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HHS Seeks to Reenergize Exchange Creation via New Grants, Guidance

By John Reichard, CQ HealthBeat Editor

May 16, 2012 -- Six states will get grants totaling $181 million to help them establish health insurance exchanges under the health care law, Health and Human Services (HHS) officials announced this past week. That makes 34 states and the District of Columbia that have received such federal assistance.

Officials also released a guidance document detailing how they will work with states to establish a "federally facilitated exchange" (FFE) for those that elect not to create their own such marketplace. The guidance says that at least in the first year of the federally facilitated exchange. HHS officials will run an "open market" that prevents a plan from being disqualified based on the rates it charges.

"This guidance describes how HHS will consult with a variety of stakeholders to implement an FFE, where necessary, how states can partner with HHS to implement selected functions in an FFE, and key policies organized by exchange function," HHS said in a news release.

The six states receiving the money are Illinois, Nevada, Oregon, South Dakota, Tennessee and Washington. Of the six, all but Washington are getting "level one" grants that provide one year of funding to begin the process of establishing an exchange. Washington is getting a level two grant, which is a multi-year allotment of money and means it is farther along in the process. It is only the second state to get a level two grant.

Another new guidance document consists of an "Exchange Blueprint" in which states will detail their plans when it comes to exchanges.

Many states appear to be holding back on exchange creation as they wait to if the U.S. Supreme Court upholds the constitutionality of the health care law (PL 111-148, PL 111-152), and if it does, whether Republicans make sufficient gains in the November elections to allow them to repeal the overhaul next year. But through its new grants and guidance documents, HHS is sending the message that it's business as usual despite the uncertain fate of the overhaul.

Steve Larsen, head of the Center for Consumer Information and Insurance Oversight at the Centers for Medicare and Medicaid Services (CMS), declined to estimate in a telephone news briefing how many of the 34 states will have their own fully functioning exchanges operating when these marketplaces open for business in 2014. "We're very pleased with the progress many states have shown," he said. But in reality states are nowhere near as far along as framers of the overhaul envisioned they would be by now.

The Obama administration has responded to foot-dragging by the states by giving them flexibility.

States can approach exchange creation in three ways: do it all themselves; let the federal government run things through the federally facilitated exchange; or opt for a partnership model in which the states perform some functions and the federal government carries out other functions. States going the partnership route can eventually take over exchange operations fully, but they don't have to do so by Jan. 1, 2014, when the marketplaces open.

If the health care law survives, states hostile to the measure may ultimately decide they want to run their own exchanges rather than have the federal government do it. Larsen said states that want to do things themselves have to file for approval by Nov. 16 of this year in order to have time to meet a requirement that HHS approve a state-operated exchange by Jan. 1, 2013. The law requires HHS approval of a state-run exchange a full year before it begins operating.

States that want to run things themselves can file either for full approval or conditional approval. Conditional approval means there are some exchange functions states haven't fully developed by Jan. 1, 2013, but that they expect to complete during 2013.

States must apply for approval using the "exchange blueprint" document. It lists the various functions exchanges will perform. States must list which ones they are fully ready to handle themselves and which ones they aren't.

While some states will run things entirely themselves, a number are expected to opt for the partnership model. In that approach, the state agrees to be responsible for plan management, consumer assistance or both. The federal government manages all other exchange functions. Plan management includes such duties as certifying that a health care plan offers the required minimum benefits and has an adequate provider network. Consumer assistance includes making sure exchange customers have the information they need to pick a plan.

That would leave federal officials to carry out such functions as establishing eligibility for tax credits and determining the size of those credits.

States have long complained that they can't make a decision on whether to run their own exchanges or let the feds do it because of a lack of information on how the federally facilitated exchange will work.

"For the states that will need to operate a federally facilitated exchange, having this initial guidance will help inform states on how to coordinate with the federal government to tailor their health benefit exchanges to meet the needs of their populations," said Stephen Finan, Senior Policy Director of the American Cancer Society Cancer Action Network.

Officials said that exchange-related grants provided to the states under the health care law now total more than $1 billion. Larsen was asked in the briefing whether states would have to return the awarded funds if the law is struck down. He declined to answer, saying he expects that the constitutionality of the law will be affirmed.

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