States leaving health markets to feds

Despite years of prodding and pleading by the Obama administration, close to half of the nation’s governors will not take a critical step to implement the president’s healthcare law next year, leaving the job of running new insurance markets for their residents to the federal government.

But what was once viewed as a setback for the Affordable Care Act is increasingly seen as a blessing by consumer advocates, many of whom doubt that officials in some Republican-controlled states are committed to implementing a law they fervently oppose.

“I’m happy this will be run by the federal government,” said Sue Berkowitz, director of South Carolina Apple Seed Legal Justice Center. “With such an obstructionist governor and our inability to work with Washington, I just don’t have confidence South Carolina would do right by our uninsured.”

Sara Gagne-Holmes, head of Maine Equal Justice Partners, said consumer advocates gave up hope that their governor would set up an effective insurance market. “The federal option is probably best at this point,” she said.

Even some Republicans acknowledge that consumers may be better off, at least in the short term, with the Obama administration in charge of so-called insurance exchanges in many states.

“It’s too late now,” said Kansas Insurance Commissioner Sandy Praeger, who tried unsuccessfully to convince her state’s Republican governor, Sam Brownback, to at least work with the federal government on an exchange so the state could control its own market. “We missed our chance.”

Brownback rejected the idea last month. “We will not benefit from it and implementing it could cost Kansas taxpayers millions of dollars,” he said.

These exchanges -- a cornerstone of the law’s program for guaranteeing access to health coverage for all Americans -- are designed to allow consumers who don’t get coverage through work to go online to comparison shop for health insurance, much as they can now buy plane tickets.

Insurance companies selling on exchanges will have to meet new minimum standards and offer a range of health plans. Some will have low deductibles and cost-sharing, but are expected to be more expensive; others will have lower premiums but higher deductibles and more out-of-pocket costs.

Americans making less than four times the federal poverty line -- about $44,000 for a single adult or $92,000 for a family of four -- will qualify for federal subsidies to offset their premiums. Those below 138% of the poverty line will be able to sign up for Medicaid coverage in states that elect to expand their Medicaid programs.

The exchanges are ultimately expected to help about 25 million Americans get health coverage, according to the nonpartisan Congressional Budget Office.

Many consumer advocates, regulators, insurers and healthcare experts had hoped each state would operate its own exchange, rather than cede control to the federal government.

“Local regulation provides better consumer protections and better opportunity to ensure that the health plans that are offered are appropriate for the market,” said Kim Holland, a former Oklahoma insurance commissioner who now works for the Blue Cross Blue Shield Assn., a leading industry group.

Health insurance has traditionally been regulated by state officials, not the federal government, reflecting the wide variation in how healthcare is provided across the country.

Even consumer advocates in states with traditionally weaker regulation initially pushed for local control. “We really hoped Texas would run its own exchange,” said Stacey Pogue, a senior policy analyst at the Austin-based Center for Public Policy Priorities, which now favors a federal exchange in Texas because Gov. Rick Perry is hostile to the law.

Seventeen states -- most with Democratic governors -- and the District of Columbia were expected to notify the federal government by midnight Friday that they would run their own exchanges. Those that choose not to run exchanges can either defer to Washington or work in partnership with the federal government. More than half a dozen states, including Illinois, have expressed interest in a cooperative exchange.

Many states that plan to run their own exchanges, including California, Connecticut and Maryland, have been working aggressively over the last 21/2 years to set up the technology and customer-support systems, as well as develop standards that insurance companies will have to meet to sell health plans.

Officials in these states have cooperated closely with the Obama administration. In many cases, they have tailored their exchanges to reflect local priorities.

For example, California, Massachusetts and Rhode Island plan to negotiate premiums with insurers themselves. Hawaii and Colorado, in contrast, plan to be less restrictive. The Obama administration has indicated the federally run exchanges will take a more hands-off approach.

“California is going to have a California-specific solution,” said Peter Lee, executive director of Covered California, the state’s exchange. “And we are very confident that we’ve not only been given the guidance, but the tools and the resources to stand up our exchange this October.”

While states like California moved forward, most of those with Republican governors held back and sued unsuccessfully to invalidate the health law.

Many now say they haven’t received sufficient guidance from the Obama administration or haven’t been given adequate autonomy.

“The law fails to give South Carolina any flexibility and decision-making authority that would enable us to truly construct the program in a manner that would offer the most meaningful benefit to our citizens,” Gov. Nikki Haley told the Obama administration in rejecting a state option.

Other governors have complained about the cost. Beginning in 2015, the exchanges are to be self-funded, which will likely require most to assess fees on insurers to participate. That arrangement threatens to lead to increases in premiums.

Obama administration officials say they are prepared to run an exchange in any state that doesn’t want to operate its own.

“We are all keenly aware that open enrollment is coming quickly, and we will be ready to open our doors on Oct. 1, 2014,” said Gary Cohen, who is overseeing the exchange effort at the Department of Health and Human Services.

The administration plans to begin reviewing health plans to be offered in the exchanges next April and to open a customer call center next summer.

Most experts believe the federal government will hit its target dates despite the logistical challenges.

“They have already let the contracts to do this,” said Dan Mendelson, chief executive of Avalere Health, a consulting firm that is advising corporations about exchanges nationwide. “This is a signature accomplishment for the president. He’s not going to let it slide.”

Mendelson said he expected many states would decide in coming years to take over their exchanges, an option Obama administration officials have said they would welcome.

Praeger, the Kansas insurance commissioner, advised Republican state leaders to take advantage of the offer or risk the very scenario so many say they fear.

“The federal government will prove they can do this,” she warned. “And down the road, there will be even more pressure for expanding Washington control.”

--

noam.levey@latimes.com