By Erin Mershon, CQ Roll Call

July 25, 2016 -- State-based marketplaces survived start-up problems with botched technology and political threats but continue to grapple with a fundamental challenge: financial sustainability.

The 13 states that run their own exchanges face challenges in raising enough money, through user fees or state funding, to maintain their operations now that about $5 billion in early federal grants has largely run out. As states establish those budgets, they are testing decidedly disparate approaches to investments in priorities like marketing, technology and operations.

Those questions underscore a major endurance test for a signature piece of the health law. Together, the state-based exchanges enroll more than three million Americans. And like HealthCare.gov, they are at the center of the political firestorm surrounding the law.

The issues will be at the center of a discussion Tuesday and Wednesday between federal officials and many state exchange representatives. Centers for Medicare and Medicaid Services (CMS) officials who oversee the exchanges hope to ascertain what's working, and what's not, to ensure the exchanges are equipped for the upcoming fourth open enrollment period, according to state officials. CMS did not comment on the meeting.

"The marketplaces are having to make some sort of tough choices," said Jennifer Tolbert, director of state health reform at the Kaiser Family Foundation. "They're trying to figure out how to balance all of the competing needs that they have for a well-run, well-functioning marketplace with, in some cases, some more limited dollars."

Every state-based exchange had to rely on federal funding for some activities during the 2016 fiscal year—despite a provision in the law requiring self-sufficiency by the start of 2015. The Obama administration offered states a "no-cost extension" to keep using grant money for some activities through the end of this calendar year. In June, it extended that into 2017.

Financial Issues

Already, the 13 remaining exchanges have overcome a litany of obstacles that shuttered marketplaces in Hawaii and Oregon. In recent interviews, officials in many states painted an optimistic picture of the path forward, now that they have experienced three enrollment periods. But they also acknowledged the challenges.

Most exchanges are funded through user fees, assessed on every enrolled exchange customer every month. Some charge a monthly dollar fee, ranging from $7 per member per month to just shy of $14. Others charge a percentage of the premium, often between 1 percent and 3 percent. In states that use the federal HealthCare.gov website, the premium assessment is 3.5 percent. Others rely partly on state appropriations; New York relies on them in full.

Those fees, however, aren't always sufficient to cover operations, especially when enrollment is low—leaving some exchanges facing the threat of deficits. Ongoing technology maintenance, too, is taking a bigger bite out of many budgets than expected.

Officials in states like Washington and Vermont turned to state legislatures to beg for last-minute grants to cover shortfalls after facing lower-than-expected enrollment, switching technology contracts or suffering from mismanagement. Some states, including Colorado and Connecticut, hiked their fees as a way to make up for lost grant revenue.

"Exchanges are going to have to continue to wrestle with sustainability long term," said Elizabeth Carpenter, a senior vice president for Avalere Health, adding that many state and federal officials overestimated how many people would enroll, especially at the start. "The question looking ahead is at what pace does enrollment continue to grow?  . . .  Are you able to achieve sufficient efficiency given the number of lives that you have?"

The financial and management issues—and the lost startup funds—are a target for congressional Republicans. They have blasted federal officials for poor oversight and continue to attack CMS for failing to collect refunds from exchanges that have flopped or inappropriately spent their federal grants. The House Energy and Commerce Committee is investigating how the states are spending those funds. Republicans also say CMS Acting Director Andy Slavitt's congressional testimony inflated the amount of grants that the agency recaptured.

Taxpayers are out billions because the administration treated the grants like a slush fund, a committee aide argued in an interview. If CMS had conducted basic oversight perhaps some exchanges would be in a better place financially, the aide added. Lawmakers are still determining how and when to proceed with the investigation and release its results.

But in interviews, officials for nine of the country's 17 state-run and state partnership marketplaces were optimistic, describing themselves as fledgling businesses figuring out how to set their budgets and priorities. They say they are now poised to succeed and are relying on very little of the federal grant money, if any.
 

The first couple of cycles, it was just lurching from crisis to crisis on really tight time frames.  . . .  but for most of them now, we're past the initial hump of 'How do I just make sure the lights stay on?'" said Sabrina Corlette, a professor at Georgetown University's Center on Health Insurance Reforms. "Many of them are now able to pivot to longer-term issues, in terms of how do we go after the remaining uninsured, how do we make sure we can deliver a product that is of value."

