Health Benefit Recommendations Offer States Reform Incentives

By Robert Holden, Vice President

The Institute of Medicine (IOM) recommendations for Essential Health Benefits, released October 6, may have injected new life into state planning for health benefit exchanges during the upcoming 2012 legislative session. The IOM’s recommendations establish a process for identifying the benefits that will become the basis for health plans available to individuals, small businesses, and eventually to larger employers through each state (and any federal) health benefit exchange. The federal rules that emerge from this process will have a profound effect on insurance regulation in the states, as they will impact all state health insurance benefit mandates currently imposed on health insurance carriers.

Since the enactment of the Affordable Care Act (ACA), state policy makers have known that they would be required to pick up the cost of any state mandates imposed on plans offered through a state health benefit exchange that exceeded the federal essential benefits. As a result, states have already introduced legislation and established commissions to review state mandated benefits in anticipation of the federal rules. With the release of the IOM recommendations, it appears that states may have much more control of which mandate benefits they will be able keep.

States Pace Their Implementation Efforts on the Availability of Federal Guidance

The race towards the ACA’s 2014 deadline to implement state health benefit exchanges has become a “chicken or egg” process between state policy makers and the HHS, as states delay implementation while waiting for federal guidance. The release of federal rules on exchange governance came this summer, after many state legislatures had already adjourned. Federal rules on benefits are still pending, even as state planning and interim activity increases for the 2012 legislative session. States are particularly dependent on the HHS rules addressing essential benefits, as the ACA statute provides only broad benefit categories, such as “Prescription Drugs,” that must be made available in health plans. The IOM recommendations did not narrow the benefit categories for states, as IOM was authorized to provide the process for determining essential benefits and not the specific benefits themselves.

Opportunities for State Policy Makers

While state activity on specific benefits is still delayed, the IOM recommendations do offer some direction to state governments, starting with small group health plans. If it proceeds as recommended, HHS will begin with the benefits offered in a current, typical, small business health plan. These benefits will then be supplemented with additional required services so that each ACA benefit category is met. HHS will also develop an ongoing review process to account for future health technology advances and new benefits.

More importantly for state policy makers, IOM recommends that states have the flexibility to create alternative benefit structures, if they establish an exchange. Additionally, in comments made during the IOM’s release of their recommendations, it became clear that the IOM believes that states should decide how benefits addressing disabled and transitional Medicaid populations are structured. These recommendations not only give state officials additional flexibility and control over benefit mandates, they may provide needed incentive to continue implementing ACA exchanges. While it remains to be seen how states still considering their plans for implementation will react, this new incentive puts even more focus on the release of federal essential benefit rules and the formal authorization of states to create alternative benefit structures for their state exchanges.

2011 State Races Presage 2012 Vote

By Steve Arthur, Vice President

Updated October 5, 2011

While the Republican presidential debates have been the focus of the national media in recent weeks, there are state elections this fall that may provide some early indications about what may happen at the ballot box next year. 

One early indicator was this week’s special election in West Virginia to fill the remaining year of Joe Manchin’s gubernatorial term (Manchin was elected to the U.S. Senate in a special election last year.) Acting Governor Earl Ray Tomblin had been leading Republican Bill Maloney by huge gaps early in the race, but a Public Policy Polling poll released a day before the election showed Tomblin’s lead down to a single point. With the Republican Governors’ Association (RGA) airing a television ad tying Governor Tomblin to “ObamaCare,” an upset victory by Maloney would have shown that Democrats who supported the health care plan should continue to be worried. In the end, Tomblin was able to win a narrow 50%-47% victory.  Although, the lead paragraph of the AP story on the result said Tomblin won by “successfully distancing himself from the Obama administration and the president’s health care plan.”  This is not going to help Democrats sleep very well.

There are three other gubernatorial elections this fall, although the outcome of those races does not seem in doubt. Republican Governor Jindal is an overwhelming favorite to win a second term and may very well do it by winning over 50% in the open primary on October 22. In Kentucky, Democratic Governor Steve Beshear is now leading his Republican opponent by 31 points in a new WHAS/Courier-Journal poll and should have no trouble winning re-election. And in Mississippi, Republican Lt. Governor Phil Bryant should cruise to victory in his race against Hattiesburg Mayor Johnny DuPree.

While the Mississippi Governor’s race may not keep people up late on Election night, the state House of Representatives races might.  With the Mississippi Senate already controlled by Republicans, Democrats want to maintain control of the State House.  However, as the Wall Street Journal has reported, Republicans are making a major effort to take control of that body for the first time since Reconstruction. They have brought in a campaign strategist who led the Republican effort in North Carolina to take control of that state’s legislature. Eight seats need to change from (D) to (R) in order for Republicans to take control, and if they don’t succeed in flipping the chamber, I believe they will come very close.

In Iowa, a special election will be held November 8 for a State Senate seat that became vacant when Governor Branstad’s appointment of Democratic Senator Swati Dandekar to a state board. As the Des Moines Register reports, the Senate district has more registered Republicans than Democrats, so it is a prime target for a party switch. What makes the seat especially important is that Democrats currently have a one seat majority in the Senate, so if Republicans were to win the seat, the chamber would be evenly divided between the parties. There is no mechanism to break ties in the Iowa Senate (Lt. Governor has no role), so a power sharing agreement will need to be reached if the seat flips. Again, with Republicans much more enthusiastic about voting nationally than Democrats, the GOP could take another chamber away from Democratic control, even if it is just to an even split.

Finally, Republicans are making an all out push to take back control of the Virginia State Senate, which they lost in 2007. They would need to take 3 seats from the Democrats to regain control, and they are making a major push to win those seats.  Governor McDonnell, whose victory in 2009 began the Republican resurgence after the drubbings they took in 2006 and 2008, has been actively involved in the effort to take back the Senate according to the Roanoke Times. Taking three seats may be tough, but again, the enthusiasm gap Republicans currently enjoy might be enough to make that happen.

Any single race can be dismissed by the losing party as a fluke, but Democrats should take some comfort in the West Virginia victory.  However, a 3 point victory in a state with a 2-1 Democratic advantage is not something I would point to as a harbinger of better times ahead.  If the Republicans are able to run the table on the legislative races – taking control of the Mississippi House, Virginia Senate and winning the special election in Iowa—Democrats should remain very concerned about their prospects in 2012.

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