Federal health insurance exchanges face uphill battles
■ The marketplaces may run into adverse selection problems and struggle to comply with state laws, says a report — concerns echoed by some physician organizations.
By Jennifer Lubell — Posted Feb. 18, 2013
Washington Federally operated health insurance exchanges may find it more challenging than other exchange models to attract healthy patients and maintain stable insurance markets, said the author of a new policy brief by Health Affairs and the Robert Wood Johnson Foundation.
The Affordable Care Act created the exchanges to provide individuals and small businesses with a means to shop for coverage options. Although some states have opted to develop their own marketplaces, about half are leaving it up to the federal government to run exchanges in their states. A handful have chosen a state-federal partnership approach, in which states would retain traditional insurance regulatory authority.
In so-called federally facilitated exchanges, the federal government will operate the marketplaces, not just facilitate them, wrote the brief's author, Sarah Goodell, an independent health policy consultant. Depending on the arrangement they strike with the Dept. of Health and Human Services, states could end up performing some duties, such as administering the states' reinsurance programs and making final eligibility determinations for Medicaid and the Children's Health Insurance Program.
Based on how they're constructed, however, HHS faces specific challenges in forming these federal models. The entire model of the ACA was predicated on states running their own exchanges and maintaining direct control over their regulated industry environments, said Sara Rosenbaum, a professor of health policy at George Washington University's School of Public Health and Health Services in Washington. With at least 30 states opting not to do this on their own, including those in partnership exchanges, “it's going to be a bumpier ride” than it would have been if all exchanges were state-based, she said.
As Goodell points out in the policy brief, states can decide whether to apply the same regulatory requirements to health plans both inside and outside the exchanges. Federally operated marketplaces don't have this flexibility, however, because they can regulate only the health insurance plans sold through the exchanges.
If outside plans sold coverage that wasn't as comprehensive but was cheaper than those in the federal exchanges, sicker people might gravitate toward the federal marketplaces, resulting in adverse selection. “Over time, the coverage sold through exchanges will thus become more expensive as the sicker population incurs more claims — deterring more people from buying coverage through the exchange,” Goodell said.
Dan Heinemann, MD, a family physician and president-elect of the South Dakota State Medical Assn., said such a situation could play out in his state. For the time being, South Dakota has decided on a federal exchange, and the concern among doctors is that the sickest people will be left out, “or they'll get into a plan by virtue of the fact that they have so many costs that the provider payments will come out on the short end of all of this.”
The ACA contains some risk-adjustment provisions to mitigate the effects of adverse selection, but these might not take effect right away, Goodell said.
HHS also faces the task of harmonizing each of its federal exchanges with existing state insurance laws and regulations, the policy brief noted. “Because HHS will be operating the exchange in 25 states, it will be difficult for the agency to tailor an exchange to meet each state's unique insurance market needs,” it stated.
In Pennsylvania, another state that will default to a federal exchange, “we have very strong insurance laws and regulations that would require legislative action in Pennsylvania, including the governor's approval, to make the changes and allow the feds to come in and do this,” said C. Richard Schott, MD, a cardiologist and president of the Pennsylvania Medical Society.
Pennsylvania's insurance market is dominated by BlueCross BlueShield plans, which in theory should make transitioning to the new exchange straightforward. “The problem is we have four Blues plans that are divided across the state. They won't sell insurance across the state lines, and their products are different. All of this has to be worked through and accounted for,” Dr. Schott said. For these reasons, he doubts the federal government's ability to get the exchange up and running in time to enroll people for the 2014 coverage year.
Impact on doctors is unclear
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As of mid-February, half of states had opted for a federally run health insurance exchange.
How all of these implications will affect physician practices is speculative at this point, Goodell said. “So much remains to be seen in how HHS rolls out the [federal exchanges], the relationships with the states and the participation of insurers,” that it's still too early to predict the effects on doctors, she said.
Whether it's a federally or state-operated insurance marketplace, “the big implication for practices is [there's going to be] a whole lot of newly insured people in need of health care. I don't think it's going to matter whether it's a federal or state exchange,” Rosenbaum said.
Of the three exchange models, Rosenbaum said the partnership route made the most sense. “If I were a governor or legislature, I would have chosen the partnership, because the federal government would carry out all of the technical stuff” and the state could maintain control over enrollment and plan marketing, she said.
Dr. Heinemann said physicians hope South Dakota eventually moves to a state exchange “so that we can have more say in how the exchange is run and have some say in what is being offered in these plans.”
South Dakota Gov. Dennis Daugaard, a Republican, has said he wants to continue to review the situation, but “in our state, a lot of decisions can't be made until the federal government's fiscal house is put in order,” Dr. Heinemann said. Daugaard has indicated that he is reluctant to commit to an exchange and spend state dollars on one until he's seen what happens with the budget sequestration process that is set to make automatic across-the-board cuts to government spending starting March 1.