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January 9, 2012

Washington Health Policy Week in Review Archive 5c0f5a9d-5447-4a95-b0fd-1897ab36e2b8

Newsletter Article


Obama Administration Defends Individual Mandate in Supreme Court Brief

By Dena Bunis, CQ HealthBeat Managing Editor

January 6, 2012 -- Lawyers on both sides of the question of the health care overhaul law’s constitutionality filed briefs to the Supreme Court Friday, in advance of the March oral arguments in the landmark case.

Obama administration lawyers held a mid-afternoon conference call to reiterate the reasons they maintain that the individual mandate is constitutional, both under the Commerce Clause and under the taxing power the Constitution gives to Congress.

Also filed Friday were the briefs on the issue of whether if the court strikes down the individual mandate the whole law falls. Those arguments are being made by those who oppose the overhaul. In addition to the main plaintiffs in the case—26 states, the National Federation of Independent Business and two individuals—a number of other health care law opponents filed amicus briefs saying that if the high court invalidates the individual mandate, the rest of the measure cannot function properly. The American Center for Law & Justice (ACLJ) filed on behalf of itself and 117 members of Congress, 36 Senate Republicans filed a brief and America’s Health Insurance Plans and the Blue Cross and Blue Shield Association filed a separate brief.

The high court is scheduled to hear oral arguments on the challenge to the law on March 26, 27 and 28. Between now and the arguments, a number of briefs will be filed on all four issues the justice will hear arguments on the individual mandate, the Medicaid expansion, severability of the law and whether a tax act prohibits consideration of the constitutionality of the law until someone has actually been required to pay a penalty for not having insurance.

The U.S. Court of Appeals for the 11th Circuit in Atlanta earlier this year declared the law’s individual mandate unconstitutional but left the remainder of the measure intact. Two other federal appeals courts have upheld the law’s constitutionality, while the U.S. Court of Appeals for the 4th Circuit ruled it would be premature to decide the case in light of the Anti-Injunction Act.

Congress enacted the health care law (PL 111-148, PL 111-152) “to address a crisis in the national health care market,’’ the administration’s 130-page brief defending the individual mandate says in part. Justice Department officials said on the conference call that the federal government has regulated the health sector of the economy for decades, including providing tax incentives that have shaped employer-sponsored insurance and passing ERISSA and HIPAA rules that govern the way people pay for their medical expenses. Medicare pays for care for the elderly and Medicaid picks up costs for the poor. The one group that has been left out, administration lawyers say, is access to affordable insurance the individual market.

The brief says that the overhaul law “closes a gap that has undermined Congress’s longstanding system of regulation and financial incentives in the health care market and that has impeded the ability of millions of Americans to obtain services in that market. The minimum coverage provision is key to the insurance reforms that were designed to fill that gap. The provision is therefore within Congress’s commerce power.”

The Obama administration’s brief also says that Congress was well within its constitutional taxing power to require a minimum coverage provision—the mandate—and that the only consequence of someone not abiding by the mandate is a tax consequence. “Non-exempted federal income taxpayers will have increased tax liability for those months in which they failed to maintain minimum coverage for themselves or their dependents,’’ the brief says.

The Obama administration also addresses the fact that lawmakers supporting the overhaul repeatedly have used the word “penalty” rather than the often toxic “tax” to describe the money those who do not carry insurance by 2014 will have to pay to the federal government.

“That Congress used the ‘penalty’ in the minimum coverage provision . . . rather than ‘tax,’ is immaterial to whether it was a proper exercise of Congress’s power over taxation,’’ the brief says.

In the brief opposing severability, the ACLJ and lawmakers say that “the unconstitutional individual mandate is the essential component” of changes the law makes to the health insurance and health care markets, something the brief says the Obama administration has conceded.

“Without the individual mandate, the ACA’s remaining provisions cannot function properly. Thus the unconstitutional individual mandate is not severable from the ACA and the entire act must be invalidated,’’ the brief says. The federal government has until Jan. 27 to respond on the severability question.

Brief Calls for Recusals
In another move, FreedomWatch founder Larry Klayman filed an amicus brief, demanding that Justice Elena Kagan recuse herself from the health care challenge. Republicans have been calling for Obama’s former solicitor general to step aside from this case just as Democrats have been asking Justice Clarence Thomas to recuse himself because of his wife’s public activities against the law. So far neither justice has indicated any intention to do so.

