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Who Will Finance State Healthcare Insurance Exchanges?

The pros and cons of state versus federal government financing

Jordan C. Apfeld, BA; Vasanth Sathiyakumar, BA; A. Alex Jahangir, MD; and Manish K. Sethi, MD

In state capitols across the United States, a battle has recently raged about the development of healthcare insurance exchanges and who should build them: the state or the federal government. The implementation of these exchanges will dramatically influence the American healthcare landscape in the coming years. This article briefly reviews the concept of the healthcare insurance exchange and examines the pros and cons of state versus federal creation and administration.

What is a healthcare insurance exchange?
The Patient Protection and Affordable Care Act (PPACA) required the establishment of health insurance exchanges in every state (See “Health Insurance Exchanges,” AAOS Now, November 2010). These exchanges would provide a set of private insurance plans with minimum benefits, plus an online marketplace for consumers to read about the benefits of each plan, compare many plans to see which best meets their needs, and determine their eligibility for each plan (Fig. 1). Individuals and families who are not employer-insured or eligible for Medicaid or Medicare can sign up on the exchange, as can small employers wishing to provide insurance to their employees.

Fig. 1 Prototype for Colorado’s health exchange website. ColoradoTrust.org
http://www.coloradotrust.org/health-policy/colorado-health-policy/

The goal of the exchanges is to increase competition among insurers for the estimated 25 million Americans who will eventually gain coverage under PPACA. They are also supposed to increase transparency and accountability of third-party insurers, to improve ease-of-access, and to facilitate subsidies for health insurance under the PPACA. Consumers will not be denied coverage on the basis of preexisting conditions, and all plans will have basic benefits, preventive coverage, catastrophic coverage, and community rating.

Although the concept of an exchange is simple, the operation of an exchange is extremely technical, requiring immense amounts of technology and data management. All health exchanges will feature an “online supermarket” for health insurance plans; plans will be offered in four comparable tiers from “bronze” to “platinum” and have limited out-of-pocket expenses. Plans must also meet other requirements, including those covering termination and premium pricing.

Exchange options
By Dec. 14, 2012, each state had to choose one of the following three options for establishing a health insurance exchange that would be up and running by Jan. 1, 2014:

  • A state-based exchange, in which the state would design and operate the exchange under some federal guidance.
  • A federal-state partnership model, in which the exchange would be operated by the federal government, but the state would operate and administer plan management.
  • A federally facilitated exchange, which would be operated completely by the federal government.

Although the merits of state versus federal creation of healthcare insurance exchanges can be debated, one thing is certain: their development and maintenance will be expensive, ranging from $10 million to $100 million. The establishment of these exchanges creates new fiscal challenges to states across the country facing rising deficits and spending cuts.

Who’s in control?
Issues surrounding the creation and control of the exchanges have stirred debate in legislatures across the United States. The essential issue is who should pay to build this entity and who should control it.

PPACA established a “pay-to-play” system with regard to the exchanges. If the federal government pays to develop the exchange infrastructure within a state, it will effectively control the exchange. If the state elects to pay for the exchange, it will have more say in development but still face some degree of federal regulation.

For example, if a state invests the resources to build an exchange, it will remain in control of most facets of the exchange, including what health plans are offered, the financing and management of the exchange, and overall quality control.

On the other hand, if a state allows the federal government to develop the exchange, it would give up a great deal of control—but would also avoid the significant upfront monetary investment. Furthermore, given the lack of clear rules of engagement between the state and federal governments with regard to the exchanges, many observers argue that the federal government will ultimately maintain a heavy involvement regardless of who makes the initial investment, and therefore, states should avoid any fiscal responsibility.

Other analysts argue that if the federal government controls the exchange, it could force the state to expand Medicaid by manipulating the insurance plans offered within the exchanges, and therefore, states should avoid ceding control.

Where do states stand?
As of the deadline date, 19 states had decided to run their own exchanges (Fig. 2), and seven of them had received various levels of federal approval (New York, Kentucky, Colorado, Oregon, Maryland, Washington, and Massachusetts). Seven states—Arkansas, Delaware, Illinois, Iowa, Michigan, North Carolina, West Virginia—intend to move forward with a federally facilitated exchange. But half of the states, many with Republican legislatures, have opted to allow the federal government to create their exchanges.

Regardless of which entity ultimately runs the states’ healthcare insurance exchanges, they will certainly create policy shifts in the future for American medicine. It is critical that orthopaedic surgeons follow this vital issue.

Jordan C. Apfeld, BA; Vasanth Sathiyakumar, BA; A. Alex Jahangir, MD; and Manish K. Sethi, MD, are all associated with the Vanderbilt Orthopaedic Institute Center for Health Policy.

Bottom Line

  • Healthcare insurance exchanges are mandated under the Patient Protection and Affordable Care Act to serve as marketplaces for individuals and businesses that need insurance.
  • Coverage available through an exchange must meet specific requirements.
  • Currently, half of the states have elected to allow the federal government to establish and operate their exchanges.

References

  1. Thomas AJ, Sethi MK, et al: Health Insurance Exchanges. AAOS Now, Nov 2010. http://www.aaos.org/news/aaosnow/nov10/advocacy2.asp. Accessed January 4, 2013.
  2. MN.gov. Considerations for Minnesota: State-based vs. Federally-facilitated Health Insurance Exchange. http://mn.gov/health-reform/images/Task-Force-2012-11-15-StateVsFederalExchange.pdf Accessed January 4, 2013.
  3. Kaiser Family Foundation: Establishing Health Insurance Exchanges: An Overview of State Efforts. November 2012. http://www.kff.org/healthreform/upload/8213-2.pdf Accessed January 4, 2013.
  4. Pear R: Most governors refuse to set up health exchanges. New York Times, 14 December 2012. http://www.nytimes.com/2012/12/15/us/most-states-miss-deadline-to-set-up-health-exchanges.html   Accessed January 4, 2013.
  5. Galewitz P: Facing deadline, most states say no to running their own insurance exchanges. http://capsules.kaiserhealthnews.org/index.php/2012/12/facing-deadline-most-states-say-no-to-running-their-own-insurance-exchanges/ Accessed January 4, 2013.
  6. Healthcare.gov: Affordable Insurance Exchanges. http://www.healthcare.gov/law/features/choices/exchanges/index.html Accessed January 4, 2013.
  7. Heal L: Why states should run from the PPACA. Freedomworks.org, 13 December 2012. http://www.freedomworks.org/blog/lheal/why-states-should-run-from-ppaca  Accessed January 4, 2013.

AAOS Now
February 2013 Issue
http://www.aaos.org/news/aaosnow/feb13/advocacy2.asp