Many states aren't ready for looming health law changes

Kaiser Health NewsFebruary 1, 2012 

WASHINGTON — It's crunch time for the states.

The 2010 health law's biggest changes don't take effect until 2014, when states and insurers must be ready to begin signing up an estimated 32 million people in Medicaid and private insurance. But a successful rollout in two years hinges on crucial decisions that states must make — and take quick action on — this year.

It will be difficult for many states to meet the fast-approaching deadlines, and some may not make it, said Brett Graham, a managing director at Leavitt Partners, a consulting firm that's working with states on implementing the law.

Time is short, and states are missing key pieces of guidance from the federal government on everything from what various insurance-exchange options will look like to which benefits must be included in health plans, Graham said. To make matters worse, states are competing for an inadequate number of information technology vendors to help them get started.

"It's a pressure cooker," Graham said. States are "in a position where they have to act with imperfect information."

One of the most pressing tasks for states this year has to do with creating the exchanges, through which individuals and small businesses can buy insurance starting in 2014.

On Jan. 1, 2013, the Department of Health and Human Services will certify which states will be ready to run exchanges on their own. To win certification, a state must enact laws to fund an exchange's operations. While the federal government is providing financial help up front to create exchanges, states will assume the cost once they're under way. HHS can issue conditional certifications for states that are making progress but need more time.

Only 14 states and the District of Columbia have made legislative progress toward creating exchanges, according to a Robert Wood Johnson Foundation report Jan. 22 that was prepared by the Urban Institute, a public policy center. Another 21 states have demonstrated interest, and 15 have made little headway.

While some states are aggressively proceeding, "at the other end are states that say, 'No way, no how. We're not doing it.' Montana, Texas, Louisiana, Florida, they are not going to build it and they're playing a game of chicken," Graham said. "They're waiting for the Supreme Court," hoping it will effectively kill the health law in June when it rules on challenges to its constitutionality.

Most states, though, are undecided about whether to build their own exchanges and are proceeding in varying degrees. Even some states that are part of the Supreme Court challenge are moving forward: Colorado, Washington and Nevada have created exchanges.

Originally, the only alternative to a state exchange was a fully federal entity. HHS has since offered to partner with states. That way, a state could retain control of an exchange while passing certain responsibilities to the federal government.

But creating a full or partial federal exchange also could be problematic: Some health care analysts question whether the task will be any easier for the federal government. It faces the same short timeline as the states this year, and while Obama administration officials say they have the money to fund exchange activity, some health care analysts say they aren't so sure.

Most state legislatures are scheduled to adjourn for the year by March or April, before the Supreme Court rules, according to the National Conference of State Legislatures. Reconvening after the ruling would be difficult in an election year.

The timetable also worries insurers, which will offer coverage to individuals and small businesses through the exchanges. Until they know more about the benefits required, for example, it's difficult to develop new products, negotiate with doctors and hospitals, and invest in information technology, health plans say.

"Open enrollment has to be ready to go by Oct. 1, 2013, so in January of 2013 we have to submit our products and rates for (state) approval," said Alissa Fox, a senior vice president of the Blue Cross and Blue Shield Association. If health plans make changes before the federal government issues its specific requirements, they might have to start over, and that can be costly and time-consuming, she said. "We want to change our claims-processing system once, our enrollment system once."

Federal officials say there's no reason to worry. Chiquita Brooks-LaSure, the director of coverage policy at HHS, said working with states was a top priority: "As we get similar questions from states, we will put out guidance to answer general questions. We're going to continue to be responsive."

On Jan. 25, HHS provided more details about the kinds of benefits insurers will be required to offer consumers and small businesses beginning in 2014. The agency had been under pressure to supply more information after it released a general "bulletin" in December giving states broad flexibility to design benefits.

State legislators are particularly eager to learn how they can divvy up responsibilities with the federal government in the case of a federal or partnered exchange. One of the most important questions is who decides whether low-income people are eligible for Medicaid or federal subsidies to buy insurance in an exchange.

Graham sees a possible clash of federal and state budget interests over Medicaid, which the states help fund. "If the federal government wants someone to be covered, it may say that person is eligible for Medicaid," Graham said. "A state that already has a significant budget crisis won't want to expand Medicaid. Who owns the process?"

States haven't hit the panic button — yet.

"We're down to the wire," said Joy Johnson Wilson, the health policy director for the National Conference of State Legislatures. "When the bill passed in 2010, 2014 seemed a long way away. But when you back into what it takes to get the program up and running, it's a very short timetable."

(Kaiser Health News is an editorially independent news service of the Kaiser Family Foundation, a nonpartisan health care policy organization that isn't affiliated with Kaiser Permanente.)

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