In a Presidential Election Year, States Left to Pick Up the Pieces of Health Reform

By Robert Holden, Vice President

On January 25, the Department of Health and Human Services (HHS), through its Center for Consumer Information and Insurance Oversight (CCIIO), released information identifying the three largest health plans in each state, as well as the three largest national Federal Employee Health Benefit Program (FEHBP) plans to aid states as they consider how to implement health reform.

From the perspective of the states, the implementation of the Affordable Care Act (ACA) has long been a waiting game.  After its enactment in 2010, it became clear quickly that states would be doing much of the heavy lifting when it came to implementing the insurance reforms required under the act, primarily because until then health insurance regulation was almost exclusive to the states.  Nevertheless, states were dependent on federal guidance and rulemaking before they could make progress towards many of the private insurance reforms and the 2014 implementation date for health benefit exchanges.

Throughout 2011, states had anticipated that federal HHS rules would then define the specific benefits that would be covered in each of these categories so that they could address this issue in the 2012 legislative sessions.  However, after recommendations from the Institute of Medicine, HHS did not propose rules addressing specific benefits.  Instead, the agency released a December 16, 2011, bulletin advising the states to develop a “bench mark” based on employer plans in their states, which could be the basis for benefits in their respective exchanges, and which HHS would review in 2016.  This removed a potentially charged issue from discussion at the federal level until well after the 2012 election.

Now, even with information identifying their largest health plans, states must contend with a lack of federal guidance addressing one of health care reform’s most politically charged issues: what benefits will be covered under the new system?

Essential Health Benefits, the benefits that must be covered by health insurance plans offered through state health benefit exchanges, are defined broadly in the ACA to include the following categories: (1) ambulatory patient services, (2) emergency services (3) hospitalization, (4) maternity and newborn care, (5) mental health and substance use disorder services, including behavioral health treatment, (6) prescription drugs, (7) rehabilitative and habilitative services and devices, (8) laboratory services, (9) preventive and wellness services and chronic disease management, and (10) pediatric services, including oral and vision care.

While many of these categories are already covered by health plans, states have long had their own individual concepts of what constitutes an “essential” benefit.  Each session, states introduce scores of bills mandating health insurers provide coverage for specific health benefits.  These have been generally opposed by the insurance industry as increasing costs, but frequently address popular concerns, such as continued coverage of routine mammograms or coverage for the treatment of autism spectrum disorders.  The ACA acknowledged the potential for increased costs created by coverage mandates.  Because federal subsidies would keep premiums affordable for individuals utilizing the state exchanges, the act requires states to pay costs attributable for benefits required beyond the essential health benefits provided for under the ACA.

Unsurprisingly, the details of the essential health benefits had been greatly anticipated by state legislators who now, in light of the HHS bulletin, may have substantial leeway in preserving their current mandates.  At a minimum, states will be able to use health plans (subject to their state’s mandates) to create a benchmark for the new state health benefit exchange.  While there is still uncertainty as to how the state benchmarks will be judged by HHS in 2016, states have already started to determine processes to review their state mandates and how they fit into the ACA’s essential benefits.

Prior to the release of the HHS bulletin, Massachusetts and Minnesota introduced a number of bills placing a moratorium on new mandates, as well as legislation to require a comprehensive regulatory review of mandated benefits in their states.  While Massachusetts legislation proposes to authorize the Division of Health Care Finance to review the mandated benefits, and Minnesota legislation authorizing their Commissioner of Commerce to do the same, South Carolina, Rhode Island and West Virginia would look to their respective insurance commissioners.

Regardless of the review process, states will be revisiting their mandated insurance benefits this legislative session, and the issue will undoubtedly receive attention at the state insurance commissioners’ (NAIC) meeting in March.  Stakeholders, including disease treatment advocates, pharmaceutical and equipment manufacturers, as well as health care provider groups will be pressing the case that their services and products are essential to health care consumers.

Will State Officials Moving to New Federal Agencies Affect Policy?