States' Experiences

Those priorities, however, differ in every state, depending on the population's needs, the number of uninsured people and the resources available.

Rhode Island saw its initial $50 million budget in 2015 drop to just $12 million for 2017. Zachary Sherman, director of the HealthSourceRI exchange, says part of the decreased spending is easy to handle: the state doesn't need to invest in technology as it did initially. Officials also dramatically scaled back their marketing spending, in favor of investments in customer experience improvements.

"We went from having billboards and TV spots to being much more social media-focused, much more targeted in identifying where we think the pockets of uninsured are, and getting the word out in any way possible," he said.

Sherman and other officials said initial investments in marketing, when the exchanges needed to build a brand, were important. But nearly every official interviewed acknowledged they need more ongoing outreach than expected, given the complicated nature of health insurance and the politics of the law.

"That's the real problem—the tremendous amount of misinformation that floats around," said Bruce Gilbert, executive director of the Silver State Health Insurance Exchange in Nevada, one of four other states that run an exchange but license the HealthCare.gov technology. "It's baked in, unfortunately, as political discourse has deteriorated."

California, meanwhile, remains committed to marketing—in part because officials there see bringing more people into the exchanges as a key element of achieving sustainability. Marketing remains 30 percent of its proposed 2016-2017 budget, down from 36 percent in the previous budget. California is investing more money than last year in technology and administration.

"The best investment is in ensuring ongoing growth in enrolling consumers," said Covered California Executive Director Peter Lee. "More enrollment means a better risk pool and therefore, lower costs for everyone."

Lee argued that high turnover rates make continued marketing investments essential. He said officials had hoped they could "prime the pump and then drop off" that spending—but found that isn't the case.

In Connecticut, officials are also addressing the disappearance of federal grants with a modest fee hike and a nearly 25 percent budget cut. The state is looking to expand its revenues, too, by charging other states, including Maryland, to use the technology it developed.

Several state officials said states with a broadly based user fee—one required of every plan in the state, for example, rather than just those operating in the marketplace—gave exchange administrators flexibility and allowed them to focus less on enrollment numbers. That model is in place in D.C., Maryland, Connecticut and Kentucky.

Nearly all of the officials said their optimism is based in part on experience: nearly every year, operations have run more smoothly.

"The first year was very difficult, the second year was somewhat better, and the third year was a lot better," said Lawrence Miller, chief of health care reform for Vermont Gov. Peter Shumlin. "Next year our goal is to have it looking like a pretty well-grooved operation."

By Marissa Evans, CQ Roll Call

July 25, 2016 -- An estimated 30,000 low-income children are now eligible for benefits under Arizona's health insurance program, after nearly six years of unstable coverage.

Arizona's program, KidsCare, will start enrolling children who live in households with income between 133 percent and 200 percent of the federal poverty level on Tuesday. Coverage would begin Sept. 1, the federal Centers for Medicare and Medicaid Services (CMS) said in an announcement Monday.

Vikki Wachino, CMS Deputy Administrator and Director of the Center for Medicaid and CHIP Services, said in the statement that the development is a step forward for children in the state. Every state will now offer Children's Health Insurance Program (CHIP) coverage.

"More children in Arizona will have access to coverage early in their lives, which helps kids grow into healthy adults and provides parents with the peace of mind that comes from their children having affordable coverage," Wachino said.

The announcement comes months after the Arizona legislature voted to reinstate the program at the end of the session in April. Arizona Gov. Doug Ducey, a Republican, signed the bill May 6.

In 2010, the state froze enrollment for KidsCare, citing budget woes that made it difficult to meet the state matching rate requirements. About 46,000 children lost coverage.

The state, responding in 2012 to public concerns about uninsured children, created KidsCare II, a more limited program which took in 37,000 kids. That program expired in 2014. About 23,000 kids under six years old then were shifted into Medicaid, while the others were forced to find coverage elsewhere. A Georgetown University Center for Children and Families report found that the confusion over who was and was not eligible for benefits likely led to children losing coverage.