In his brief Klayman also goes after Chief Justice John Roberts for comments about ethics and the court that he made in his annual report to Congress. In that report, Roberts doesn’t specifically mention the landmark health care suit because he’s not supposed to comment on cases before the court. But he referred to issues that have “drawn public attention,” and wrote that he has “complete confidence in the capability of my colleagues to determine when recusal is warranted.”

Klayman said in his brief that Robert’s comments in the annual report “are an affront [to]the judicial system and the American people, who depend on judges to be neutral, unbiased and independent.”

Klayman also wrote that as solicitor general, Kagan “acted as counsel [to] the drafters in developing a strategy to defend the [health] law. This role should disqualify Justice Kagan,’’ he wrote, “because her ‘impartiality might reasonably be questioned.’ Unlike allegations of partiality concerning Justice Clarence Thomas, Justice Kagan’s involvement is not a matter of another member of her family playing a partisan role concerning the Act. Her past involvement is personal and direct.”

Dena Bunis can be reached at [email protected].  

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The 2012 Road to Overhaul May Well Wind Beyond High Court

By John Reichard, CQ HealthBeat Editor

January 3, 2012-- Big pieces of the health care law could easily remain standing even if the U.S. Supreme Court rules later this year that its individual mandate is unconstitutional. And many of the provisions that could survive still have to be implemented.

The upshot: 2012 looks like it could be a busy year for health care law implementation, beyond the big job of creating state-based health insurance exchanges.

For example, the Centers for Medicare and Medicaid Services (CMS) is on the hook to start varying Medicare payments to hospitals based on the quality of care they provide. It also must issue a regulation to streamline billing to lower the administrative costs of running health care plans. And it has to begin contracting with provider groups that qualify to deliver team-based care as accountable care organizations (ACOs).

To be sure, states have the heaviest lifting to do this year. Each must do enough of the spade work to create insurance exchanges to convince CMS that it will have a functioning new marketplace for insurance plans by 2014, when the overhaul (PL 111-148, PL 111-152) requires everyone to have health insurance. Even if the Supreme Court nullifies that requirement, the law’s provisions requiring exchanges and the availability of subsidies to some Americans to buy coverage could survive.

To prepare for the exchanges, state legislatures must pass laws to create the new marketplaces and specify how they will operate. States also must prepare information systems to handle plan selection, payment and enrollment, among other functions.

They’ll have to design exchanges in a way that permits efficient enrollment in the Medicaid program if that’s the coverage an applicant qualifies for. And they’ll have to begin making decisions on what they will deem as the “essential benefits” that insurers must provide if they are selling coverage in the exchange.

Much time, effort and money is involved in setting up the marketplaces. Many states have left most of the work until this year. In many cases, they haven’t passed the needed supporting legislation. Only nine states have passed laws creating exchanges since the passage of the health law, according to the National Conference of State Legislatures (NCSL database).

If CMS fails to certify by Jan. 1, 2013, that a state’s exchange will be ready for business by Jan. 1, 2014, the federal government will run the exchange for that state.

CMS officials have taken some of the load off states’ shoulders by saying they will help with certain exchange-related functions while letting the state run its own exchange. And the agency will give states that eventually want to open their own exchange the right to do so even if the federal government has to fully operate the marketplaces for a while.

States are trying to find new ways to lighten the load. For example, Dan Crippen, executive director of the National Governors Association, wrote to the Department of Health and Human Services on Dec. 8 to find out whether states could use IT systems created for the federally run exchange “in lieu of re-creating the necessary systems for state-facilitated exchanges.”

Preparations at Federal Level
The federal government also has work to do. CMS has proposed hundreds of pages of rules governing the creation of exchanges, but the agency has yet to issue the final regulations.

The final regulation for accountable care organizations is in place, however. CMS is expected to begin accepting and reviewing applications for prospective ACOs in the coming weeks, and to begin signing contracts with them later this year.

The agency also has taken steps to launch a “Value-Based Purchasing” program designed to improve the quality and efficiency of care. The health care law requires payments to hospitals starting Oct. 1 to be lower or higher based on how well they perform on certain measures of quality. But the program in some respects has been initially scaled back.

“Some of the individual measures were delayed because they were not made publicly available on Hospital Compare for a full year prior to implementation, which was required by the [health care] law,” said Amanda Forster, spokeswoman for the Premier health care alliance, a consortium of hospitals at the forefront of efforts to create a quality-based payment system. Hospital Compare is the CMS website that rates hospitals on their quality.

So, for example, payments won’t be lowered by Oct. 1 for poor performance on several measures of hospital-acquired infections. In addition, CMS won’t implement on that date a provision varying payment based on how efficiently a facility treats Medicare beneficiaries.