State officials have always found career paths that led to service in the federal government.  In areas where state law has historically been developed within a federal statutory framework, many aspects of environmental protection being an example, state officials moving into federal positions is nothing new.  Two recent major pieces of federal legislation, the Patient Protection and Affordable Care Act (PPACA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), have created new law in policy areas previously directed by the states.  For the first time, the federal government will be taking a lead role in insurance regulation and, accordingly, experienced state insurance regulators have made the jump toWashington,D.C.

While these relatively new federal laws will certainly have a direct affect on state regulation, it is worth noting that the movement of state officials to the federal level can itself affect both state and federal policies.

New Agencies Under the PPACA and Dodd-Frank

Enacted in 2010, the PPACA engaged state regulators directly.  The language of the Act recognized the need for direction from the states by specifically requiring recommendations from the National Association of Insurance Commissioners (NAIC) on a variety of topics.  As new departments were established in the United States Department of Health and Human Services (HHS), current and former state insurance commissioners were logical candidates to fill key positions.

While this trend arguably started with the appointment of HHS Secretary Sebelius, former Kansas Governor and Insurance Commissioner, prior to the enactment of the PPACA, it certainly intensified after enactment.  Former Maryland Insurance Commissioner Steve Larsen served as Director for the Division of Insurance Oversight for less than a year before his appointment as Deputy Administrator and Director of the Center for Consumer Information and Insurance Oversight (CCIIO) in the Centers for Medicare & Medicaid Services (CMS).  This was followed by the appointment of the then current Pennsylvania Insurance Commissioner Joel Ario to direct the new Office of Insurance Exchanges within CCIIO.

The enactment of the Dodd -Frank Act only a few months after the PPACA created a similar dynamic, establishing the Federal Insurance Office (FIO) in the Treasury Department.  While implementation of Dodd-Frank has taken longer to begin, Illinois Department of Insurance Director Michael McRaith left his state position this summer to head FIO. 

Affects on Policy

We have already seen some of the ways in which these former state officials have affected federal policy towards the states.  This maybe clearest in the case of Joel Ario at the Office of Insurance Exchanges, as he moved directly from being a key member of the NAIC Health Insurance and Managed Care to leading the development of recently proposed federal rules addressing the creation of state health benefit exchanges.  While these rules have not yet been finalized, their current provisions allow the states flexibility in their implementation efforts.  That flexibility has been a frequent request from both the NAIC and the states themselves.  As these rules are only an early step in federal direction of PPACA implementation, it will be interesting to see if this trend continues in future federal rulemaking.  As Director Ario is scheduled to leave his position in late September, there may be a change in direction from the administration.

The affect of state officials on policy under the Dodd-Frank Act is more difficult to see.  The PPACA moved much of the high level policy making concerning health insurance to the federal level; however, fewer state insurance laws were preempted by Dodd-Frank, which focused FIO’s direct authority on international insurance issues and the Terrorism Insurance Program.  Director McRaith will also be informed by analysis and information from the Federal Advisory Committee on Insurance (FACI), composed in part by state insurance commissioners and other state policy makers appointed by the Department of Treasury.  While FIO’s role is confined mostly to monitoring, it will have the ability to propose greater regulation of specific insurance entities through recommendations to the Treasury Department’s Financial Stability Oversight Council.

If the movement of state officials to federal positions under the PPACA encouraged flexibility on the part of HHS as it directs initial implementation, this may not be the long term result.  If health care insurance policy is driven more aggressively at the federal level, states will have fewer policy decisions to make.  While less likely, FIO and the FACI could bring more state conformity to recommended federal policies.  Ultimately, states will be increasingly dealing with policymakers at the federal level that have emerged from their own ranks.  Will former state officials bring their experiences to bear as federal policy makers?  Will current state officials look to work more collaboratively with their new federal counterparts?

By Robert Holden, Esq., Vice President

Will States Be Ready and Willing to Implement Health Benefit Exchanges?

By Robert A. Holden, Esq., Vice President

The United States Department of Health and Human Services (HHS) issued a Notice of Proposed Rulemaking July 11, setting out guidelines for the creation of State Health Benefit Exchanges under the Patient Protection and Affordable Care Act (PPACA) as well as a process for federal approval of those exchanges. Comments on the proposed rules will be due in late September 2011, fifteen months prior to the statutory January 1, 2013 deadline for federal approval of state exchanges.