The uncertainty led to a growing uninsured rate for children. In 2014, Arizona had the third-highest rate of uninsured children among all the states and the District of Columbia for the fifth year in a row, according to a Georgetown center study.

However, when the state expanded Medicaid coverage, those losses were mitigated. Between 2013 and 2014, the rate of uninsured Arizona children went down from 11.9 percent to 10 percent, with about 30,000 fewer children uninsured. 

Kelly Whitener, associate professor of the practice for Georgetown University's Center for Children and Families, said in an interview that Arizona advocates for children ramped up their efforts within the last year when the opportunity for additional federal dollars to states for CHIP became available.

Arizona lawmakers, aware of the state's dismal rankings for children's coverage, became interested in resurrecting the program. They were further encouraged to revive it when they realized that federal funds would cover all the costs through Sept. 30, 2017.

Whitener said, "Not having any state money in the mix is the only thing, really, that allowed [CHIP] to move forward this year."

Maureen Hensley-Quinn, senior program director for the National Academy for State Health Policy, said in an interview that as the state began to move past the most labor-intensive parts of implementing the health law, it's unsurprising that Arizona decided to reinstate the program, particularly when federal funding pays the costs.

"There were a lot of implementation steps that fell on states' shoulders," Hensley-Quinn said. "There's sort of a moment [when] they could reassess and look at insurance groups across the states and reconsider."

By Kerry Young, CQ Roll Call

July 25, 2016 -- Medicare officials recently proposed a test program that would put many of the nation's hospitals on the hook financially for how well their patients fare after being treated for heart attacks or undergoing bypass surgery to replace damaged coronary arteries. This could potentially put the Obama administration at odds in its final months with two powerful groups, heart doctors, and hospitals.

More than 200,000 people enrolled in Medicare were hospitalized for heart attacks or underwent bypass surgery in 2014, costing the program more than $6 billion, Centers for Medicare and Medicaid Services (CMS) said. The amount Medicare paid for this care varied widely as did the numbers of people readmitted after their cardiac care, the agency said. With the proposal unveiled Monday, Medicare said it is seeking to reward the hospitals with the best results for their patients.

"The variation in cost and quality for the same surgery at different hospitals shows there are major opportunities for hospitals included in today's models to reduce costs, improve care, and receive additional payments by improving patient outcomes,"  said Patrick Conway, chief medical officer and acting principal deputy administrator of the Centers for Medicare and Medicaid Services, in a statement.

CMS also on Monday unveiled the details for a model to bolster people's recovery after heart attacks and related procedures, known as cardiac rehabilitation utilization. And the agency proposed an extension of a current bundled payment model for joint replacements to include other hip surgeries.

Under this plan, hospitals would be held accountable for the cost and quality of care provided to people in traditional Medicare who are admitted for heart attacks, bypass surgery and surgical treatment for fractures of the hip or a major leg bone known as the femur. Hospitals participating in the test would be paid a fixed target price for the care involved in these cases, CMS said.

CMS proposed giving hospitals time to adapt by allowing them to gain funding due to good performance more quickly than they will be punished for doing poorly. There would be no repayment for performance in the July 2017 to March 2018 period, while incentive payments for July 2017 to December 2018 of up to 5 percent would be available. By the 2020 to 2021 period, the penalties would be capped at 20 percent of payments as would be the potential gains, CMS said in a statement.

Crowded Agency Agenda

Speculation about a new CMS cardiac proposal circulated last week in Washington among medical organizations. Medical specialty officials raised concerns about how well CMS will manage simultaneously an ambitious slate of projects. CMS already is in the midst of devising a complex system of measurements for doctors' performance that Congress mandated through last year's overhaul of Medicare physician payments (PL 114-10). The new merit-based physician payments and advanced alternative payment models are part of this effort.

CMS on Monday said the newly unveiled proposal contains provisions that may address some of the concerns raised about the new merit-based incentive payment system. Many medical organizations have complained that CMS has offered too few chances for doctors to be exempt from the merit-based physician payments by qualifying for so-called advanced alternative payment models. The rule would create a track in the cardiac and hip-and-knee programs that could potentially qualify for the alternative pay models, CMS said.

