Governors and HHS in Violent Agreement Concerning Exchange Flexibility?

While the Patient Protection and Affordable Care Act is federal law, much of its implementation is  in the hands of the states. Near the top of the list on the state’s to-do list is the creation, design and operation of the health insurance exchanges.

Not all Governors are happy with this burden. They are busy with other priorities, such as keeping their states from going bankrupt. However, the PPACA makes it hard for Governors, even those who oppose the new health care reform law, from avoiding their exchange-related responsibilities. If states fail to create an acceptable exchange in time (acceptability being determined by the Secretary of Health and Human Services) the federal government will step in and establish (and run) an exchange of its own in the non-cooperating state.

Which is one reason 21 Governors sent a letter to HHS Secretary Kathleen Sebelius asking for more control over the structure and operation of the exchanges. (Thanks to blog reader The Insurance Barn for commenting on this letter when it first became public). That all those signing the letter were Republicans suggests another reason might be political – shocking, I know. But focusing on the substance of the Governor’s concerns, they asked for six concessions (in their own words):

• Provide states with complete flexibility on operating the exchange, most importantly the freedom to decide which licensed insurers are permitted to offer their products
• Waive the bill’s costly mandates and grant states the authority to choose benefit rules that meet the specific needs of their citizens.
• Waive the provisions that discriminate against consumer-driven health plans, such as health savings accounts (HSAs)
• Provide blanket discretion to individual states if they chose to move non-disabled Medicaid beneficiaries into the exchanges for their insurance coverage without the need of further HHS approval.
• Deliver a comprehensive plan for verifying incomes and subsidy amounts for exchange participants that is not an unfunded mandate but rather fully funded by the federal government and is certified as workable by an independent auditor.
• Commission a new and objective assessment of how many people will end up in the exchanges and on Medicaid in every state as a result of the legislation (including those “offloaded” by employers), and at what potential cost to state governments. The study must be conducted by a neutral third-party research organization agreed to by the states represented in this letter.

Most of these items are non-controversial. In fact, soon after the letter was sent, Politico Pulse was reporting on a statement from HHS claiming that the PPACA already offered states the flexibility concerning the exchanges the Governors were seeking. Specifically, HHS claims (in its own words):

• States will determine which insurers are permitted to offer products in the Exchanges.
• States can choose benefit rules that meet the needs of their citizens.
• Consumer-driven health plans and Health Savings Accounts (HSAs) will be available.
• States have discretion over Medicaid coverage.
• New funding to establish Exchanges and modernize eligibility systems is available.
• Reliable, independent cost estimates are available.

So, the Republican Governors and the Democratic HHS Secretary are in violent agreement on this matter, right? Well, that depends on through what color lenses one is looking.

Substantively, probably. Some of the Governors’ concerns do seem to be addressed already in the PPACA or related regulations. Others are non-controversial and non=political. However, the independent cost estimates referred to by the HHS fails to meet the Governors’ criteria – to to address their concern regarding the financial impact on their states. There are some unanswered subtleties remaining, too, as well as new concerns that will no doubt surface over time.

Politically, so long as either party feels there are points to be made in the run-up to the 2012 elections by engaging in these disputes, they’ll continue to engage in these disputes. And since both sides do believe there are points to be made, expect a lot of letters passing between Governors and HHS.

What’s unfortunate in all this is that some harder questions concerning the exchanges are not being addressed. Leave aside the most important one, “are exchanges really necessary?” Most Democrats and Republicans believe they are. There are other questions needing answers, however.

For example, if exchanges will accomplish so much , why do they need special advantages? Why are tax credits offered to small businesses and premium subsidies made available to consumers only if they obtain coverage through the exchange? This assistance could be made available simply enough to those getting insurance outside an exchange. If lawmakers and regulators truly believe in maximizing consumer choice and are convinced the aggregated buying power of the exchanges will deliver increased value to small businesses and consumers, why limit the availability of the incentives? If they’re right, the exchanges will come to dominate a state’s insurance marketplace because consumers recognize their value. If not, then they have failed. Such real world feedback should be welcomed by policymakers.

Exchanges should be required to compete on a level playing field with the health plans available in the broader market. Governors of both parties should be asking for the flexibility to make this possible. And HHS should have the confidence in the exchanges necessary to make that goal a reality.

Alan Katz blogs regularly at The Alan Katz Health Care Reform Blog.