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Indiana, Washington, and Rhode Island Lead the Way on Exchanges

By Jane Norman, CQ HealthBeat Associate Editor

May 23, 2011 — Indiana and Washington were among three states the federal government rewarded with money for being in the forefront of setting up health insurance exchanges. This, even though both are among 26 states trying to kill the law in court.

The Department of Health and Human Services announced a significant step forward in the development of the exchanges—grant awards totaling nearly $35 million to Indiana, Washington and Rhode Island, which is not challenging the health law. Indiana will receive $6.8 million, Rhode Island $5.2 million and Washington $22.9 million.

A health care aide to Indiana Gov. Mitch Daniels cautioned that even though they're taking the federal grant, state officials still are not certain whether they will have a state exchange, a federal exchange—or any exchange at all if the health care overhaul measure is declared unconstitutional.

Despite this uncertainty, the governor signed an executive order in January establishing an Indiana health benefit exchange. "We still have a lot of questions," said Seema Verma, the health reform lead in the governor's office.

Exchanges are health benefit marketplaces for individuals and small businesses. The health care law (PL 111-148, PL 111-152) requires them to be up and running by 2014. States that want their own exchanges must get them approved by the Health and Human Services Department (HHS) by Jan. 1, 2013, or the federal government will step in. Some conservatives who dislike the law still argue that states should design their own exchanges so they can make sure they reflect their own histories and politics.

The three states will receive "exchange establishment grants," which means HHS thinks they've made some progress toward planning their exchanges and now are at the point where they are can get additional federal funding. This is the first of six rounds of exchange establishment grants.

The three states' progress is in contrast to many other states that are still wrestling with how to set up their exchanges, or are divided by fights over governance or other issues. In some, Republican objections to implementation of any portion of the health care law have slowed action in legislatures.

Daniels, who had been thought a potential presidential candidate but announced over the weekend that he won't run, issued an executive order in January launching the process of establishing an Indiana health benefit exchange.

Under the order, it is to be structured as a nonprofit corporation set up by the Indiana Family and Social Services Administration and the Indiana Department of Insurance.

Make no mistake—Daniels is opposed to the law. He notes in the order that there are serious operational and constitutional challenges pending, and no information on how a federal exchange would operate.

And he says in the order, "Indiana currently believes a state-created exchange protects Hoosiers from undue federal regulation."

In addition, he said, "the stringent timelines make it prudent for any state to conditionally analyze, plan and prepare for a state-based exchange."

Verma said that in its application for the grant, Indiana made it clear that "we are not 100 percent committed" to the exchange.

"I think, at this point, we want to keep all our options open," she said, noting that federal rules for exchanges have not yet been proposed.

Legal and health information technology issues also must be explored so officials know what an exchange might look like if Indiana decides it wants one, she said.

Earlier, HHS awarded grants of up to $1 million each for planning to 49 states and the District of Columbia—Louisiana declined a grant and has since become the first state to publicly announce it would not be setting up its own exchange.

Also, six states and a multistate consortium received more than $241 million in "early innovator" grants to develop model information technology systems to be used by exchanges.

Daniels' January order says that "it is crucial that the health benefit exchange maintain the existing free market and assure choices to Indiana citizens."

It also says that if "after due analysis" the state thinks it's appropriate to proceed with an exchange, and the federal government thinks the state is making sufficient progress, a board of directors will be selected to manage operations of the exchange.

The board will include representatives of state agencies and the Indiana General Assembly, the order says, without mentioning who else might be included. Standing committees will be appointed that represent "appropriate stakeholder representations, including, but not limited to, consumers, providers and actuaries," the order says.

HHS officials said earlier this month that state governors can issue orders creating exchanges and it doesn't necessarily take legislative action.
Washington Gov. Christine Gregoire signed a health exchange bill on May 11. In Rhode Island, measures to create an exchange are pending in the legislature.

Mandatory funding for the exchanges has been a target as well for House Republicans who want to repeal sections of the health care law. The House earlier this month voted 238–183 to pass a measure (HR 1213) to de-fund exchanges. The bill is expected to have little future in the Democratic Senate, and the Obama administration has issued a veto threat.

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