States face “key obstacles” in establishing health insurance exchanges mandated by the health reform law, state lawmakers told a Senate panel March 17, saying the absence of final guidance on what essential benefits health insurers participating in the exchanges must provide is hamstringing efforts to get the exchanges up and running by 2014.
“Final guidance from the Department of Health and Human Services is critical,” said Sandy Praeger, insurance commissioner of Kansas, who testified on behalf of the National Association of Insurance Commissioners.
“Guidance on the contents of an essential benefits package will be a crucial piece that will impact the availability and affordability of coverage and the cost of subsidies” in the exchanges, Praeger said in testimony before the Senate Committee on Health, Education, Labor and Pensions. “And we need that guidance ASAP,” she added.
Under the Patient Protection and Affordable Care Act (PPACA), individuals and small businesses will be able to purchase health insurance through competitive marketplaces, or exchanges, in each state beginning in 2014. The exchanges must offer a choice of health plans that cover “essential benefits,” which the act defines in general terms.
Steve Larsen, director of the Center for Consumer Information and Insurance Oversight at the Centers for Medicare & Medicaid Services, testified that HHS has asked the Institute of Medicine to make recommendations on an essential benefits package, but he declined to say when IOM would make its recommendations.
In response to questioning by Sen. Tom Harkin (D-Iowa), the committee chairman, Larsen said HHS is holding hearings nationwide “in a process that is a very inclusive one” with input from all affected stakeholders.
Sen. Richard Burr (R-N.C.) noted that the absence of final guidance on essential benefits is preventing states from obtaining waivers from many of PPACA's requirements.
“Isn't it true that in order to apply for waivers states must demonstrate the state plan is at least as comprehensive as the coverage that would have been provided under the health care law--including essential health benefit requirements--which haven't even been determined yet?” he asked Larsen.
Larsen responded that HHS recently issued a proposed rule on state innovation waivers, adding, “We're not accepting applications for waivers because that rule is a proposed rule and we want to get feedback from the states, frankly.”
Praeger said another major challenge facing states is how effective PPACA's individual mandate will be in minimizing so-called adverse selection in the exchanges. Adverse selection occurs when those covered in the exchange are mostly the sick and elderly, a result that means “rates will rise,” she said.
The individual mandate, which requires the uninsured to obtain health insurance, is intended to bring enough healthy people into the exchange to expand the risk pool, she noted, but the mandate is being challenged in court by 28 states. The constitutional challenge is ultimately expected to be decided by the Supreme Court sometime next year, according to legal experts.
Another major issue facing states, Praeger said, is how to treat multistate insurance plans operating in the exchanges. “If they're allowed to operate under rules that are significantly different from those that govern their competitors, again, potential adverse selection,” she said. “They must play by the same rules as the other carriers, or consumers could be harmed.”
The same concern applies to state insurance carriers that operate inside the exchange and outside the exchange, Praeger said.
While not responding directly to the issue, Larsen said in response to earlier questioning by Sen. Michael B. Enzi (R-Wyo.), the committee's ranking Republican, “I don't think we've made a determination about exactly which insurance rules should apply inside the exchange and outside the exchange.”
He added, “But our goal always is … to the extent we can, provide that flexibility to the states to make those determinations.” Larsen said HHS expects to issue a proposed rule relating to the exchanges “sometime this spring,” without elaborating on the content of the rule.
“An intrinsic flaw of PPACA is that it fails to unleash the potential of states to innovate in designing reforms that respond to their own unique circumstances,” said David Clark, speaker of the Utah House of Representatives, after outlining Utah's experience in developing its own exchange over the past two years. Utah, along with Massachusetts, is one of two states that have been operating exchanges in advance of PPACA's 2014 deadline.
“States were never invited to the table to give input on health care reform as that legislation was being fleshed out,” Clark said.
Harkin reminded Clark that he and other state representatives had testified before the committee as it was considering the current health care legislation.
Clark replied that, “while the door was always open to hear state concerns,” few of their suggestions were adopted in the final bill.
Harkin noted that the committee had just heard testimony detailing the flexibility states had in designing exchanges in areas such as governance, insurers who could participate, and the products they could offer, among other things. “It seems to me states have quite a bit of flexibility,” the committee chairman said.
Also testifying was Joshua Sharfstein, secretary of the Maryland Department of Health and Mental Hygiene. He said Maryland's General Assembly is considering enabling legislation for the exchange that would create a public corporation as a governing board, comprising three state officials and six nongovernmental members.
Witness statements and a webcast of the hearing are available at http://help.senate.gov/hearings/hearing/?id=a009134e-5056-9502-5d63-3fa289d3e6b5.
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