Last Thursday, state-based health insurance exchange executives gathered in Chicago to reflect on their experiences establishing their respective exchanges. While these executives were meeting, the full D.C. Circuit Court announced it would rehear the Halbig premium subsidy case and the Oregon exchange board met to discuss dismantling Cover Oregon and moving remaining functions to existing state agencies. As these recent events reflect, this is a period of great uncertainly on the state-based exchange front. As a result, state exchanges, the contractors that built those exchanges and plans participating in them need to be vigilant as to the risks and opportunities that lay ahead.
Northwestern University’s Kellogg School of Management convened a day-long symposium last week on state-based exchanges to discuss year one of operations, what went well, what did not, and lessons learned. During the panel presentations, exchange executives talked about revisiting previous discussions about how exchanges can drive delivery system reform. Some indicated that after focusing on the basics in the first year or two of operations, they are ready to revisit conversations about standardizing benefit packages and using the exchange to impact the health care delivery system. There was specific mention of modifying QHP standards to drive changes in the products offered on the exchange so those products advance ACOs and other delivery system reforms. Insurers participating in state-based exchanges should be on the lookout for future changes including exchanges selectively contracting with a limited number of health plans or using additional criteria to select plans offered on the exchange based on factors such as affordability, prevention and wellness efforts, provider contracting methods, efforts to reduce health disparities, patient access to health care, and other criteria aimed at improving the health delivery system.
Also on Thursday, the U.S. Circuit Court of Appeals for the District of Columbia indicated it will rehear the Halbig case, No. 14-5018 (D.C. Cir. July 22, 2014), decided by a three-judge panel. The new arguments are scheduled December 17, 2014 before the full court. In Halbig, the court held that health insurance premium subsidies available under the Affordable Care Act are only available to residents purchasing coverage on a state-based marketplace and not available to residents in states with a federally-facilitated exchange. Since most states have federally-facilitated marketplaces, this ruling, if upheld, would significantly undermine the Affordable Care Act. It would eliminate premium subsidies, one of the key provisions of the law, for approximately two-thirds of Americans. If the full court reverses the three-judge panel, which many anticipate will be the outcome, it would eliminate the split decision with a ruling by the U.S. Court of Appeals for the Fourth Circuit, in Richmond, Va., King v. Burwell, No. 14-1158 (4th Cir. July 22, 2014). This may reduce the chances of the U.S. Supreme Court taking up the issue.
The Halbig case raises a question that the Administration is going to have to address at some point. What is the future of state-based exchanges? Given the end of federal resources for states to establish state-based marketplaces at the end of 2014 and the expense and risk involved in states developing their own technology platforms, the Centers for Medicare and Medicaid Services (CMS) is going to be pushed to figure out a way for states to become state-based marketplaces, but use the federal technology platform to do so. While this is likely the best solution going forward, it won’t be without its challenges for insurers and other stakeholders involved in the exchanges.
New Mexico and Idaho, for example, operated as state-based exchanges using the federal platform in 2014. Most involved in the New Mexico and Idaho exchange experiences would likely say it was not ideal given that insurers and other stakeholders had two different regulators involved in what ideally is a seamless exchange experience. However, many found the experience in these states less than seamless as the state entity was charged with making most of the decisions related to the exchange, but was not able to address any of the website or systems issues related to the federal platform, HealthCare.gov, and ultimately had to stand in line with all the federally-facilitated exchange states to get answers about system problems plaguing insurers and consumers in their states. This was obviously not the state-based exchange model contemplated when the Affordable Care Act passed. But, states didn’t overwhelmingly decide to establish their own exchanges as the Act intended, so the Administration and states will need to improvise to establish a different path going forward. Insurers and other stakeholders should expect a fairly bumpy ride for the next several years as the Administration and states figure out how this revised state-based exchange model will work.
Finally, the Oregon exchange board met on Thursday to discuss and possibly vote to dissolve Cover Oregon, currently an independent entity, and move the remaining exchange functions into existing state agencies. Oregon is one of two state-based marketplaces that had significant problems with its website and voted to return to HealthCare.gov for the second open enrollment period. Although the governor supports dissolving Cover Oregon, the governor-appointed board was split on the decision and ultimately delayed the vote on the issue, which may still happen later this month.
Oregon is one of four state-based exchanges that had significant issues with its website and spent the last several months in discussions with CMS about the path forward. Massachusetts and Maryland decided to make changes to their exchange vendors and are using different software for the second open enrollment period. Oregon and Nevada decided to return to the federal exchange platform for 2015 because the states lacked confidence they could fix their systems in time for the second open enrollment period. In all four cases, there is no data migration occurring between the former and current exchange platforms, eliminating the opportunity for policyholders to be automatically re-enrolled in coverage. Every current exchange policyholder in these states will be required to re-apply for coverage beginning November 15, 2014 using the new exchange system. It will be interesting to see how the second open enrollment period goes for these states and what happens after that.
The next few years promise to bring more change for both state-based and federally-facilitated health insurance exchanges. We may see more state-based exchanges struggle, and even fail, as some of the smaller states, like Hawaii and Rhode Island, face the reality of what it means to be self-sustaining when federal dollars are no longer flowing. And of course, when this happens, the existing exchange policyholders in the state are forced to re-apply for coverage using the new exchange platform.
On the other hand, this may be good news for insurers who ended up with a smaller market share than they had hoped for initially. The more significant challenge for insurers in these states will likely be the fact that they now have an entirely new exchange system to connect to. And, we will almost certainly see state-based exchanges and possibly even the federally-facilitated exchange revisit QHP certification requirements with an eye toward using the exchange to drive delivery system reforms.
Insurers participating in the exchanges should follow these developments closely because they will impact the requirements for products sold on the exchange and in some cases, the entity (or entities) involved in administering the exchange.