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States Get Short-Acting Chill Pills for Exchange Stress

By John Reichard, CQ HealthBeat Editor

November 19, 2010 -- State officials anxious about the task of creating insurance exchanges under the health law got some relief this week: greater clarity about the steps involved. But any comfort they're feeling is probably quickly giving way to headaches about the size of the job.

The main aim of exchange guidance released to the states Nov. 18 by the Department of Health and Human Services (DHS) "seems to be to calm any anxiety they may have that HHS will demand significantly more from them than the basic requirements" of the health law, Washington & Lee University Law School professor Timothy Jost blogged Friday.

"There is nothing dramatic in this Guidance," he said. "Indeed it seems intentionally crafted not to be dramatic." Jost offered his thoughts on the Web site of the policy magazine Health Affairs.

Along with the guidance, states got a look Nov. 15 at what may be the final language the National Association of Insurance Commissioners (NAIC) will send them in a few weeks. This model legislation will be designed to help states draft their own bills so they can create exchanges that will comply with the overhaul law (PL 111-148, PL 111-152).

Jost's take on NAIC model law drafting effort is similar: "What they're trying to do is basically not to go beyond the federal law, but to fully implement it," he said in an interview. Jost is a consumer adviser to the NAIC drafting process.

Jost thinks the exchanges created under the health law and the model act will be worth the effort. "I think exchanges are going to be a good thing for the consumer," he summarized. They will bring down costs, increase access to care, and widen consumer choice—and administer premium subsidies that are tantamount to a "huge tax cut for the middle class."

The HHS guidance is consistent with a recent preview offered by HHS exchange regulator Joel Ario in a speech to insurance executives in Chicago (See related story).

A key point: states can construct an "active purchaser" exchange that bargains with health plans for the best deal and excludes those offering lousy deals, or they can follow an "open marketplace" model that basically posts plan offerings and leaves to marketplace forces rather than regulators the process of producing good deals.

Republicans may tilt strongly toward the latter model in the many states in which they will wield greater influence over state lawmaking after the recent November elections. But Jost notes that they won't be able to pass laws requiring the open marketplace model. Rather, the exchanges themselves will have the power to make that determination, so GOP leaders would have to make sure they have enough control over the exchanges to make sure they adopt the open marketplace approach happen.

The guidance documents the various powers states will have to shape exchanges the way they want. For example, they can decide whether to make the exchange a government agency or a non-profit entity; take part in a regional exchange rather than have just their own state exchange; limit access to employer groups of 50 or less until 2016; require competitive bidding for plans; require additional benefits; extend some or all exchange-related requirements to the outside market.

The guidance document also notes what states must do under the federal law, including certifying and decertifying plans; exempting individuals from the requirement that they carry coverage; rating plans on quality; putting benefits in a standardized format to ease comparison shopping; add determining eligibility for Medicaid and the Children's Health Insurance Programs, among a number of other responsibilities.

Regarding the NAIC model act—forwarded this week by the subcommittee that drafted it to a larger NAIC committee—perhaps the most controversial issue relates to the subject of requiring benefits in addition to those to be spelled out in federal rulemaking to meet the essential benefits standards. "Consumers are concerned that the states not be encouraged to repeal mandates before the essential benefit package is in effect," Jost blogged. Additional drafting may address the concern, he said.

Jost also noted that NAIC has left open the question of whether insurers in exchanges for small employers can offer traditional group coverage. If insurers were allowed to do so, and the employer shopping at the exchange picked traditional group coverage, the employer's workers would not individually have the freedom to pick their own plan from the exchange's menu of offerings—a freedom often touted by exchange advocates as a major advantage of these marketplaces.

Insurers looking at the model act and the HHS exchange guidance emphasized the importance of not excluding plans.

Robert Zirkelbach, a spokesman for America's Health Insurance Plans, said "there should be uniform and objective rules for participating in exchanges rather than an arbitrary process that can easily become politicized and result in fewer choices."

He added that there also "should be a viable marketplace outside the exchanges," and that the "exchanges should avoid duplicating what state regulators already do."

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