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On Exchanges: It's a Rough Job Ahead to Build Them, But Some States Likely to Get It Done

By John Reichard, CQ HealthBeat Editor

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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