By John Reichard, CQ HealthBeat Editor

April 25, 2014 – Oregon has become the first state to decide to shutter its own online insurance marketplace under the health law when a state board voted unanimously to turn over IT operations to the federal government.

The board of the website, Cover Oregon, accepted a working group's conclusion that "using the federal website technology was the most reliable, least costly option to provide a working website by November 2014," when an open enrollment period begins for 2015.

It's unclear whether all of the 15 insurers under contract to sell health plans in the state marketplace will participate next year in the federal exchange, healthcare.gov. Most are already working with the federal exchange in other states.

Also unclear is whether the 70,000 enrolled in Cover Oregon will have to reapply for coverage through the federal exchange for 2015.

The 1,200 insurance agents now selling coverage through Cover Oregon will have to go through a new certification process with the federal exchange.

Oregon officials plan to travel to Washington, D.C., and meet with federal officials to clarify details of the changeover.

A state official said an undetermined number of Cover Oregon employees would be laid off because of the switch.

The changeover means the Cover Oregon web portal will no longer be available for enrollment in Medicaid and that residents applying for the program will have to go to a state agency to enroll. The marketplace had been designed to handle sign-ups in both Medicaid and private health plans.

The transfer also means that federal officials will have to resolve how much control Oregon will retain over a variety of insurance functions it gained by operating its own marketplace under the health law.

Jennifer Tolbert, director of state health reform with the Kaiser Family Foundation, said there's a distinction to be drawn between whether a state is viewed as fully defaulting to the federal exchange or only relying on the healthcare.gov IT infrastructure to handle enrollment. A state can continue to handle outreach and advertising, contract with navigators who help people enroll and establish rules governing health plan participation.

"Oregon will still have a state-based marketplace" although it won't have it's own web enrollment portal, she said. But it's unclear how much power the state will have over plans sold to its residents through healthcare.gov.

Oregon is one of a number of Democratic states whose insurance exchanges have floundered. In Maryland, officials aspired to be national leaders in exchange design almost since Congress enacted the health law in September 2010. But earlier this month, the board of Maryland Health Benefit Exchange voted to follow the lead of Connecticut by adopting its simpler website design and hiring its IT vendor, Deloitte LLP.

The board ruled out dropping the state marketplace altogether. But it's not clear whether the Department of Health and Human Services will give Maryland more money to make the changes needed to continue its own marketplace.

Oregon never was able to launch the website enrollment process it designed and had to rely heavily on outside brokers and paper applications.

State officials in late 2010 vowed to build a "high value" exchange offering consumers apples-to-apples comparisons of plans, easy shopping and choice, smooth enrollment processing and easy payment processing, along with customer service, and "clear value for the premium dollar." The site was also supposed to give insurers access to easy enrollment, billing and payment processing.

But news reports and an independent audit chronicled what turned out to be an overly ambitious project hampered by feuding state agencies, lax contracting and a lack of authority and accountability in project oversight.

"Though it has spent more than $200 million on its exchange, Oregon's is the only exchange in the country where the public can not self-enroll in a single sitting," the news website Oregonlive reported last month.

A March 19 independent analysis of the state's website fiasco noted that it was a "complex, multi-agency project."

"There was no single point of authority," said the report prepared for Oregon Gov. John Kitzhaber (D) by FirstData. That "slowed decision making and contributed to inconsistent communication."

The project relied on a commercial, off-the-shelf product from Oracle, rather than a more customized approach. To save money, Oregon decided it would serve as its own systems integrator.

The decision not to hire an outside integrator "departs from best practices," according to the independent report and caused a lack of accountability on the project. That, in turn, contributed to a delay in requirements definition, and unrealistic delivery expectations. The report noted that one state official described Oregon as having "the most robust scope of any exchange."

The report also found poor communication with Kitzhaber's office about problems. Kitzhaber was told on July 31, 2013 that a "staged launch" may be needed on Oct. 1 but that the project remained on track. But on Sept. 30 Kitzhaber's office was told the website would not be up and running on Oct. 1.

The health law originally envisioned all of the states running their own marketplaces. Until now, Oregon and 13 other states plus the District of Columbia have done so.

Joel Ario of the Manatt consulting firm says that once states become convinced the health law is truly here to stay, more will establish their own marketplaces. "The dynamics I think at some point will shift," he said. But whether the number will rise or fall over the next year or two is unclear.

While Oregon is handing off IT duties to the federal government, Idaho and New Mexico may join the list of states running their own exchanges. The two intend to establish their own IT infrastructure and have until June to get federal approval to have marketplaces in 2015.

