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More States Prodded to Run Their Own Insurance Marketplaces

By Rebecca Adams, CQ HealthBeat Associate Editor

February 3, 2014 -- Federal officials are pushing more states to run their own insurance marketplaces, but there may not be a net increase in the coming year. As some move to run their own online exchanges, others may cede oversight back to the federal government.

Oddly enough, some states such as Maryland and Oregon whose elected officials have been staunch supporters of the law are among the likeliest to ask federal officials to run their exchanges due to serious technical problems with websites which allow uninsured people to enroll in health plans.

Very few states are moving in the opposite direction this year by taking control of their marketplaces from the federal Centers for Medicare and Medicaid Services (CMS).

Officials in Idaho and New Mexico that delayed moves to run their own marketplaces said that they are back on track to run their exchanges starting in November, when open enrollment for 2015 begins. In Mississippi, where the insurance commissioner wants the state to run its marketplace but the governor does not, officials will launch a marketplace only for small businesses, but not individuals, on July 1.

In a number of other states contacted by CQ HealthBeat, the answer was the same: Don't look for a shift to a state-run marketplace in 2015.

The lack of movement raises questions about how long the federal government will have to administer the marketplaces. Currently, the federal website handles enrollment in 36 states, including Idaho and New Mexico. The authors of the law never imagined that so many states would remain under federal oversight, and the legislation provides more funding for marketplaces run by the states than those run by federal officials.

State officials have until June 1 to give CMS a plan for converting to a state-run marketplace, according to a proposed rule released on Dec. 2. States were originally supposed to send in their blueprints for a change in January, but federal officials decided to give them more time, hoping it would encourage more conversions.

State officials have a November deadline to apply for grants to help build their own marketplaces.

In late January, CMS gave out the most recent round of marketplace funding: more than $200 million in new money for nine states. Most of the funds went to states that are already running their own exchanges—Washington state, Rhode Island and Nevada—or to New Mexico, which had planned to have a state-run exchange in 2014 but wasn't up to the job.

Several other states that have signaled a long-term interest in eventually running their own marketplaces also got funding. Those include states that are currently partnering with the federal government but are depending on the federal website to enroll people in their areas, such as Arkansas, Delaware and New Hampshire.

But none of those three states will be ready to run their own marketplaces in 2015. The reasons range from widespread technical challenges to political opposition—such as in New Hampshire, where a Republican-backed state law bans Democratic Gov. Maggie Hassan from creating a state-run marketplace.

Mississippi, which is in talks with insurers about participating in its small business exchange starting in July, also received a significant amount of the funds. Insurance Commissioner Mike Chaney—who is working around the disapproval of GOP Gov. Phil Bryant—said last week that he particularly wants to run Mississippi to run its own small business exchange because Chaney predicted that the federal government will not have a website for small companies "until 2016 at the earliest."

The federal small business exchange had originally been slated to launch with the federal marketplace for individuals, which opened on Oct. 1.

Another federal exchange funding recipient was Utah, which is continuing to run a state small business exchange that preceded the health care law but is not planning to run its own exchange for individuals, according to state officials.

"When Utah and the Department of Health and Human Services agreed upon a bifurcated model, the governor was clear that these compromises remain over the years," said Marty Carpenter, communications director for Utah GOP Gov. Gary Herbert. "Utah will not operate the federal individual exchange."

CMS officials also gave $155 million in January to Covered California, a state-run exchange that has led the nation in enrollment. California has gotten a total of $910 million provided under the health care law (PL 111-148, PL 111-152) in previous grants for its marketplace. The new $155 million grant will go toward outreach and marketing, enrollment assistance, personnel and technology, said state officials.

The lack of movement toward state-run marketplaces this year means that federal officials will have a heavier burden in overseeing the changes to the health care system nationwide than they would have envisioned when the law passed almost four years ago.

Dan Schuyler, a senior director at the Leavitt Partners consulting firm run by former Health and Human Services Secretary Michael O. Leavitt, said in an recent interview that the majority of states that may want to transition to a state-run model would be considering it for 2016.

"It's a marathon sprint to get to that point," Schuyler said, adding that campaign rhetoric against the law does not make it easy in some places. "It all depends on the politics of that particular state."

One former federal official said that there is still time for states to change their minds in later years.

"There is a window here but it's not open forever," said Joel Ario, who previously oversaw the creation of the exchanges as a top CMS official.

"I don't think the federal government is going to do as good a job as the states operating these exchanges so I do expect over time there to be movement to state-based exchanges," said Ario last week. "That's going to take some changes in the law around funding because the funding is going to run out this year under current legal provisions but I expect that to happen at the point where the country kind of settles down and says this law is a permanent feature of our landscape. That's either after this election in 2014, depending on how it goes or maybe after the 2016 elections so there's time for the politics to still settle out."

But Ario said that if a few years go by, groups such as insurers and local businesses that currently want states to run their marketplaces instead of federal officials will give up on their advocacy and adjust to a federally-run system. Five or six years from now, he said, "the door is going to be closed."

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