States take practical path on exchanges

When the Affordable Care Act was debated in Congress, the House of Representatives wanted one federal exchange and as much federal control of state insurance markets as possible. The Senate wanted state insurance exchanges and state flexibility to tailor market rules to local market conditions.

The Senate won, in part, because local insurance markets really do vary and are better managed at the state level, even when the federal government is setting the basic goals. In fact, state-federal partnerships are woven into the fabric of many healthcare laws, with the states zealously guarding their prerogatives, under both state and federal health insurance laws, to oversee insurers, protect consumers and promote competitive markets. 


That pattern is being challenged as the ACA moves toward full implementation, and — ironically — it is the traditional defenders of states’ rights who are voluntarily ceding state control. In more than half the states, Republican governors and legislators are under pressure from a small contingent of ideologues threatening primary challenges against any elected official who cooperates with ObamaCare.

Most red states held back through the Supreme Court deliberations and the election campaign, but as the ACA moves toward full implementation, some are now charting a more practical course. To date, 25 states, including seven led by Republican governors, have developed blueprints for either a state-run exchange or a state-federal partnership exchange, in which the federal government would run the back office and the state would be responsible for insurer oversight and/or consumer assistance — the key areas where states have expertise and experience with local market dynamics that would be challenging to manage from Washington.

Just last week, Ohio Gov. John Kasich and Michigan Gov. Rick Snyder became the fifth and sixth Republican governors to opt for Medicaid expansion. Their decisions have made it easier for more Republican governors to stand with hospitals and other pragmatic stakeholders interested in expanding access to care and obtaining new federal money to reduce the cost that is shifted to private employers and plans to pay for the uninsured.

That still leaves more than 20 states in which Republican governors and legislatures face difficult choices on the exchanges and the Medicaid expansion. As the remaining states consider their options, the implications of the choices they face are becoming far more clear. 

On the issue of Medicaid expansion, there are independent analyses for every state, and they all show an overwhelming benefit to state economies, typically including savings for tight state budgets in the early years once all the spending offsets are factored into the analysis.

Most significantly, stakeholder engagement has led to near unanimous support for Medicaid expansion and state exchanges among local business leaders, hospitals, insurance companies and consumer groups. Creating such coalitions in the future might not be so easy if the federal exchange is forced to take over the decision-making process this year. 

Although the deadline has passed for pursuing a state-based exchange in 2014, now is the time for states to position themselves with a strategic plan for Medicaid expansion and active engagement with the exchange marketplace. The federal exchange can handle the tough challenges of setting up a new information technology system for distributing tax credits while states leverage federal dollars to modernize Medicaid. The federal government can manage the back-office financial transactions while states embrace the opportunity to shape their exchange’s relationships with insurers and consumers and to manage the transition to the new marketplace that is coming with or without state leadership.

Each state will have to make its own decisions. But those that accept the authority provided them under the ACA will find many opportunities to shape the law as it was intended to be shaped at the local level. The partnership can continue as governors negotiate with the federal government about locally smart waivers from some Medicaid and ACA rules over time. All that is required is to stop listening to the ideologues and start listening to those who offer a more pragmatic vision for the future of healthcare.  

Ario is a managing director at Manatt Health Solutions and the former director of the Office of Health Insurance Exchanges at the Department of Health and Human Services. Nichols is an economist, professor of health policy, and director of the Center for Health Policy Research and Ethics at George Mason University in Fairfax, Va.