Three other states—Arkansas, Illinois, and Iowa—also have talked about fully running their own marketplaces within the next few years.

Some of the 14 states with their own marketplaces have performed poorly. They include not only Maryland but Hawaii, Massachusetts and Minnesota. It's possible that some or all will follow Oregon's example and end up relying on healthcare.gov, Tolbert said.

There's another factor to consider in weighing the future of state-based marketplaces. A Cato Institute inspired challenge of the health law, if successful, would only permit residents of states with their own marketplaces to qualify for federal premium subsidies to enroll in exchange plans. Those in states served by healthcare.gov would be shut out.

During the public comment period of Oregon's board meeting, an audience member warned that switching to healthcare.gov could end the availability of those subsidies to state residents.

By Rebecca Adams, CQ HealthBeat Associate Editor

April 25, 2014 -- Major health insurers are much more concerned about the financial effects of changes to Medicare Advantage and Medicaid payments than the impact of individual market enrollment on their business in 2014, an insurance industry consultant said at a forum last week.

Bob Laszewski told an American Enterprise Institute conference that insurers will raise their rates modestly, but most will not seek double-digit increases.

Laszewski said that insurers and the Centers for Medicare and Medicaid Services (CMS) officials will meet next week to talk about unsettled questions about the payment and reconciliation functions of healthcare.gov that still need to be finished. Laszewski predicted the systems on the troubled federal insurance exchange will be ready in September, one year after they were expected to be operational.

Insurers have been sending invoices to federal officials while they wait for the website's functions to be debugged. The administration has been paying insurers without certifying that the invoices are correct, said Laszewski, who estimated that insurers are billing the government for about $10 billion per month for subsidies "with no backup and no reconciliation."

It could be difficult for the federal government to square what insurers are owed to reflect their customers' subsidies against the companies' payment requests, he said.

"We've got the mother of all reconciliations coming," he said.

The colorful consultant, who has been outspoken about sensitive problems related to implementation, said that temporary protections that will buffer companies from major losses during the first three years of the health system changes will be part of the reason why many insurers probably will not hike premiums dramatically when the next open enrollment season begins on Nov. 15 under the health law (PL 111-148, PL 111-152).

Insurance companies have to start submitting their bids in some states in May but they may not become public immediately.

Laszewski had predicted previously that insurers would raise their rates by 9.9 percent—because rate increases of 10 percent or higher are subject to greater government scrutiny.

Panelists at earlier sessions of the conference had discussed details of the law, employers' reactions to it and state officials' efforts to modernize the health care system.

Tracy Watts, a partner at Mercer Human Resource Consulting, highlighted results from a survey that the group released last month showing that as of February, the individual mandate had not made a major difference in the number of employees who were buying job-related coverage through their employers.

Speaker Alan Weil predicted that CMS officials will announce within the next couple of weeks will unveil another round of innovation grants to states that are trying to update the health care delivery systems in their states. In February 2013, 25 states were offered a total of $300 million to implement multi-payer payment and health care delivery system changes that are supposed to improve the quality of health care and lower costs. Six states that received the majority of funding were preparing to implement models that they had already proposed, while three were given funds to finish plans that they were in the midst of preparing. Another 16 states were given money to start work on a plan.

Weil, the executive director of the National Academy for State Health Policy, noted that state officials are usually not partisan or ideological when talking about payment changes that move away from the current fee-for-service system, which critics say rewards volume instead of the quality of care.

And as states get more engaged in changing the delivery of health care and saving money, Weil said, officials may realize that it may be in their interest to run their own state-based exchanges and expand Medicaid.

"As states are getting more mature in thinking about what it takes for multiple payers to come together and demand a more efficient delivery system, some of the important tools you want to use are Medicaid contracting rules and exchange plan certification rules," he said. If state officials don't operate their own marketplaces or broaden Medicaid eligibility, he said, "you've left those tools on the table."

By John Reichard, CQ HealthBeat Editor

April 24, 2014 -- Although the number of states expanding their Medicaid programs under the health law appears to have pretty much stalled at 26, the option remains an active issue in five others—Missouri, Virginia, Pennsylvania, Utah, and Indiana—according to a Kaiser Family Foundation analysis.

Last week, the left-leaning group Families USA tried to make the case for an expansion in Missouri by releasing a report portraying Medicaid as helping to build a more vibrant economy in the state. But widening the federal-state health program for the poor to include some 300,000 uninsured Missourians this year will be a difficult challenge, acknowledged Missouri Hospital Association President Herb Kuhn, whose organization also is pushing hard for the expansion.