The agency also had several major projects of its own design underway to try to link Medicare payment to judgments about the qualify of service provided. The 2010 health care law created the Center for Medicare and Medicaid Innovation and gave it an initial tranche of $10 billion for its operations. The center last month announced that nearly 200 medical practices and 17 insurance companies would participate in its Oncology Care Model, seeking to improve treatment of cancer patients. CMS last week said that almost 20,000 doctors and other health care practitioners would participate in the five-year test of a program meant to help them push people at risk of heart disease to make lifestyle changes.

Republicans have remained skeptical of the Innovation Center. The center's plan for testing an alternative payment for drugs given in doctors' offices had sparked significant backlash among GOP lawmakers. A House GOP health plan revealed in June calls for ending the Center. Rep. Tom Price, R-Ga., introduced a bill (HR 4848) that would delay the implementation of the hip-and-knee test through Jan. 1, 2018. Although the program already is in effect, Price is seeking to give hospitals more time to adjust the test model.

By Jennifer Shutt, CQ Roll Call

July 28, 2016 -- Democratic and Republican national party platforms display a stark divide on pressing fiscal issues facing Congress, including how the nation should deal with defense spending and the rising costs of mandatory entitlement programs.

The platforms, adopted separately during the parties' July conventions, also show how far apart Democrats and Republicans are when it comes to the structure or substance of the federal budget and annual appropriations spending levels. The differences could extend the ongoing political divisions that have repeatedly stymied the annual budget and appropriations process, including fiscal 2017 appropriations.

Although members are in no way bound to support the platform or introduce their proposals in the form of legislation, the documents provide some interesting insights into the parties' goals and aspirations that could influence lawmakers' agendas down the line.

In their platform, Republicans paint a bleak picture of the nation's financial standing, saying that without action the debt will grow to a level that will impact the country's "security, liberty and independence."

To reduce the debt, the GOP proposes using a three-part test for all aspects of the federal budget.

"Is a particular expenditure within the constitutional scope of the federal government? If not, stop it. Has it been effective in the past and is it still absolutely necessary? If not, end it. Is it so important as to justify borrowing, especially foreign borrowing, to fund it? If not, kill it," reads the GOP's 66-page document.

Republicans hope to pair spending cuts with structural changes to the annual budget process, some of them familiar from years past. Their proposals include passing a constitutional amendment that would require a balanced budget, mandating a "super majority" to approve a tax increase with a carve-out for wars and emergencies, and tying any spending cap to the "historical average percentage" of gross domestic product, which could prevent any Congress from increasing taxes to balance a budget.

The Democratic platform, in contrast, calls for increasing taxes on the wealthiest Americans to pay for new programs, while not letting those initiatives add to the $19 trillion national debt.

"Democrats understand responsible fiscal stewardship is key to American democracy and to the country's long-term economic prosperity," wrote Democrats in their 55-page platform. "We believe that by making those at the top and the largest corporations pay their fair share we can pay for ambitious progressive investments that create good-paying jobs and offer security to working families without adding to the debt."

Democrats back offsets for any new spending or tax cuts, as well as promising to address "waste, fraud and abuse to make sure government dollars are spent wisely and efficiently."

Protecting the Pentagon

Defense, which makes up the largest of the 12 annual spending bills, is one area where the Republican platform didn't propose spending cuts.

"The U.S. defense budget has suffered a 25 percent cut in real dollars in the five years since sequestration. We support lifting the budget cap for defense and reject the efforts of Democrats to hold the military's budget hostage for their domestic agenda," Republicans wrote, referring to Democrats' demand that any increases to discretionary defense spending are matched by increases in discretionary nondefense spending.

Democrats also critiqued sequestration's impact on defense spending in their platform, saying they "support a smart, predictable defense budget that meets the strategic challenges we face."

But their party platform is more skeptical of the defense budget. It calls for cutting "waste" within the Pentagon.

"We will seek a more agile and flexible force and rid the military of outdated Cold War-era systems," Democrats wrote.

Both parties agreed on an audit of the Pentagon.

"Republican leaders in Congress have called for a full financial audit of the Pentagon to ensure that every dollar spent is truly benefiting our national security," Republicans wrote. "Every taxpayer must be prepared to pass an audit and we urge Congress to demand the same level of accountability from the Pentagon and the Department of Defense."