The law also directs the agency to develop other value-based purchasing programs this year for skilled nursing facilities, home health agencies and ambulatory surgical centers.

This year also marks the start of a schedule of lower payments to Medicare Advantage plans that phase in through 2017. But in 2012, Medicare Advantage plans, the private, managed care plans in Medicare, also can get paid more if they perform well based on a system of quality rankings.

Later this year federal officials will issue the first of a number of regulations under the health care law designed to reduce the paperwork and administrative costs of health care plans. “The new law will institute a series of changes to standardize billing and requires health plans to begin adopting and implementing rules for the secure, confidential, electronic exchange of health information,” an HHS summary notes. The first regulation takes effect Oct. 1.

Consumer protections won’t dramatically be expanded in 2012 compared with the coverage requirement issued in 2010 for young adults or the major Medicaid expansion that starts in 2014 covering individuals with incomes up to 133 percent of federal poverty.

But Medicare patients will get a little more help this year with their prescription drug costs. The program launched in 2011 requiring 50 percent discounts on brand-name drugs for patients in the “doughnut hole” continues in 2012. Beneficiaries in this coverage gap would have had to pay the full cost of prescriptions if the law hadn’t provided for gradually increasing subsidies for brand-name and generic drugs.

This year the federal government picks up a higher share of generic drug costs for seniors in the doughnut hole. In 2011, Medicare drug coverage plans picked up 7 percent of the cost of generic drugs in the doughnut hole; in 2012, they will cover 14 percent of those costs, rising to 75 percent of generic drug costs in the doughnut hole in 2020.

Also this year, CMS is starting an “Independence at Home” pilot program in which teams of doctors and nurses can sign up to treat frail patients in the patients’ homes, sharing in savings from keeping them out of hospitals and nursing homes.

The agency also is required to start testing new forms of payment in Medicaid, such as “bundled payments for episodes of care.” The term refers to providing a single payment for a variety of services delivered to treat a particular medical condition, rather than paying separately for each service that is provided. The aim is to encourage more efficient treatment.

Finally, the health care law this year will require doctors and hospitals to report more data on race, ethnicity, sex, primary language and disability status as a way to lessen racial and other disparities in treatment.

John Reichard can be reached at [email protected].

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Measures Aim to Boost Quality of Care for Adults in Medicaid

By John Reichard, CQ HealthBeat Editor

January 4, 2012 -- What is the quality of the health care that adults get in Medicaid? And how good will it be as the program expands in 2014 to enroll millions of uninsured adults?

Quality of care measures federal officials released this week aim to answer those questions and to lay down markers for continual improvement.

Many doubt the quality of care in Medicaid. That’s because of the relatively low reimbursement rates doctors, hospitals, and other providers get. But beyond vague doubts about the quality of treatment, what are the specific problems with the services provided?

A set of 26 measures of quality of care released this week by the Centers for Medicare and Medicaid Services (CMS) could generate lots of data to help pinpoint the problems.

“Improving quality is very high on the list of priorities of Medicaid directors,” said Matt Salo, executive director of the National Association of Medicaid Directors. He noted that of the 15 million more Americans projected to join Medicaid under the health law starting in 2014, “the vast majority is going to be adults.”

CMS said in a Federal Register notice that “states that choose to collect the initial core set of data will be better positioned to measure their performance and develop action plans to achieve the...aims of better care, healthier people, and affordable care.”

The measures complement a similar program already in effect to assess the quality of care given to children in Medicaid and in the Children’s Health Insurance Program (CHIP).

Issued under the health overhaul law (PL 111-148, PL 111-152), the adult measures are part of a new “Medicaid Quality Measurement Program,” which is also responsible for developing and testing additional measures.

By Jan. 1 of 2013, HHS must develop a standardized format to be used by states to report the data generated using the measures. The department also must develop procedures by then to encourage voluntary reporting of the data by the states.

By Jan. 1, 2014, HHS must begin annually publishing any changes it makes to the initial set of 24 measures based on its research program to identify and test any new measures that are needed.

Also on that date, HHS must include information on the status of adult health care quality based on the new measures in a report to Congress on the quality of care for children in Medicaid and CHIP. That report must then be published every three years.

And by Sept. 30, 2014, HHS must make public data reported by the states based on the measures of adult health care quality.

The initial set of measures will be used to assess the quality of health care in Medicaid for enrollees 18 years and older “and across all health care delivery systems” including managed care plans and fee-for-service providers, the notice states.

