HHS plays up flexibility in rules for new insurance exchanges

Obama administration officials emphasized flexibility for the states as they rolled out a highly anticipated regulation on insurance exchanges Monday.

The proposed rule leaves most key decisions up to the states, though it sets some minimum standards for every exchange — including limits on the role of insurance companies and agents.

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The healthcare law requires the Department of Health and Human Services (HHS) to run a federal exchange in any state that doesn’t establish its own, but HHS’s regulation provides some leeway for states that need extra time or help with some pieces.

“I think it’s normal that you’re going to have states moving at different paces, for a whole host of different reasons,” said Steve Larsen, the director of the HHS office overseeing implementation of the new law.

In 2013, HHS is supposed to either certify that states will have their own exchanges in place by 2014 or step in to run the federal fallback. The regulation released Monday provides a third option — a “conditional approval” for states that haven’t met all of HHS’s criteria by 2013 but are still likely to be ready by 2014.

Policy analysts and consumer advocates have said they would have expected the states to be further along in setting up exchanges, which allow people who don’t have coverage through an employer to shop for health insurance on the open market at competitive rates. Laws to establish an exchange have been signed in 10 states.

Larsen said it’s too early to predict how many states will establish their own exchanges and how many will rely on the federal marketplace.

The exchange regulation also says HHS can handle certain parts of a state’s exchange without running the whole thing. Department officials said states might turn to the federal government for help with enrollment procedures and other information-technology issues.

“Not every state will be prepared to perform every exchange function,” Larsen said.

Industry groups were still reviewing the proposal Monday, but urged state and federal policymakers to take a hands-off approach to the new marketplaces.

“Exchanges work best when they are true marketplaces that maximize choice and competition so that individuals, families and small businesses can purchase plans that are right for them,” America’s Health Insurance Plans said in a statement.

Some consumer advocates want states to create exchanges that can negotiate with plans and impose requirements beyond those in the federal law. Insurers, conservatives and many unaffiliated policy experts say the exchanges might be more effective, at least initially, if they simply certify that plans meet federal standards.

HHS Secretary Kathleen Sebelius said Monday that the proposed rules ensure states are free to go in either direction.

But the regulation still has some mandates, including rules about how an exchange should be governed.

HHS said people who profit from the sale of insurance — the companies themselves, as well as agents and brokers — can’t control a majority of the seats on any exchange’s board of directors. The board members should have experience in healthcare purchasing or other areas of health policy, the rule says.

Timothy Jost, a consumer advocate and law professor at Washington and Lee University, said he wanted the conflict-of-interest rules to be even tighter. Insurers shouldn’t be on exchange boards at all, he said.

But consumer groups were generally pleased with the proposal.

“These new health coverage marketplaces in states across the country will place America’s consumers in the driver’s seat: Along with more choices, many families will receive robust premium subsidies so that health coverage is more affordable,” Families USA said in a statement.