Democrats' platform calls for ensuring the Department of Defense is "wisely" using the money it's allocated. They also called for a "high-level commission to review the role of defense contractors, and take greater action against those who have been involved in fraud."

Entitlements

The two parties found little common ground on Medicare, Medicaid and Social Security.

The Democratic platform strongly opposes reducing the number of people eligible for the programs, privatizing or reducing benefits. Democrats proposed imposing an additional tax on individuals making more than $250,000 annually to boost Social Security's solvency, allowing people older than 55 to opt in to Medicare, and working to expand the 2010 health care law's Medicaid expansion throughout the states.

On Social Security, Democrats said they would reject any attempts to increase the retirement age, reduce funding, privatize benefits, reduce cost-of-living adjustments or lower earned benefits.

"Without Social Security, nearly half of America's seniors would be living in poverty," they wrote.

"Democrats will expand Social Security so that every American can retire with dignity and respect, including women who are widowed or took time out of the workforce to care for their children, aging parents, or ailing family members," the platform continues.

The platform's stance on Medicare made similar claims, stating that "Democrats will fight any attempts by Republicans in Congress to privatize, voucherize, or 'phase out' Medicare as we know it."

Republicans took a different approach.

"To preserve Medicare and Medicaid, the financing of these important programs must be brought under control before they consume most of the federal budget, including national defense," Republicans wrote.

The GOP platform calls for leaving Medicare in its current form for people over the age of 55, but for implementing an option for others to choose a "premium support model designed to strengthen patient choice, promote cost-saving competition among providers, and better guard against the fraud and abuse that now diverts billions of dollars every year away from patient care."

"When a vital program is so clearly headed for a train wreck, it's time to put it on a more secure track," they wrote.

Republicans are planning even bigger changes to Social Security.

Although the one-paragraph segment on the program does not include a detailed plan, the platform says Republicans should modernize it and guarantee benefits for those who have retired or are close to retiring. They rule out increasing taxes to continue the program in its current form, but said they believe it's their "moral obligation" to overhaul the benefits program for retirees, people with disabilities and survivors.

"We reject the old maxim that Social Security is the 'Third Rail' of American politics, deadly for anyone who would change it," the platform reads. "The Democratic party still treats it that way, even though everyone knows that its current course will lead to financial and social disaster."

By Marissa Evans, CQ Roll Call

July 28, 2016 -- Alabama Gov. Robert Bentley is betting on a state lottery as a solution for fixing budget woes and preventing problems for people enrolled in the state's health insurance program for low-income residents.

Yellowhammer State lawmakers will soon be called back to Montgomery for a special session on allowing residents to vote in November on a state lottery. Bentley, a Republican, said in a video statement on Wednesday that the lottery could start generating an estimated $225 million a year by fiscal year 2018. No start date has been announced for the special session.

"Montgomery doesn't have all of the answers," Bentley said. "Let's hear from the people of this great state on whether the time has come to approve a statewide lottery to help fund essential state services for our children, our elderly, those with mental illness and those who are in most need."

It would be the second time that Alabamians would vote on whether or not to have a state lottery. In 1999, 54 percent of voters rejected it.

Alabama adjourned its legislative session on May 4 in the aftermath of bitter budget talks. Bentley vetoed the Republican-controlled legislature's budget, which the governor criticized for shortchanging Medicaid, the joint federal-state health insurance program for the poor and disabled. But lawmakers overrode his veto on April 5, putting into effect a $1.8 billion budget for the state's general fund. The budget left Medicaid with an $85 million shortfall, putting the program's main services and regional care organization initiative in jeopardy.

Yasamie August, press secretary for Bentley's office, said in an interview that the idea of the special session is to find solutions for funding looming service gaps and the state's general fund for fiscal year 2017. While the governor is working to find funding that would keep Medicaid's essential services afloat, the regional care organization program is still a priority.

"Right now the talk is about finding a way to make sure RCOs [regional care organizations] are adequately funded," August said. "It's a program the governor is passionate about and as we look for ways to fund Medicaid that's a part of the puzzle that we need to keep intact."

