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Bipartisan Interest in Insurance Exchanges Endures—for Now

By John Reichard, CQ HealthBeat Editor

March 17, 2011 -- State officials from opposite ends of the political spectrum expressed strong interest in establishing their own health insurance exchanges, one of the few key areas of the health overhaul law sparking such bipartisanship.

But at a Senate committee hearing a Utah lawmaker instrumental in creating that state's exchange—which Republicans often cite as a model—said that his state's version has yet to pass muster with the Department of Health and Human Services (HHS).

Key policy differences remain between Republicans and Democrats over exchange design. However, every state but Alaska applied for and received grant money to plan the creation of insurance marketplaces. Sandy Praeger, speaking on behalf of the National Association of Insurance Commissioners (NAIC) reinforced the popularity of the exchange concept in her testimony before the Senate Health, Education, Labor and Pensions Committee.

"I just think this is a step in the right direction in getting everybody covered," said Praeger, Kansas' insurance commissioner. "It's not perfect. I think we all know that. And there are still issues that are going to have to be resolved." But the critical issue, she said, is controlling costs, and exchanges have the potential to do that.

"I'm a firm believer that you can improve quality and lower costs. They go hand in hand," Praeger added. If exchanges operating under a sound regulatory scheme take away the ability of companies to avoid bad insurance risks, "then the way they manage their profitability, is by making sure that the right care is delivered." Praeger said.

David Clark, a member of Utah's state House, voiced frustration, however, with the health law and the Obama administration. Clark noted that HHS guidance on exchange creation posits Utah and Massachusetts as "bookends" illustrating the flexibility states have under the law. Utah is often called a lean, less regulatory model and Massachusetts as more regulatory and complex. But Clark said the Massachusetts law is "grandfathered" under the law yet Utah "has to prove its worth."

The Utah exchange has yet to develop a number of functions that are required under the health care law (PL 111-148, PL 111-152). In addition, that exchange does not mandate a set of essential benefits that must be offered in order for a plan to participate. Thanks to Utah's low regulatory hurdles the exchange offers small businesses in the state the choice of some 100 plans.

"I'm very concerned about the impact this law will have on Utah's ability to continue to implement health insurance reforms in a manner that fits within the state's goals, said Sen. Orrin B. Hatch, R-Utah. "For example, if Utah were to apply to have their exchange certified today, Secretary [Kathleen] Sebelius would have to deny their application because of the onerous and costly mandates the law places on state-based exchanges. The Utah exchange is a true free-enterprise marketplace, but unfortunately the freedom that it affords does not adhere to the president's health care agenda."

The health law's requirement for a package of essential benefits is needed to spur plans to compete directly on the cost and quality of care, not on cutting benefits to avoid bad risks, said Joshua Sharfstein, secretary of the Maryland Department of Health and Mental Hygiene.

Praeger emphasized that states are eagerly awaiting a determination by HHS on what the essential benefits package will consist of. Once that's known it will be possible to gauge the level of insurer participation in exchanges and the choices consumers will have, she said.

Clark noted another feature of the Utah exchange that he's anxious to preserve: a "defined contribution" model that lets employers simply pick an amount of money they want to spend on a plan and get as much coverage as that amount will pay for.

"A defined health benefit left businesses with unpredictable and ever-escalating costs," the Utah state lawmaker testified. "Through access to Utah's new defined contribution market, employers can manage and contain their health benefit expenditures." Clark noted that 20 percent of businesses choosing the defined contribution model did not previously cover their workers. "Thus we can safely assume that many of those now covered through the exchange were previously counted among our uninsured population," he said.

But because the health law defines minimum benefits, it appears that a defined contribution option would not meet the requirements of the health law.

While these policy differences between Democrats and Republicans are major, state officials in both parties have nonetheless supported moving to create exchanges. But there are signs that even the broad concept of exchanges may become controversial. The Atlanta Journal-Constitution reported that Gov. Nathan Deal, R-Ga., who as a congressman opposed the law, is postponing legislation planning the state's exchange because of tea party protests that he is adding "Obamacare."

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