The Families USA report said that 60 percent of the Missourians who would benefit from the state's Medicaid expansion "are working and are employed in occupations that most people rely on daily and are critical to the state's economy." The analysis quantified the types of occupations where coverage would have some of the greatest impact, in an apparent effort to counter perceptions that those who would benefit aren't pulling their own weight in society.

The report said that of the 300,000 state residents who are uninsured and would qualify, 60 percent are employed or were employed within the past year, 20 percent are not in the workforce and the remaining 20 percent are unemployed.

Of the 300,000, the report said:

• 34,000 people are employed as fast food and other food service workers, cooks and waitresses.
• 24,000 are in sales, working as cashiers, retail salespeople, and travel agents.
• 22,000 are in cleaning and maintenance, including housekeepers, janitors and landscapers.
• 21,000 work in office and administrative support jobs like hotel desk clerk, office clerk, or messenger.

"Circumstances can make you virtually penniless and Missouri will still deny you help to get basic health care really demands that the state expand the Medicaid program," said the group's executive director Ron Pollack.

The group said Missouri's existing Medicaid program provides coverage only to parents whose family income must be no more than $4,750 a year. "Under Missouri's program, there is no health care provided for families without dependent children, regardless of how low their income may be," the group stated.

Also backing the expansion is the state's Chamber of Commerce, which has hired former Republican Sen. Christopher S. "Kit" Bond as a lobbyist to help the cause.

Kuhn, who held a top Centers for Medicare and Medicaid Services post during the George W. Bush administration, said in a recent interview that the challenge facing expansion advocates in the red state consists of developing an innovative package in tune with conservative values. Democratic Governor Jay Nixon, is advocating the increase in Medicaid eligibility in a state legislature where Republicans control both chambers.

"The partnerships continue to develop," on behalf of expansion, Kuhn said. The state Chamber of Commerce along with 75 local chambers are making the economic argument, which notes that the state is giving up $2 billion in annual federal payments, or $5.5 million a day, by not expanding. "The drumbeat gets louder all the time," Kuhn said.

Passage ultimately hinges on getting an approach that fits the state—on "what can they make uniquely theirs. A lot of it is individual responsibility," Kuhn said.

The key ingredients are going to be assuring financial sustainability since Missouri will have to pick up 10 percent of expansion costs at the end of the decade. Backers also must develop "innovative" health care delivery models to better coordinate care and an approach that relies on private coverage, Kuhn said.

There's interest in following the so-called Arkansas model, in which those entering the state's expansion program do so through private health plans that contract with Medicaid. But how soon and whether the right mix will be found is unclear.

By John Reichard, CQ HealthBeat Editor

April 23, 2014 -- Expanding Medicaid under the health law is a better financial proposition for states than previously thought, according to a think tank that projects the 10-year cost starting in 2015 will be 34 percent lower than an earlier estimate.

Revised Congressional Budget Office (CBO) health cost projections released last week show expanding Medicaid would raise state spending by $46 billion from 2015 through 2024, according to Edwin Park, an analyst with the Center for Budget and Policy Priorities. The baseline CBO issued in February pegged the cost at $70 billion over a decade.

The revised figure doesn't take into account other savings lessening expansion costs, Park said.

Cost projections have fallen because CBO now expects fewer people who were eligible for Medicaid before the health care overhaul but were unenrolled to sign up under the law, Park said.

CBO and other analysts say the law (PL 111-148, PL 111-152) will drive up Medicaid enrollment due to more aggressive public awareness campaigns and a growing belief among Americans that they are required to have insurance.

On average, the federal government pays 57 percent of the costs of enrolling individuals who were deemed eligible for Medicaid before the law was enacted.

"Because CBO now expects states to experience smaller increases in enrollment among those previously eligible ... it expects states to incur lower costs over the next decade than it previously assumed," Park said.

Park said CBO now estimates the federal government on average will pick up more than 95 percent of the total cost of the Medicaid expansion and other costs related to the health overhaul over the next 10 years. From 2014 to 2016, the federal government will cover all of the expansion costs for newly eligible enrollees, with the share then falling to 90 percent in 2020 and the years after.

But other research shows states will save money even as their long-term Medicaid costs rise with growing enrollment, Park said. A 2011 study by the Urban Institute noted the health law contained provisions that substitute federal spending for state outlays on such things as uncompensated care and mental health services, more than offsetting added Medicaid costs.

It's still unclear how or if the shift in CBO estimates will influence those states on the fence about expanding Medicaid. Twenty-six states have either expanded their programs or will do so, but Republican lawmakers are digging in against expansion in the remaining states for reasons that go beyond number crunching.

