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States Given More Flexibility, Control in Implementing Health Exchanges

In a surprising move, the Obama administration this week ensured that even more of the debate around health insurance coverage under the Affordable Care Act (ACA) will take place in state capitols instead of Washington D.C. in the coming years.

The role of the Department of Health and Human Services (HHS) in determining the shape of state health insurance exchanges changed on December 16th with the release of a bulletin announcing proposed policies that would give states rather than the federal government the authority in choosing a template for the essential health benefits package offered by the exchanges.

According to the ACA, each state is to have their marketplaces in place by 2014, where Americans who don’t have employer-based coverage will be able to buy health insurance over the internet. Insurance plans in these marketplaces must cover a basic set of benefits - or “essential benefits” - in ten general categories, including hospitalizations, emergency care, maternity, and pediatric services.

Under the approach announced by HHS this week, states will be able to choose an existing health plan to set the benchmark for items and services included in their essential benefits package. States would choose from one of a variety of existing health insurance plans as a benchmark: 1) one of the three largest small group plans in the state, 2) one of the three largest state employee health plans, 3) one of the three largest federal employee health plan options, or 4) the largest HMO plan offered in the state’s commercial market.

Some conservative-led states have been slow in implementing exchanges, fearing that states will be responsible for an increase in subsidies as the essential benefits required to be covered in health plans expands. The new HHS guidance attempts to allay these fears by promising to cover added costs of unique mandates in the “transitional years” of 2014 and 2015, and to reassess the issue in 2016.

Health care advocates expressed some concern about the new guidance, noting their fear that states may choose to benchmark the plan with the lowest coverage of essential benefits. "Consumers may be reassured that state benefit mandates are probably not going away soon," wrote Professor Timothy Jost, an expert on health law at Washington and Lee University. "Many are likely to be concerned, however, that the Bulletin is not going to establish a uniform, comprehensive floor of benefits that many had hoped for."

Other reaction from advocates was positive. Stephen Finan, senior director of policy for the American Cancer Society Cancer Action Network, told Politico that he thought leaving the decision to the states was, “given the political environment, [a] pretty smart move on [HHS’s] part.” This sentiment was echoed by Kansas Insurance Commissioner Sandy Praeger, a Republican who also chairs the health care committee of the National Association of Insurance Commissioners (NAIC). “Quite frankly, this was a very smart approach for HHS,” Praeger told the Associated Press. “It builds on existing state law.”

States who are further along in the development of state based exchanges have enough information to start considering benchmark plans, while states who are still considering exchanges should be able to begin the planning process. According to the Wall Street Journal, HHS official Steve Larsen said that one aim of the 15-page bulletin was to aid states in planning as new legislative sessions begin in January. For states who refuse to set up exchanges, the guidance notes that the federal government will run it for them and use one of the largest small-group plans operating in the state as its benchmark.

While national advocates are worried that leaving the decisions up to the states will mean fragmented care, Secretary of Health and Human Services Kathleen Sebelius noted the differences between states, particularly that “coverage that works in Florida may not work in Nebraska." HHS also compared the essential benefit’s benchmark approach to the popular Children’s Health Insurance Program (CHIP). Similar to the suggested state exchanges, each state administers its own CHIP program with broad oversight from the federal government.

Even with this flexibility among states, opponents of the health law remain convinced that the law rather than the way it is enacted is the problem. After the announcement that states would be central in setting benefit rules, Senator Orrin Hatch (R-UT) still claimed that “the framework proposed by the administration takes away the right of individuals to chose the health care plan that best fits their needs."

(Julia Crowley is a health care policy intern at Progressive States Network.)

Full Resources from this Article

States Given More Flexibility, Control in Implementing Health Exchanges

Essential Health Benefits Bulletin - Center for Consumer Information and Insurance Oversight
HHS to give states more flexibility to implement health reform - U.S. Department of Health and Human Services
States Told They Can Decide on Coverage by Health Plans - Wall Street Journal
A Piecemeal Approach to Health Law in States - New York Times
The Essential Health Benefits Bulletin: Happy Holidays? - Community Catalyst

This article is part of PSN's email newsletter, The Stateside Dispatch.
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