The measures will determine, for example, the levels of breast and cervical cancer screening in adult Medicaid enrollees in a given state. They will assess admission rates to the hospital related to complications from diabetes and from asthma.

They’ll evaluate how good a state Medicaid program is in getting schizophrenic patients to take anti-psychotic drugs. And they’ll determine how well a program does in controlling high blood pressure, in getting people with addiction problems started in treatment programs and in getting them to stick with those programs.

Salo wouldn’t predict how many states will participate in the voluntary program but said that interest in improving quality is strong among state Medicaid directors. “I think the general sense is this is a pretty reasonable first step,” he said.

CMS said it took pains to ease the burden on states by reducing the initial number of measures from the 51 initially proposed to 26. And “to the degree possible, measures that require medical record review were excluded in large scale from the initial core set,” the agency said in its Register notice.

CMS said it also “will provide technical assistance as well as additional guidance and tools to increase the feasibility of voluntary reporting.”

Salo said that data generated could be much more detailed than simple statewide measures of the percentage of Medicaid enrollees getting breast cancer screening, for example. “It’s going to allow providers compare themselves to other providers” treating Medicaid patients in a state, he said. In addition, “you can now have apples-to-apples comparisons across states.” And the data could allow policy analysts to learn “How is Medicaid doing compared to Medicare?”

John Reichard can be reached at [email protected].  

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New Program Enlists Medical Professionals to Change Health Systems

By Rebecca Adams, CQ HealthBeat Associate Editor

January 3, 2012 -- The Center for Medicare and Medicaid Innovation announced Tuesday that officials will pay 73 doctors, health care executives, academics, and other health care professionals $20,000 each this year to spend up to 10 hours per week trying to change health systems in ways that the center’s leaders believe will improve care.

The Innovation Center’s advisers network is a new program that is funded by the 2010 health care law (PL 111-148, PL 111-152). The 73 individuals announced Tuesday are funded through an initial round of grants. In its first year, the Innovation Advisors Program is expected to pay up to 200 professionals to participate in the program.

Another round of applications will be accepted in the spring, with more advisers to be chosen by June. The 73 advisers in the initial announcement were selected out of 920 applicants and came from large and small hospitals and other health care centers from 27 states and the District of Columbia. Anyone who applied for the first round does not have to reapply because their applications will automatically be considered for the second set of grants.

The new fellows will spend much of the first six months of the program in seminars. The rest of the time is supposed to be spent testing new ways of delivering care in their institutions or implementing changes that they proposed as part of their applications. The group will meet regularly to discuss trends, successes and challenges.

Applicants had to be associated with a public health or health care facility, institution or department. The candidates came from a range of professions, including physicians, nurses, allied health professionals, instructors, and health care executives.

List of Advisers

Rebecca Adams can be reached at [email protected].

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Urban Institute: Government's Spotty Insurance Enrollment Performance Could Harm Health Care Law Progress

By Nellie Bristol, CQ HealthBeat Associate Editor

January 6, 2012 -- The success of the health care overhaul will hinge on the number of uninsured receiving coverage under the plan compared to projections of those eligible, but the government’s insurance enrollment track record is mixed, says Stan Dorn, health policy senior fellow at the Urban Institute.

The Children’s Health Insurance Program (CHIP) and Medicare Part D low-income subsidies achieved high enrollment rates, Dorn said Friday at an Urban Institute panel session on enrolling the uninsured under national health reform.

But other programs, including COBRA subsidies for laid-off workers and a temporary high-risk pool under the health law (PL 111-148, PL 111-152) enrolled fewer than 30 percent of those considered eligible by the Congressional Budget Office (CBO).

The health law is expected to facilitate coverage for 19 million uninsured by 2014, half of whom will qualify for Medicaid. The number is projected to rise to 32 million by 2019, with 16 million Medicaid-eligible.

“Not many people are wildly optimistic about our chances of successfully enrolling tens of millions of uninsured,” Dorn said. “We know it’s really, really hard to reach the eligible uninsured because we’ve tried many times and sometimes fallen far short.”

To ensure the plan reaches everyone it needs to, Dorn said, the Centers for Medicare and Medicaid Services (CMS) will need to roll out a major national effort to find and recruit those eligible along with programs to provide consumer assistance. Also, to the degree possible, a single eligibility system for federal programs should be established, Dorn added.

