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On Exchanges: What If the Mandate Does Survive the Supreme Court?

By John Reichard, CQ HealthBeat Editor

June 1, 2012 – Many policy analysts are focused on the impact of a possible U.S. Supreme Court ruling in June that finds the individual coverage mandate in the health care law unconstitutional. But what will happen if the high court leaves the mandate unscathed and states are then under the gun to open exchanges by 2014 as the overhaul requires?

Two things: more states may be ready to open their own exchanges than doomsayers say. And the coverage that these new marketplaces offer may be very pricey.

Those were a couple of the takeaways from a Washington, D.C., forum last week about the exchanges created by the health overhaul law. Another: exchanges opened by Democratically controlled state governments won't necessarily be markedly different from those in Republican-dominated states.

Perhaps most heartening to health care law (PL 111-148, PL 111-152) supporters were remarks by Bill Hazel, Virginia's secretary of health and human resources. Virginia is in the vanguard of states opposing the law but still it's been busy getting ready to open an exchange if the court doesn't strike down the measure.

"We've done a lot of the planning," he told the forum sponsored by Politico Pro. He said Virginia is in the "weird position" of being in relatively good shape to launch its exchange while opposing the law. "Virginia's done it and we don't want to," he said.

One of the most difficult things for states to pull together even if they are enthusiastic about exchanges is the information technology required. "We are one of the handful of states that could probably pull the IT piece off" if the Court upholds the law, Hazel said.

Hazel added that he thinks it's a mistake for states opposed to the law to sit idle and watch the federal government struggle to open exchanges to fill the gap.

"There is a group of individuals who believe that the states should just stop all work now, default into a federal plan, and assume that the feds can't get it done," Hazel said. "That's not a bet that I would recommend yet that the Governor [Robert F. McDonnell] take because there's been a tremendous amount of work at the federal level."

But Hazel wasn't predicting smooth sailing for exchanges if and when they do open. "I think one of the problems people are going to have is sticker shock" when they first price insurance on exchanges, he said.

Daniel Durham, executive vice president of America's Health Insurance Plans made that point too. Durham predicted that insurers would be active participants in exchanges but asserted that health law provisions would drive premiums sharply upward, particularly for the young.

The health law prevents insurers from varying premiums based on age by anything greater than a factor of three-to-one. Now insurers often charge older people six times higher premiums than younger policyholders. The three-to-one limit would mean much higher premiums for young people in exchanges than are charged now in the marketplace. And rather than pay such premiums, young people would likely pay penalties for not meeting the coverage mandate, Durham said.

But Ron Pollack, executive director of Families USA, downplayed the idea that coverage will be unaffordable to the young. He noted that young people at the lower end of the income scale will get the highest subsidies available to buy coverage under the health law.

Pollack also called Virginia an "important lesson" regarding what is happening nationally. His point: states opposed to the law may be doing more to get ready for exchanges than many realize. The narrative in press coverage is that only a few more than a dozen states will be ready to open exchanges by 2014, an assessment he said is based on the relatively small number of states that have passed laws to open the marketplaces.

But, he said, a more telling sign of readiness is the number of states that have gotten the first round of grants to set up exchanges: 34, according to Pollack.

"Behind the scenes there is work being done to set up exchanges," he said. Pollack added that it makes a significant difference that the federal government is willing to share in the work of opening state exchanges by entering into partnership arrangements.

Both Pollack and Joshua Sharfstein, Maryland's secretary of Health and Mental Hygiene, struck an upbeat tone when talking about the health law in sharp contrast to the mostly gloomy talk of late about implementation struggles. Sharfstein downplayed the difficulty of opening an exchange and said he's looking forward to a time when people without access to care can get insurance and when "people are happier, they're healthier." Pollack said the fact that the health law will help millions of uninsured people get coverages "makes my heart sing."

It appears—initially at least—that the Maryland and Virginia exchanges would not be markedly different, assuming the health law survives and they both open. Left-leaning states are thought to be more likely to drive a hard bargain with insurers by excluding those that don't offer relatively low rates. But Sharfstein says that's not in the cards right now at least; Maryland officials first want to get their exchange up and running for a while before they think about becoming an "active purchaser."

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