States slow in setting up central piece of Obama healthcare law

State insurance exchanges are not being set up fast enough to meet the 2014 deadline set by the healthcare law, advocates and policy experts say. 

The delay means that a number of state legislatures are at risk of handing over the central component of the reform effort to the federal government, which will set up the exchanges for states that fail to do so.

Governors in 10 states have signed laws that establish an insurance exchange — a new marketplace where individuals and small businesses will be able to buy insurance.

“I think that a year ago, many of us who work with states would have predicted that more states would have passed legislation,” said Anne Gauthier, senior program director at the National Academy of State Health Policy. “Although exchanges are about as bipartisan an idea as perhaps exists in the health policy world … politics has played very heavily at the state level.”

Establishing an exchange is a mammoth undertaking, and states don’t have a lot of time to complete the task. 

The exchanges must be up and running by 2014. But it’s in 2013 that the Health and Human Services Department will evaluate each state’s progress and determine where it needs to step in with a federally run “fallback.”

Unless the Supreme Court overturns the healthcare law, staunch political opposition to implementing it could ultimately give the federal government more power. 

Some governors who oppose the healthcare law aren’t flinching despite the risk of federal intervention. Florida Gov. Rick Scott (R) has prohibited state agencies from working on an exchange or applying for federal grant money for a state insurance exchange.

But even in many of the conservative states that haven’t passed an exchange bill, Gauthier said, there’s still a strong desire to retain control of the program. And HHS officials have unequivocally said they want the states to create their own systems.

“They’re really trying to make it easy for states,” Gauthier said.

States will learn more about what’s expected of them when HHS releases its first regulation on the exchanges. That rule — rumored to be as long as 800 pages — was expected to come out late this week, though the release has likely slipped.

The handful of states that have already acted might provide some guidance about the way forward for more reluctant legislatures by showing that they don’t have to deal with some of the most controversial issues.

There is an intense debate in the healthcare world, for example, over how much power exchanges should have. Should they be able to actively negotiate with insurance plans, or simply certify that policies meet federal standards?

Lawmakers in Maryland and Oregon — states with reputations as leaders in health policy — left that decision to their exchanges’ boards of directors. California, the first state to pass an exchange bill after healthcare reform, included a statement that the exchange could be an active purchaser but left specific decisions to the board.

“It clearly is possible to make that initial step without having to address every issue that will ultimately need addressing, and it can buy the states some time,” said Jennifer Tolbert, who tracks the exchanges for the Kaiser Family Foundation.

That trend — few states acting, and often punting on key issues when they do — has shifted the emphasis in state-level lobbying. Supporters of the healthcare law are putting less emphasis on policy decisions and focusing instead on governance.

“The best way to go is to give a lot of discretion to the exchange, and it can evolve,” said Tim Jost, a Washington and Lee University law professor.

State lawmakers can’t avoid deciding who will have a seat on their exchanges’ boards, and consumer advocates are pressing hard to limit the influence of insurers. Jost said he’s been dissatisfied with some of the conflict-of-interest policies that have been passed in the state laws.

Similarly, states have to decide where to house their exchanges. Most of the early states have opted for a quasi-governmental authority, similar to the structure in Massachusetts’s exchange, which predates the federal healthcare law. 

Notably, however, West Virginia opted to put its exchange in the insurance commissioner’s office — an approach many policy experts have discouraged because it combines the exchange with a regulatory authority.