

Taxes

Nonprofit hospitals are subject to a tax of $50,000 per year if they fail to meet certain requirements.

An excise tax of 10 percent is imposed on indoor tanning services.

An annual fee is imposed on pharmaceutical manufacturers based on annual sales of brand-name drugs.

Over-the-counter drugs that aren't prescribed by a physician may no longer be purchased using tax-advantaged set-asides such as Flexible Spending Accounts, Health Savings Accounts or Archer Medical Savings Accounts.

Medicare

New physician-owned hospitals are barred from participating in Medicare.

Medicare Part B physician premiums and Part D drug premiums increase for some people, based on incomes.

Annual increases in hospital payments are limited to account for productivity gains.

Providers that qualify as accountable care organizations share in cost savings they achieve for Medicare.

Medicaid

The new Federal Coordinated Health Care Office within the Centers for Medicare and Medicaid Services (CMS) is designed to improve care coordination for seniors eligible for both programs.

Federal payments to states for Medicaid services related to hospital-acquired conditions are prohibited.

FUTURE PROVISIONS

Sept. 23, 2012

Private individual and group health care plans must provide a uniform summary of benefits and coverage to all applicants and enrollees.

Oct. 1, 2012

Hospitals that meet certain performance standards become eligible for value-based incentive payments.

Medicare payments to hospitals are reduced to account for preventable hospital readmissions.

Jan. 1, 2013

Taxpayers with earned incomes over $200,000 for individuals and $250,000 for couples must pay higher Medicare hospital insurance taxes on their income, including non-wage earnings.

The tax deduction for employers who receive Medicare Part D subsidy payments is eliminated.

Federal subsidies begin for brand-name drugs purchased through Medicare Part D while a patient is caught in the coverage gap.

An excise tax of 2.3 percent is levied on manufacturers and importers of certain medical devices.

Jan. 1, 2014

All states must have established a state health insurance exchange to aid in the purchase of health insurance for individuals and small businesses.

All new policies are required to conform with benefits standards determined by the Department of Health and Human Services.

Individuals are required to have qualifying health insurance or face a tax penalty.

Employers with 50 or more workers are subject to fees if they don't offer health coverage or if any employee receives subsidized coverage through an exchange.

Medicaid is expanded to cover all individuals under 65 with incomes up to 133 percent of the federal poverty level. (Under the court ruling, states may opt out of the expansion.)

Individuals and families with incomes between 133 percent and 400 percent of the federal poverty level begin receiving premium credits and cost-sharing subsidies to purchase insurance through the exchanges.

Jan. 15, 2014

A new Independent Payment Advisory Board may begin submitting advisory reports to Congress regarding Medicare spending.

Oct. 1, 2014

Federal payments to so-called Disproportionate Share Hospitals, which treat large numbers of indigent patients, are to be reduced and subsequently allowed to rise based on the percentage of the population that is uninsured in each state.

Jan. 1, 2015

CMS begins using the Medicare fee schedule to give larger payments to physicians who provide high-quality care compared with cost.

Oct. 1, 2015

States are allowed to shift children eligible for care under the Children's Health Insurance Program to health care plans sold on their exchanges, as long as HHS approves.

Jan. 1, 2016

Health care compacts that enable insurance plans to be sold across state lines are allowed to take effect.

Jan. 1, 2018

An excise tax equal to 40 percent of the excess benefit is imposed on high-cost health insurance plans.