HHS Announces $220 Million in Grants To 13 States for Health Insurance Exchanges

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By Sara Hansard

Nearly $220 million was awarded Nov. 29 to 13 states by the Department of Health and Human Services to create insurance exchanges under the health care reform law, and states were given more time to apply for future grants.

In addition, HHS specified in guidance that states that create their own internet-based exchange markets that are to start operating in all states in 2014 will have more options in determining eligibility for tax credits and Medicaid than would have been the case under proposed regulations issued Aug. 12 (see previous article). HHS has issued five proposed regulations on exchanges under the Patient Protection and Affordable Care Act.

In “Frequently Asked Questions” guidance posted on its website, HHS gave states an additional six months—until June 29, 2012—to apply for “Level One” establishment exchange grants to give them more time to secure legislative approval authorizing the state-based exchanges. The Level One grants provide one year of funding to states that have made progress using exchange planning grants, which were awarded earlier.

States will have two additional opportunities to apply for the Level One awards next year, HHS Secretary Kathleen Sebelius said in a press call.

“More than half the states have made significant progress toward creating exchanges,” Sebelius said. States will use the funds to get stakeholder input to help shape exchanges and hire staff to ensure exchanges are coordinated with state Medicaid programs, among other uses, she said.

States Moving at ‘Their Own Pace.'

“States are moving at their own pace to get their exchanges up and running,” Sebelius said. “This is a natural result of the process that gives states maximum flexibility.”

While the exchanges will initially only be open for individuals and small businesses to shop for coverage, states have the option of opening them to large businesses in 2017.

In the FAQ, HHS gave more information on how exchange grants can be used by states, and it broadened conditions under which states can form partnerships with the federal government in operating exchanges. Under PPACA, HHS will operate exchanges in states that do not set up their own. The FAQ clarified that exchange grants can be used to build state exchanges even if the exchange does not go into operation until after 2014, Sebelius said. Under PPACA, state exchanges must be self-sustaining by 2015.

In addition, state insurance rules will continue even if the federal government operates the exchange, Sebelius said.

With the Nov. 29 grants, 28 states and the District of Columbia have received exchange awards and are making significant progress in creating exchanges, HHS said in a release.

Rhode Island was the first state to apply for and receive a Level Two grant of $58.5 million to continue work started under a previous grant on operations, information technology infrastructure, consumer support, exchange governance, and staffing, HHS said.

States Receiving Grants

In addition to Rhode Island, 12 states received the Level One establishment grants on Nov. 29. They were New Mexico, which received $34.3 million; Arizona, $29.9 million; Idaho, $20.4 million; Vermont, $18.1 million; Hawaii, $14.4 million; Michigan, $9.8 million; Alabama, $8.6 million; Iowa, $7.8 million; Maine, $5.9 million; Nebraska, $5.5 million; Delaware, $3.4 million; and Tennessee, $1.6 million.

The total amount awarded for all exchange grants so far, which include planning grants, early innovator grants, and establishment grants, is $733.8 million, an HHS spokesman told BNA in an e-mail.

Moving Forward Despite PPACA Legal Challenge

Chiquita Brooks-LaSure, director of coverage policy in HHS's Office of Health Reform, said during the press call that, despite the fact that some of the states receiving exchange grants are suing over the constitutionality of PPACA and it is not clear whether their legislatures will authorize exchanges, “We think that states are in the position of really understanding best what the needs are for their residents, and so we continue to encourage states to come in and apply and to move forward in their implementation.”

“There may be some states that, while they're looking to see whether the Supreme Court will uphold the law, really want to move forward, because they know that if they don't establish an exchange for 2014 that HHS will establish one in their state,” she added.

HHS wants to ensure that exchanges are in operation when open enrollment begins in October 2013, Brooks-LaSure said. Under proposed exchange regulations, states have to be certified by January 2013 to operate exchanges in 2014, she said. Under the proposal, states could be approved conditionally if they are making progress to operate exchanges after 2014, and HHS would operate the exchanges initially, she said.

Grants Available Without Full Certification

The new FAQ guidance clarified that states can continue to receive grants even if they are not fully certified in January 2013, and it makes clear that states can continue to spend money beyond January 2015, Brooks-LaSure said.

The FAQ further specified that, in states where HHS operate exchanges, “To the extent that we can, we will look to state rules so that the federal exchange is really harmonized with the state insurance rules,” Brooks-LaSure said.

As an example, she said that most states have network adequacy rules under which state insurance commissioners ensure that plans have at least minimum network coverage. “We're saying that the federal exchange, to the extent possible, will use the states rules and be coordinated so that plans do not have duplicative requirements,” she said.

The new awards are the second round of establishment grants to be given, Brooks-LaSure said. The next deadline to apply for exchange funding will be at the end of December, and funding will be done on a quarterly basis, she said.

Medicaid Eligibility Rules Laid Out

Under PPACA, people with incomes up to 133 percent of the federal poverty level will be eligible for Medicaid, and people with incomes of between 133 percent and 400 percent of the poverty level will be eligible for premium subsidy tax credits through the exchanges. Questions had been raised about the impact on state budgets if HHS, in running federal exchanges in states that do not set up their own, determined Medicaid and CHIP eligibility.

In the FAQ guidance, HHS said it will conduct the initial assessment of applicant eligibility for Medicaid and the Children's Health Insurance Program in states where it operates exchanges. State Medicaid and CHIP agencies could make final eligibility determinations if they come to an agreement with HHS to ensure that applicants are not required to submit redundant document and decisions are made in a timely manner, HHS said.

If HHS operates exchanges in states that do not enter into agreements to determine Medicaid and CHIP eligibility, the HHS exchange will use state rules for determining Medicaid-CHIP eligibility and for determining premium tax credits and other cost-sharing reductions for moderate-income people, HHS said.

State-operated exchanges also could choose to let the federal government determine the premium tax credits, cost-sharing reductions, and exemptions from the individual mandate requirement of PPACA, as well as Medicaid and CHIP eligibility, HHS said. The federal government could verify employer-sponsored minimum essential coverage required by the law, it said.

HHS also said that qualifications for plans offered through federal exchanges must meet state licensing and solvency requirements, and it will apply state standards on marketing materials and dealing with consumer complaints.

HHS said in the guidance that it is working to determine whether state reviews of rates and benefit packages could be used to certify “qualified health plans” under PPACA.

IRS Data Available to States

The FAQ laid out the data the Internal Revenue Service will provide to states to support eligibility verification in the exchanges.

In October, a group of House Republicans urged the House Appropriations Committee to withhold funding for a medical records database that they said HHS planned under a proposed rule that would help states set risk adjustment standards for health plans participating in new health insurance exchanges (see previous article). The Republicans objected on the grounds that the database would use raw claims data that included personal medical information.

In the Nov. 29 FAQ guidance, HHS said that it “did not propose and will not implement any proposal that calls for states or the federal government to collect personal data such as name, social security number, or address for the risk adjustment program,” and that neither it nor states would be required to collect information identifying individuals' doctors.

In response to questions about whether people eligible for premium subsidies can receive them through federally operated exchanges (see previous article), the FAQ guidance said that individuals enrolled through the federal exchanges will have access to the subsidies.

More information on the grants to the 13 states is at http://www.healthcare.gov/news/factsheets/2011/05/exchanges05232011a.html .