“It’s essential but not sufficient to provide good benefits that are affordable, to publicize the program, mandate participation,” he said. “[But] if you really want to quickly enroll the eligible uninsured, you also have to do a proactive campaign of reaching out to the uninsured and qualifying them for assistance, minimizing the paperwork burdens on consumers absolutely as far as you can, eliminating [it] whenever you can,” he said.

The health care overhaul includes some tools that will improve enrollment efforts, including state funding to upgrade computers and simplified eligibility standards, Dorn noted. Nonetheless, he said, there are still “worrisome signs” that efforts could fall short, including a continued lack of effective technology.

“Most states’ computer systems are literally generations old,” he said. “Notwithstanding the federal money that’s available, will all states be able to make the technological and also the business transformations needed to thrive in this new world? Not entirely clear.”

He also said not all state officials are committed to enrolling everyone eligible. State budgets are tight and more enrollees means more state Medicaid funding.

Despite Dorn’s concerns, Penny Thompson, deputy director of the Center for Medicaid and CHIP Services at CMS, said she is “very optimistic” that the program will find and enroll those eligible. “We do have all of the tools we need in order to really achieve those goals,” she said.

She said CMS has a wealth of experience from other programs and now knows what works. Among new strategies are continuous eligibility, elimination of in-person interviews and liberalized asset and resource requirements in addition to a single national income standard and simple, coordinated rules.

Thompson said the agency’s goal is to make the application process short, simple and preferably online. Officials want to create “an experience for the consumer that leaves them—and we’ve actually been using these terms—delighted” and that they will commend to their friends and neighbors. “That’s what we’re aiming for,” she said.

Nellie Bristol can be reached at [email protected].

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Private Exchanges May Be Poised to Spread—With Uncertain Impact on Health Law

By John Reichard, CQ HealthBeat Editor

January 6, 2012 -- Insurers and employers may be on the verge of spurring the formation of private insurance exchanges around the United States—a move that could make government exchanges less attractive to consumers.

Exchanges—a centerpiece of the health care law’s insurance market overhaul—are places consumers can compare health plans and sign up for the one they like best.

The law’s architects see them as essential to structuring markets in a way that forces insurers to make money by competing on cost and quality, rather than simply by avoiding high-cost enrollees. The law (PL 111-148, PL 111-152) calls for the creation of government-sponsored exchanges in all 50 states.

But private-sector interests see an opening to creating exchanges that are more to their liking. To the extent that these private exchanges pop up around the country and siphon off customers, particularly healthy people with few medical expenses, the health plans sold through government exchanges may not be as affordable to consumers.

That may make it harder to cover the uninsured with the available federal subsidy money. Or it may force lawmakers to appropriate more subsidies under the health law than originally forecast by the Congressional Budget Office (CBO), making the overhaul more costly.

Private exchanges may become a fixture of the marketplace even if the health law is struck down by the Supreme Court or repealed by the next Congress. Christopher E. Condeluci, a former Senate Finance Committee staffer now in private practice with the Washington, D.C.-based law firm Venable LLP. Condeluci says the private exchange concept is gaining popularity on its own, apart from the influence of the health law in causing the industry to create alternative private exchanges.

“I think that private exchanges are the future,” he says.

Laying the Foundation
To be sure, the health law is the impetus behind the growing interest in exchanges.

Under the law, each state must open an exchange in 2014 and offer insurance to uninsured individual Americans. States also can set up “shop” exchanges to offer coverage to small businesses. Or they can choose to operate a single exchange that sells to both individuals and small businesses. If a state doesn’t run its own exchange, the law requires the federal government to do so.

The health law has popularized the term “exchange” and has led to much discussion and debate at the state level about setting them up.

The concept is attractive because most Americans don’t have a choice of health plans. They take what their employers offer. At least in theory, the exchange will give them a choice, new tools and web-based computer programs to help them compare the cost and quality of health plans.

“Industry folks feel that the exchange concept is one that can work and is generally catching on among consumers buying health insurance,” says Condeluci, whose clients include companies involved in operating private exchanges.

“What makes private exchanges unique,” he adds, “is their use of creative, interactive technology. Every private exchange utilizes an online web portal that allows the health care consumer to shop from among a wide variety of insurance products. The technology even recommends insurance packages custom-built for the consumer.”

Exchanges created under the health law are also supposed to have web portals that make it easy to compare and enroll in plans. But Condeluci doesn’t think government will be as nimble as business in developing the software to make it easy for consumers to find the particular plan that best suits them.