On Feb. 9, the federal Centers for Medicare and Medicaid Services (CMS) approved a waiver allowing Alabama to create 11 regional care organizations to help the state's 1 million Medicaid beneficiaries with primary care, behavioral health and specialty care. The RCOs will run the state's managed care program and be paid a fixed monthly fee per patient. The state could receive as much as $748 million in federal Medicaid matching payments to pay for start-up costs and payments to doctors and other providers, according to the state.

The agency was slated to have the program in place by Oct. 1 but without the necessary funding to keep up existing operations, that date is in limbo. However, the state legislation provides flexibility for the agency to come up with an alternative implementation plan.

Robin Rawls, director of communications for Alabama Medicaid, said in an email statement that the state is working with Bentley and CMS on "continuing to move forward with our implementation work."

By Marissa Evans, CQ Roll Call

July 27, 2016 -- Utah officials are getting closer to expanding eligibility for almost 11,000 low-income residents and will soon be soliciting more public comments on their plan.

Beehive State officials are involved in ongoing conversations with the Centers for Medicare and Medicaid Services (CMS) about the state's pending $31.2 million Medicaid expansion plan. The state is seeking a federal waiver that would allow it to cover specific populations under the joint state-federal health insurance program for the poor and disabled.

Andrea J. Casart, director of the Centers for Medicare and Medicaid Services Division of Medicaid Expansion Demonstrations, wrote to the Utah Department of Health in a July 15 letter that state officials needed to reveal more information publicly about estimates for annual enrollment and a fiscal analysis about the program. Then the state will need to re-open a public comment period.

"Once the state completes the public notice requirements discussed above, we will conduct another preliminary review to determine if the revised request is complete," Casart said.

Utah lawmakers passed a law that directs the state's Department of Health to implement a plan to cover between 9,000 to 11,000 beneficiaries who live in households with income up to 60 percent of the federal poverty line. An earlier version was originally intended to cover 16,000 people but state officials scaled back those numbers, citing fiscal constraints. 

The program as passed would include covering those who are either parents with dependent children, homeless individuals or formerly incarcerated people who have mental health and substance abuse problems. If approved by federal officials, enrollment would begin Jan. 1, 2017.

Utah hospitals would pay $13.6 million of the cost of the program while the state would shell out $17.6 million. Republican Utah Governor Gary Herbert signed the bill into law on March 25.

Traditionally, under the 2010 federal health law states can expand Medicaid eligibility to individuals with incomes up to 138 percent of the poverty level. By 2020, states will have to cover 10 percent of the cost. Thirty-one states and the District of Columbia have taken up the offer.

Republican lawmakers who control the legislature and the GOP governor had faced infighting over whether and how to expand Medicaid. During the 2015 legislative session, the Senate approved Herbert's proposed Healthy Utah plan, which would have covered 146,000 people. But Utah House members, many of whom oppose the federal health law, voted down the program in favor of the so-called Utah Cares plan. It would have cost $22 million less than the governor's plan and covered 93,000 people. The two plans couldn't be reconciled before the legislative session ended in March 2015.

In October, Herbert and five other Republican leaders from both chambers formed the "Gang of Six" to come up with a new proposal. The group came up with a different proposal that would have covered 126,500 people and appealed to Republican interests with provisions that would require beneficiaries to share in the cost of coverage. But that proposal also failed to capture enough support.

Despite the continued work since last year and the enactment of the scaled-back program, advocates are still wary of celebrating the pending expansion.

Jason Stevenson, education and communications director for the Utah Health Policy Project, said in an interview that advocates are worried about the enrollment process and how many people could be left out. Another concern for advocacy groups is the state's coverage gap, which affects 63,000 low-income people who make too much money to be in Medicaid under state guidelines although they would have qualified if the state had expanded to include people with incomes of up to 138 percent of poverty as the health law allows. Stevenson said the proposal under review would not make much of a dent to help Utahns in the gap.

The pending expansion plan "seems like an inefficient, complex approach to solving our health care problems here," Stevenson said. "There's a certain point of 'we'll take what we can get' and some advocates have done that but many people have been disappointed over what has emerged as they learn more about this proposal."