Obama faces huge challenge in setting up health insurance exchanges

The Obama administration faces major logistical and financial challenges in creating health insurance exchanges for states that have declined to set up their own systems.

The exchanges were designed as the centerpiece of President Obama’s signature law, and are intended to make buying health insurance comparable to booking a flight or finding a compatible partner on Match.com.

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Sixteen states — most of them governed by Republicans — have said they will not set up their own systems, forcing the federal government to come up with one instead.

Another five states said they want a federal-state partnership, while four others are considering partnerships.

It's a situation no one anticipated when the Affordable Care Act was written. The law assumed states would create and operate their own exchanges, and set aside billions in grants for that purpose.


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“There's no way around it — this is a big job,” said Sabrina Corlette, a health policy expert at Georgetown University.

Since different states have different insurance markets and different eligibility requirements for Medicaid, Obama’s Health and Human Services Department can’t simply take a system off the shelf as a one-size-fits-all fail-safe.

"You can't simply deploy one federal exchange across the board," said Jennifer Tolbert, director of state health reform at the Kaiser Family Foundation.

"Each state is different — their eligibility systems are different, their insurance markets are different. [HHS is] going to have to build these exchanges to fit into the context of each state."

Every state must have an exchange by Jan. 1, 2014, meaning HHS doesn’t have a lot of time to do a massive amount of work. The department could quickly run through a $1 billion fund designated for implementing the exchanges.

Experts have predicted that the department will soon have to tap budgets from its other programs to cover exchange costs. Other have said it might charge fees on the insurance purchased in its exchanges once they are launched.

And as it moves forward, the department will continue to deal with political battles. Speaker John Boehner (R-Ohio) on Wednesday said repealing Obama’s law should be one of the topics covered in budget discussions in the lame-duck session.

The idea behind the exchanges is to match the uninsured with plans that meet their needs and reflect their eligibility (or lack thereof) for government help.

In practice, the process will require websites that can process massive amounts of personal information from users and yield search results for everyone.

An exchange portal might tell an uninsured woman she is eligible for a premium tax credit, for example, after processing her Social Security number and tax-return figures. Officials hope that woman would go on to compare relevant health plans available in her state and then enroll online.

Constructing these sites is just one task facing HHS when it comes to states that have decided not to do the job themselves.

Each portal will require a front end — the interface consumers will use to submit their information and shop for plans — and a specialized back end that is customized based on the state.

HHS will also construct a range of other systems: a federal data hub for verifying user identity; programs for user assistance; a way to certify that health plans meet federal standards; a way to navigate the exchanges via phone or apply for coverage by mail; and so on.

While HHS has pushed back the cutoff points for states to choose how to run their markets, the department has indicated that the Jan. 1, 2014, deadline is holding firm.

“I personally haven't heard any discussion of a delay,” healthcare reform opponent Rep. Phil Gingrey (R-Ga.) recently told The Hill.

The administration faces challenges beyond the financial and technical, too.

The department has no knowledge of local insurance markets compared with state insurance regulators. It is also not likely to see its markets as a way to grapple with state-by-state health issues.

Dan Mendelson, CEO of consulting firm Avalere Health, cited obesity as an example.

“Say there's a really big obesity problem in a Southern state,” he said. “If that state were running its exchange, it could say to insurers, 'We want to make sure you have a plan that encourages diet and exercise.' Medicaid frequently does this. The program is always tailored to the specific needs of the state.

“By ceding the prerogative on their exchanges, states lose the opportunity to make those choices."

This might be the biggest difference between state- and federally run exchanges, experts said, though consumers are not likely to notice as they shop for insurance.

“States that are moving forward with their own exchanges have a long history of regulating their insurance markets. These are states that are more likely to selectively contract with certain health plans," said Tolbert.

"States that are defaulting to a federally run exchange typically do much less regulation. If they had run their exchanges, they probably would have adopted a clearinghouse approach, which is what the federal exchange is going to do."

Experts expressed one main concern across the board — that people eligible for Medicaid but not for the exchanges might fall through the cracks in federally run systems, since enrollment in the program is run by states.

“That's the thing I'm most worried about,” said Judy Solomon, vice president for health policy at the Center on Budget and Policy Priorities.

“There has to be a smooth way to connect people with Medicaid.”