Industry executives are skeptical that “the exchanges created under the new law are going to be up and running by 2014, and if they are, many believe they’re not going to be nearly as attractive as current private exchanges or private exchanges that might be created between now and 2014,” Condeluci added.

Many states have far to go to build exchanges. If a state can’t get its act together by 2014, “the industry believes there is a stigma with the federal government running the exchange on behalf of a state,” Condeluci says. “So when it comes to attracting consumers to an exchange, consumers are more likely to be attracted to a private exchange,” he asserts.

Of course, under the health law, uninsured Americans purchasing insurance in the individual market can only get subsidies to buy coverage if they go to a government-sponsored exchange. So, seemingly, private exchanges organized to sell to individuals would not compete with government exchanges serving the individual market.

But insurers and private exchange companies could apply pressure to get that changed by lobbying for a clarification of the health law under which state regulations could be issued providing that a private exchange meeting certain conditions may be deemed an exchange for purposes of the subsidies. In that case, an individual could go to a private exchange and buy coverage with a subsidy.

“Here, a private exchange would serve as an extension of the exchange” created in a state under the health law, Condeluci says.

Private exchanges could compete directly with state exchanges in the case of small employers. The health care law does not mandate that small employers get their coverage from exchanges created under the law. By creating simple private exchanges, insurers could try to lock in those customers and lessen the chances that they would go to the state exchange.

Private exchanges also may gain popularity as a way to serve employers too large to send employees to a state exchange. Paul Fronstin, an analyst with the Employee Benefit Research Institute, predicts strong interest on the part of employers in coming years in offering “defined contribution” rather than “defined benefit” coverage.

Rather than getting a package of benefits every year through a particular health plan, an employee would get a sum of money with which to buy coverage. Private exchanges would be organized to handle employees with such defined contributions. Employers would be better able to control what they spend on health care by specifying how much they give out each year in the form of a defined contribution rather than promising to provide a particular health plan with a particular package of benefits.

So far, private exchanges are primarily a regional phenomenon. But last fall, three insurers announced a venture to offer a nationwide private exchange serving employees with defined contributions. Blue Cross-Blue Shield of Michigan, Wellpoint, and Health Care Service Corporation announced that they had assumed a majority stake in a private exchange called Bloom Health, based in Minneapolis.

“We believe private exchanges will be an important solution as the rising costs of health care leave employers searching for more predictability in their health care spending,” said Ken Goulet, CEO of WellPoint’s commercial business Unit.

Similarly, Buffalo-based Liazon serves small employers in a number of states through its private “Bright Choices” exchange. The company’s website notes that “Bright Choices asks each person a short series of questions and then, using sophisticated analytics, actually recommends the benefits that best meet their needs.”

The exchange “offers benefits that are better than most Fortune 500 companies, and helps your employees make the right decisions using award-winning technology and individualized support,” the company promises.

What does the trend mean for exchanges created under the health care law?

Timothy Jost, a supporter of the overhaul measure and a law professor at Washington and Lee University, said that the way the law is now written is designed to prevent state exchanges from becoming a dumping ground for high-cost enrollees. The overhaul is designed to keep insurers from charging more for a plan it sells inside the exchange than for the same product outside.

And the availability of subsidies only through the state exchanges is meant to attract a large bloc of business and a mix of high- and low-cost enrollees that would keep premiums affordable overall in state exchanges.

But in practice, it’s difficult to keep insurers from figuring out ways to segment the market and offer lower rates to customers who are better insurance risks, he says. And to the extent that private exchanges are able to get customers who are better insurance risks who otherwise would go to government exchanges, insurers have less of an incentive to offer attractive rates.

“In principle, having a private small-business exchange is not a bad idea,” Jost said. “I think in practice it’s going to be very hard to make it work in coordination with the public exchange because again you’re going have smaller pools, you’re going to almost certainly have cherry-picking.”

Private exchanges are “probably going to offer or potentially will offer lower value products,” he says. “They’ll almost necessarily cost less because they’ll probably offer fewer services and benefits than the public exchange.”

There are many things that state exchanges are supposed to do other than simply be a website, he adds. “And so if you have somebody who just sets up a website, says I’m an exchange and says come do business with me, they’re not going to offer the same range of services.”

Jost added that “if you have a bunch of exchanges out there, each exchange, but particularly the public exchange, will probably have less bargaining power in dealing with the insurers.”

These factors create significant concern that the state exchanges won’t succeed, he says.

“I think it is a concern and I think it is a potential threat and I’m hoping that the states react appropriately,” Jost says.

John Reichard can be reached at [email protected].

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