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On Exchanges: Uncertainty Not So Much Will They Open—But What They'll Charge

By John Reichard, CQ HealthBeat Editor

June 28, 2013 -- Will the health law insurance exchanges open on time in fewer than 100 days? So much drama seems to surround that question that one might think the fate of the entire overhaul rests on the answer.

Republicans on the Hill frequently express doubt that the new marketplaces will be ready on time. Meanwhile, with almost robotic regularity, Obama administration officials say that the grand opening will occur as scheduled on Oct. 1—often without saying much else.
But given the massive size of the job, snafus and delays here and there are a sure thing.

The much less complex launch of the Medicare prescription drug program in 2006 had glitches too, even though the Bush administration had a couple of years to prepare. Seniors complained about the bewildering variety of plans. In some cases, there were delays in getting poor and sick elderly Americans enrolled in prescription plans that had the medicines they needed.

In the end, the good value seniors got and the protection against illness that came with ready access to pharmaceuticals, made the drug benefit a smashing success.

So glitches associated with the launch of exchanges will likely fade in importance if premiums charged to exchange visitors are affordable and the coverage they get protects them against financial catastrophe.

So far, it looks like rates are going to be a mixed bag next year. Big-population states enthusiastic about implementing the law may wind up being able to offer more attractive premiums. States with smaller populations or that are hostile to the law may see less attractive rates. Why? Because outreach efforts will be weak, insurers won't expect a big exchange enrollment, and there may be problems in those places with little insurer competition.

Such an uneven experience geographically suggests the current red-state, blue-state divide over the law may never end. But if rates are all over the place and the pocketbook impact of high rates is lessened by widely available premium subsidies, the collapse of the law over the next few years that some Republicans are forecasting is less likely to occur.

Lots of Resources to Make Exchanges Available

There's been plenty of money flowing from Washington to the 17 states that have decided to open their own marketplaces, and the federal spigot won't be shut off until 2015.

To date, the Department of Health and Human Services (HHS) has awarded $3.8 billion in grants to states and the District of Columbia to plan and open exchanges, according to a June 19 Congressional Research Service report.

The health law (PL 111-148, PL 111-152) "provided an indefinite appropriation for HHS grants to states to support the planning and establishment of exchanges," the report says. "For each fiscal year, the HHS Secretary is to determine the total amount that will be made available to each state for exchange grants." HHS can award the grants through the end of 2014.

To the extent there are operational problems, that suggests the resources will be there to fix them. What about the 33 states that are depending in whole or in part on a federal exchange to offer health plan choices in their states? Congress isn't providing added money for outreach for that exchange, but the Obama administration nevertheless has the resources of the federal government, its employees, and their data handling capacities to devote to getting that marketplace going.

HHS officials appear increasingly comfortable with their repeated predictions that the federal exchange will open on time. They have been more forthcoming about exchange details after many months of saying very little. And during the past week HHS officials invited reporters to its headquarters for an extended question-and-answer session on the exchanges and on outreach. And they said they would schedule such meetings regularly in the weeks remaining before the exchanges open. The Government Accountability Office raised doubts about exchanges opening on time in a recent report, but analysts say it's possible to get the marketplaces started with a less sophisticated computer interface in the early going.

Rate Shock and Rate Joy

If rates for individuals and small businesses in the exchanges were uniformly unaffordable, Democratic support for the health law could begin to crumble threatening its survival. But in recent weeks gleeful supporters of the overhaul have pointed to rates in California and a number of other states as evidence that rate shock at a minimum won't be the typical marketplace experience.

A recent study by the consulting firm Avalere Health concluded that premiums in nine states for "silver" plans will be lower than the Congressional Budget Office has predicted.

Princeton University economist Uwe Reinhardt recently said the shopping experience for some consumers will be "rate joy" because of the difficulty some Americans have getting coverage at all and the availability of subsidies to lower premium costs.

An Urban Institute study released late last week that looked at small business exchanges in six states found that these marketplaces will expand consumer choices, ease administrative burdens involved in signing up for coverage, and increasingly give small business employees a choice of plans, a "rarity" now.

On the other hand, it's a certainty that rates are going to rise because of the health law because it will require more comprehensive coverage and because of various fees it assesses on insurers. In Ohio, state officials forecast a rate hike of 88 percent in the individual market. In a U.S. Chamber of Commerce report released earlier this week, Brookings Institution analyst Mark McClellan suggested that small businesses would see rate hikes of up to 30 percent in many instances because of the overhaul.

And even if rates are reasonable, a poor user experience that makes it difficult to compare plans and enroll online could turn many people off initially. And a significant data privacy breach involving personal health and tax data flowing through a federal "data hub" central to the operations of the federal exchange could undermine already shaky public support for the health law.

Results Will Vary by State

According to Joel Ario, an industry consultant who previously led exchange development efforts in the Obama administration, the operational challenges involved in setting up exchanges will prove manageable, while premiums are likely to vary from state to state.

Ario said in an interview that, in general, thanks to "a focus on mission critical elements, and a willingness to jettison things that can be second-year priorities," the exchanges in general will open on time. "The first iteration on both the state and federal side will not have state-of the-art consumer tools that will make this an Amazon-like experience for people," he predicted. But "it will keep getting better."

Ario says that the 17 states planning to open their own exchanges will in most instances succeed. "A couple of them will need assistance from the federal government on the eligibility and enrollment side," he said.

"You've already seen some success stories—California, Oregon—I think you're going to see some additional success stories, particularly in the larger, more competitive states, including by the way in some federal exchange states. But there will be smaller states, and some of the less cooperative states ... that will produce less positive results. So it's like it usually is about the state marketplace, they vary a lot state by state."

Attracting the Young Will Be Key

Probably the more pivotal question about the durability of exchanges is not on the operational side but on who they attract. Without young and healthy customers rates will become unaffordable over time. "Pricing matters a lot there," says Ario. "If the pricing can stay particularly under $200 as it has per month in some of the states on the low end and you add a catastrophic plan that could be even cheaper than that, I think those prices are critical to attracting that group," he said.

Also important is whether young people take seriously the so-called personal responsibility—mandate—in the law that requires them to get insurance and penalizes them if they don't. "If we don't get the sign-up we want, then maybe there should be some additional cost that accrues" for those who wait to sign up as is the case in the Medicare program, Ario said.

The battle over effective strategies for signing up the young is beginning to heat up, with opponents of the law also realizing it will be critical and objecting to tactics eyed by the Obama administration.

HHS is particularly keen on enlisting sports leagues to urge the young to sign up for coverage but Republicans are fighting back. Senate Minority Leader Mitch McConnell, R-Ky., and GOP Whip John Cornyn, R-Texas, sent a letter last week to the National Football League, the National Basketball Association, Major League Baseball, the National Hockey League, and NASCAR urging them not to cooperate. "It is difficult to understand why an organization like hours would risk damaging its inclusive and apolitical brand by lending its name to promotion," the letter said.

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