"There are many factors involved in the remaining state decisions about whether to expand Medicaid, political, philosophical, ideological, as well as fiscal," said Matt Salo, executive director of the National Association of Medicaid Directors. "A rosier outlook from CBO may encourage some, but I'm not sure it moves the needle much for most states that are currently in the 'no' column."

By John Reichard, CQ HealthBeat Editor

April 21, 2014 -- Champions of the Children's Health Insurance Program (CHIP) are starting to worry about its future with federal funding set to expire in 18 months and new coverage alternatives available under the health law.

A central question is whether advocates can convince Congress the program covering 8.5 million children is worth keeping even though states now have the option of expanding their Medicaid programs to help cover that population. Lawmakers also authorized hundreds of billions of dollars in subsidies to buy coverage on insurance exchanges.

Even if the programs supporters succeed, it's not clear for how long. And if Congress waits until the last minute to act, leaving CHIP's funding outlook uncertain, advocates may have to talk state legislators out of capping CHIP enrollment and taking other steps to control costs.

Right now, it looks like Congress may extend CHIP funding through fiscal 2017, if not longer. But whether it will fund the program as generously as it does now is unclear. So is the timing of congressional action.

CHIP's fate was foremost on the mind of Sen. Jay Rockefeller, D-W.Va. when he questioned HHS Secretary Kathleen Sebelius at a Senate Finance Committee hearing April 10.

"We're funded, you know, through this year and part of next and then it just stops," he said. A 2009 law (PL 111-3) reauthorized CHIP through fiscal 2013, and the health law (PL 111-148, PL 111-152) tacked on another two years of funding through Sept. 30, 2015.

Rockefeller said he wanted to understand whether President Barack Obama and HHS officials want to maintain the program "for a period of years and years, because right now, it just strikes—it's strange that he hasn't mentioned it."

Sebelius attempted a soothing response that fell short because she gave no assurances.

"We're going to see more children gaining benefits than ever before," she said, in part because of a simplified CHIP and Medicaid application process. Rockefeller agreed but said he'd be happy if Obama in one of his press conferences "just mentioned it."

"It's just odd to me knowing him and his commitments, that he just simply hasn't mentioned it at all," the senator said.

The panel Congress created under the health law to advise it on CHIP and Medicaid said at a meeting the next day it isn't committed to having a standalone coverage program like CHIP continue indefinitely. It cited what it called "new affordability options" through the health law as the reason.

But children's advocacy groups like First Focus say coverage sold on insurance exchanges isn't as generous as that offered by CHIP. And the advisory panel whose formal title is the Medicaid and CHIP Payment and Access Commission, or MACPAC, echoed that concern. An analysis by its staff said if CHIP funding runs out after fiscal 2015, the number of uninsured children could increase significantly. Cost-sharing also could rise for many families.

It's "unclear whether or not exchange plans are ready to serve as an appropriate alternative," the analysis stated.

The panel voted April 11 to recommend to Congress that it extend CHIP funding through fiscal 2017. That transitional step would allow issues relating to the affordability and adequacy of children's coverage in the absence of CHIP to be addressed, the panel said.

A Senate GOP aide said the recommendation "definitely has legs" on Capitol Hill depending on how the Congressional Budget Office (CBO) scores its cost. MACPAC has asked CBO to score both a two-year and a four-year extension, and the score could be released at any time, the aide said.

Obama administration officials are "sitting on their hands right now and waiting to decide what they want to do here."

Both Republicans and Democrats face quandaries on a program extension. Republicans may not want to continue current levels of federal funding but risk political fallout if they move to take coverage away from children at a time when they're trying to regain control of the Senate and win the White House in 2016.

Meanwhile, Democrats who endorse extending CHIP could be seen as tacitly admitting that the health law isn't working the way it's supposed to. "Everybody has an incentive to do this early not late," the aide said concerning an extension.

But Congress often dawdles until the last minute. Both Senate Finance Committee Chairman Ron Wyden, D-Ore., and the panel's top Republican Orrin G. Hatch of Utah "may keep their cards close to the vest" on the issue. But the aide predicted Rockefeller will introduce legislation this year—his last before retiring—to prod lawmakers.

By John Reichard, CQ HealthBeat Editor

April 22, 2014 -- Jonathan Blum, the principal deputy administrator at the Centers for Medicare and Medicare Services (CMS) and President Barack Obama's first political appointee to the agency, is stepping down May 16.

CMS Administrator Marilyn Tavenner wrote in an email to staff last week that Blum is resigning after five and a-half years at CMS to pursue other opportunities. There was no immediate word on who might succeed Blum, or on his post-CMS plans.

