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States Seek More Control in Teaming with Federal Government to Open Exchanges

By John Reichard, CQ HealthBeat Editor

November 4, 2011 -- The National Governors Association sent a letter this week to federal officials chafing against restrictions on their powers in setting up partnerships with the Department of Health and Human Services to open health insurance exchanges.

"Under the proposed partnership models, states would be required to cede many operations that have been traditionally handled at the state level, such as Medicaid eligibility," said the Nov. 2 letter from the NGA to HHS Secretary Kathleen Sebelius.

Under the health care law (PL 111-148, PL 111-152), states have various options when it comes to the requirement that residents of each state have access to an insurance exchange starting in 2014. They can set up their own exchange, let the federal government do it entirely, or enter into partnerships in which the work of creating exchanges will be shared.

Because of the complex jobs involved in starting up an exchange and the tight timelines, many states may need to go the partnership route in order to meet the deadline.

But the letter to Sebelius from Iowa Gov. Terry Branstad and Illinois Gov. Pat Quinn complains that unless states do the job entirely on their own, they have to cede too much control, with federal officials determining Medicaid eligibility, for example.

That would be a wasteful duplication of effort, the letter says, because "states have invested taxpayer resources in state-based eligibility systems since the Medicaid program began."

The letter adds that proposed HHS exchange regulations "also appear to preclude states interested in exchanges from obtaining funding to establish new state exchange functions after 2012. States are concerned that this construction would lock states into an all-or-nothing approach where the state's role in operating the exchange would be limited with little opportunity to gain additional operational authority if a state so chooses at a later date."

The letter reminds HHS officials that "many states are undecided on implementation strategies because of various uncertainties, including the lack of final rules and regulations."

The letter urges HHS to allow states to turn over to federal officials certain functions "where states have little or no current operational role." These include determining eligibility for federal tax credits to buy insurance; handling appeals of those decisions; and enforcing requirements that individuals have insurance.

The federal government also could help by certifying information technology that would meet requirements for exchange operations. "Federal development of software that could be provided to states, such as a benefit calculator, would be very helpful," the letter adds.

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