For states that have been waiting on these federal guidelines, this does not leave much time to authorize and establish a new regulatory entity to govern access to individual and small group health insurance. This is, in some sense, anticipated by the new rules. As proposed, HHS could grant conditional approval to states that cannot meet the January 2013 deadline for full approval, but that are proceeding toward the PPACA’s January 2014 operational deadline for exchanges. This is still a tall order for states not already well down the road to full implementation, and the federal rules anticipate granting approval to states for new exchanges after the 2014 deadline, outlining a transitional period from a federally run exchange.

Where Are The States On Implementation?

A number of states did not wait for the federal rules to begin implementation. Prior to the enactment of the PPACA, Utah and Massachusetts were operating health insurance exchanges that have now become the models for subsequent exchanges. Last legislative session, California became the first state to adopt legislation authorizing the creation of a new state health benefit exchange pursuant to the PPACA. This session, eleven other states have passed legislation authorizing the creation of a new entity to govern a state exchange. Because these states understood that federal rules could preempt their legislative directives, these laws have been very broadly conceived with little specificity in areas not clearly outlined in the PPACA. This strategy worked, as the new federal rules do not appear to have preempted any of the exchange authorization policies adopted by these states.

Federal Flexibility and State Exchange Creation

The Notice of Proposed Rulemaking reflects federal flexibility in the options for a state to organize the governance of its exchange, either as an independent public entity, a separate state agency, or as part of an existing state agency. Of the states that have already passed legislation, most have opted to create an independent public entity. California, Colorado, Connecticut, Hawaii, Maryland, Massachusetts, Nevada, Oregon, Vermont and Washington have all placed governance of their exchanges into independent entities.  The exceptions are North Dakota and West Virginia, which have authorized governance within the Department of Insurance, and Utah, which has its exchange within the Office of Consumer Health Services.

Beyond governance, the Notice of Proposed Rulemaking recognizes both the “active purchasing” model typified by the Massachusetts as well as the “any-willing plan” model associated with Utah. Both models address how plans would be certified as available through the exchange. In an active purchasing state, the exchange would select a limited number of plans to contract with for provision of services through the exchange. Under the any-willing model, all plans that met federal requirements could be admitted to the exchange.  Interestingly, post – PPACA state legislation has been mostly silent on the type of exchange states would develop. While California, Connecticut, Hawaii, Maryland, Oregon and Washington have been proceeding down the active purchasing route, they are not required to by state law. Similarly, North Dakota, Virginia and West Virginia are expected to follow Utah’s example, but did not specify this in their legislation. The only state legislature to direct its exchange was Colorado, which has forbidden its exchange from pursuing an active purchasing model.

The new state exchange entities will fill in the gaps left by the state legislatures, and have been granted room by the federal rules to determine not only the standards for health plans as far as marketing requirements and network adequacy, but will also serve to make decisions as far as premium stability is concerned. The federal guidelines leave to the states whether they will engage in a reinsurance program, or a risk adjustment program to manage the risk to their exchange markets as higher cost enrollees come online in 2014.  States will also have the flexibility to create multiple state regional exchanges, but also to quilt together intra-state exchanges covering smaller areas, so long as the entire state is covered.

Federal Exchanges

The question for those states that have not already passed authorizing legislation and are in the process of establishing governance for their exchanges remains: how quickly will they be able to come online? At a minimum two states, Louisiana and Oklahoma, will rely on a federal exchange. There will also be a temporary reliance on federal exchanges for those states that are not ready by the 2014 deadline, which may be a majority of states. Now that the federal rules have been proposed, current state interim discussions and the 2012 legislative session will be the last opportunity for states to begin charting their own way before the imposition of a federal exchange. This poses a number of questions. What will the federal exchange look like?  How will it incorporate state Medicaid enrollment information?  Will there be regional or a unitary federal exchange?

By Robert A. Holden, Esq., Vice President