"Jon was the first political appointee to come to CMS under the Obama administration in March 2009," Tavenner wrote. "He spent most of his time at CMS as deputy administrator and director of Center of Medicare. Under Jon's leadership, the Medicare program has served as one of our primary drivers to shift our health care system to reward quality, care improvement and value."

Although CMS announced no replacement for the principal deputy slot, the agency recently appointed Sean Cavanaugh as director of the Center for Medicare and as a deputy CMS administrator. Cavanaugh had been deputy director of the Center for Medicare and Medicaid Innovation. Before that he served as director of health care finance at the United Hospital Fund, a New York City based health policy research organization that also has pioneered various programs and organizations including the National Quality Forum, which rates quality performance measures. Cavanaugh served on the staff of the House Ways and Means Health Subcommittee and held posts at the Maryland Health Services Cost Review Commission and Lutheran HealthCare, a Brooklyn, New York-based medical center and health care delivery network.

Blum brought a knowledge of industry, Capitol Hill, and specifically, the Senate Finance Committee to his job overseeing Medicare and implementing Medicare provisions of the health law. An aide in 2001-2004 to Max Baucus when the Montana Democrat was chairman of Senate Finance, Blum most recently oversaw the release of Medicare physician billing data. He was seen as bringing a generally pragmatic approach to his post, drawing on the depth of his knowledge of Medicare payment policy and his experiences as an industry consultant with Avalere Health from 2004 to 2009.

"The Medicare team's accomplishments are too many to list, but include developing the ACO regulations, implementing our quality framework for Medicare Advantage plans, implementing our competitive bidding program for durable medical supplies, and developing many of our value-based payment strategies," Tavenner wrote of Blum's tenure. "Medicare per-capita cost growth has remained at the lowest sustained period under Jon's tenure while quality of care has increased and new benefits have been added to the program."

Blum helped implement various payment innovations. They included bundled payments for dialysis facilities, and the Value Based Purchasing program, which varies payment according to the quality and efficiency of care. Another key change was the adoption of payment penalties when a hospital readmitted a Medicare patient who had to return to the facility because of substandard care during the first visit.

Accountable care organizations (ACO), which aim to bring team-based care to the relatively unmanaged Medicare fee-for-service program, got off to a rocky start under the health law but more recently under Blum's direction have shown promise in controlling Medicare costs.

"We are tremendously surprised with the overall growth of the program," Blum said in an upbeat assessment of the program early this year. "We are adding about a hundred new ACOs each year," he said. If "these growth trends continue, then it's going to be a continued phenomenal story for the Medicare program."

Paul Ginsburg, formerly president of the Center for Studying Health System Change, said the results were encouraging enough to begin pursuing refinements to the ACO model. He added that they brought a sense of relief.

"I say relief because we have to get this to work," Ginsburg said. He is now advocating that ACOs be changed so that beneficiaries have an incentive to pick an ACO and be more subject to its arrangements for controlling costs while improving quality. Ginsburg said in a commentary published in the recent issue of the Journal of the American Medical Association that the absence of such arrangements "may severely undermine the potential of this approach to improve care and control costs."

Blum also has been immersed in the details of administering other highly contentious cost control programs. For example, he helped implement, against intense industry opposition, the nationwide expansion of a bidding program for wheelchairs and other forms of "durable medical equipment" that independent analysts say Medicare has paid too much for in the past.

Blum also was involved in responding to a fierce campaign by the health insurance industry to lessen cuts to Medicare Advantage program. CMS recently made regulatory moves to lessen ease the reimbursement hit to private health plans in the program while sticking to a long term program of reductions ordered by the health law.

The CMS official came under fire at a recent House Energy and Commerce Health Subcommittee hearing on an agency proposal to no longer require antidepressant and immunosuppressant drugs to be included on all Part D plan formularies as two of six protected drug classes, effective in 2015. Blum said CMS has concerns with overprescribing or inappropriate use of the drugs but lawmakers on a bipartisan basis objected that beneficiaries would lose access to essential medications.

While the announced departures of senior HHS officials like Secretary Kathleen Sebelius and Blum command more attention, some newcomers are entering leadership slots at CMS. In addition to Cavanaugh, they include Shantanu Agrawal, who on March 3 was appointed a deputy CMS administrator and as director of the CMS Center for Program Integrity. He replaced Peter Budetti, who left last fall. Agrawal, who served as Budetti's top medical officer, has degrees from Brown and Cambridge University and a medical degree from Cornell.