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HHS: States with Federal Exchanges Will Retain Oversight of Their Insurance Markets

By Jane Norman, CQ HealthBeat Associate Editor

December 10, 2012 -- New details emerged last week on how federal exchanges will operate in states that decline to establish their own exchanges, accompanied by a pledge from the Obama administration that it will strive to allow states to continue their traditional oversight of insurance plans.

The question of control enters a sensitive political territory, since states that likely will be home to federal exchanges generally also have Republican governors who have been the most resistant to implementing the health care law (PL 111-148, PL 111-152).

A federally run exchange's role and authority will be limited to certifying and managing the participating qualified health plans that will be sold in the exchange, the Department of Health and Human Services said in a 17-page question-and-answer document as well as in a telebriefing with reporters. "States have significant experience and the lead role in insurance regulation, oversight and enforcement," the Department of Health and Human Services (HHS) document says.

HHS officials did not issue a proposed rule on federal exchanges last week. Instead, agency officials and leaders of the Centers for Medicare and Medicaid Services offered what was called "information" to the press, states, and the public. There was no indication if or when a proposed rule might be issued.

According to the document, when consumers go to an online site to look through the various plans that will be offered, they will see every qualified health plan that's offered in their service area, officials said in response to a question about whether consumers will only see plans that are "best" for them. That would be different from a stronger "active purchaser" model in which some health plans might not be sold on the exchange because those running the marketplace have deemed to be less cost-effective or of lower quality.

HHS officials also said in the document and briefing that they won't allow states to partly expand Medicaid and announced the approval of exchange structures in six states.

As for qualified health plans that will be sold in a federal exchange, they must be offered by issuers that meet state licensing requirements and are in good standing with the state, HHS said. In some cases, the standards for certifying a plan might rely on reviews that the state doesn't currently conduct. In that case, HHS will either defer to the state licensing system or do its own review if necessary, the document said.

So far 15 states have decided they will opt for the federal exchange, according to insurance industry officials, although several other governors publicly have said that their states likely will be home to a federal exchange rather than a state exchange or a state–federal partnership, the two other arrangements for an exchange.

Help for Consumers

In those states with federal exchanges, the federal government will operate a call center and website designed to assist consumers with their insurance choices. Call center employees will be trained on state insurance laws as well as Medicaid and Children's Health Insurance Program (CHIP) eligibility, the HHS document said. The document doesn't say whether contractors might be hired or if the staff would be made up of federal employees.

HHS officials also said in the document that they are working to determine the extent to which state activities like the review of rates and policy forms could be recognized as part of certifying qualified health plans by the federal exchange. For example, most states have an effective rate review process, and HHS could rely on the state process to decide whether a plan can be certified for the exchange.

Officials said they also will collect state-specific Medicaid and CHIP policy data so that federal exchanges are able to evaluate eligibility for those programs.

States that choose to provide some services to a federal exchange may in some circumstances be reimbursed for their costs, officials said. They could seek funding provided in the health care law if they: develop a data system that works in tandem with the federal exchange; coordinate the transfer of plan information from the state insurance department to the federal exchange; and perform other activities to support exchange operations.

Once that health care law money expires, HHS officials said they expect to continue providing money "under a different funding vehicle," which wasn't specified.

How federal exchanges will operate their navigator programs, which are designed to link consumers and insurance products, has been open to question as well. HHS officials said the entities that receive navigator grants must successfully take part in a training program developed and administered by HHS, which will include a certification exam. The number of navigators per state will depend on how many apply and how much grant funding is available. An announcement is expected early next year on the availability of navigator grant funding, officials said.

States have complained that they do not have enough information to make decisions about whether to run a state exchange, partner with the federal government or rely on the federal exchange. Some have expressed doubts that the exchanges will be ready to start enrolling people in October.

"We are all keenly aware that open enrollment is coming quickly, and we will be ready," Gary Cohen, Center for Medicare and Mediaid Services (CMS) deputy administrator and director of the Center for Consumer Information and Insurance Oversight, said on the call.

Cohen also said that governors' fears about their share of administering exchanges are overblown.

"We'll pay for the cost to establish the exchange," he said. The law requires exchanges to be self-sufficient, by generating revenues through such mechanisms as running online ads or imposing user fees, after January 2015.

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