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February 2011 St@teside

States Consider Exchange Legislation

State legislatures have begun consideration of health insurance exchange legislation— many will pass legislation this year to authorize an exchange and set up its governance and administrative structure. The proposed bills generally include broad policy requirements but leave the operational details to those charged with governing the exchange. Even so, the governance of exchanges involves many thorny issues that states are beginning to work through, including whether the exchange will be governed by a governmental, non-governmental, or quasi-governmental agency and how members of the board should be selected.

Deb Faulkner, a consultant for the Office of the Health Insurance Commissioner in Rhode Island, recently catalogued 19 states and the District of Columbia that have proposed legislation to authorize an exchange. Within that group are a variety of governance structures:

  • Eight propose quasi-governmental agency (includes existing Massachusetts law);
  • Four have multiple proposals, including at least one bill with quasi-governmental and one with non-profit;
  • Four propose state government agencies (includes existing Utah law);
  • Two propose non-profit agencies; and
  • Two charge a development board of the governor to come back to legislature with a proposed structure.

The decision to utilize a quasi-governmental agency has been driven by concern about the other two options. Although every state is different, policymakers are expressing general concern about a government-run exchange. Stakeholders see current problems with hiring freezes, furloughs, and long-standing procurement issues. They also recognize that the exchange will need to operate more like a business selling products and working with vendors; there is concern that government might not be the right entity for those tasks. On the other hand, a non-profit is seen as not having enough public accountability. Consequently, states are trying to create new entities that take the flexibility and innovation of the private sector and the accountability of the public sector and calling them “quasi-governmental,” though the term can encompass many different types of arrangements. Following are a few examples of approaches being taken by states:

  • The Rhode Island Senate president has introduced legislation that would create a quasi-public entity that will be subject to the Rhode Island procurement laws and open meeting standards. However, the exchange will use its own procurement process to ensure that exchange priorities do not get bogged down in the general procurement process or lost in the mix of other state priorities.
  • The West Virginia legislature is considering a bill that would place the exchange within the Department of Insurance, though still “supervised and controlled” by a board.
  • The Virginia legislature passed legislation that states an “intent to establish” an exchange. It charges the governor with bringing recommendations, in consultation with stakeholders and the public, to the legislature for the 2012 legislative session.

The other big challenge facing state legislatures is determining membership for the governing board of the exchange. Policymakers want to make sure that the board includes expertise in a broad range of areas, but they are also hesitant to include individuals who are beholden to a particular interest. For that reason, they are considering conflict of interest provisions that would prevent individuals who are employed by industries regulated by the exchange from being board members. Following are a few examples of approaches states are taking:

  • The District of Columbia will have a quasi-governmental entity with a board that will include three members selected by the mayor, four by the council and the director of the Health Care Financing Administration as a voting ex officio member. Each person on the board will be expected to have expertise in at least two of the following areas: a) individual or small employer health care coverage; b) health benefits plan administration; c) health care finance; d) administering a public or private health care delivery system; e) purchasing health plan coverage; f) prior experience in commercial insurance management; g) actuarial analysis; g) health care economics; and h) human services administration. The board members will not be able to be employed by or representatives of carriers, providers, or brokers.
  • Montana has legislation that would establish a quasi-governmental entity with a board appointed by the governor and affirmed by the state Senate. None of the members can be currently employed by a health insurance plan, association of plans, or a broker. The individuals selected must fit the following criteria:
    • Specialized knowledge regarding health insurance and health care financing or health care access;
    • Actuarial background;
    • A business person with significant experience in health insurance plans who is eligible to purchase coverage through the SHOP exchange;
    • The administrator of plans for group benefits;
    • The state Medicaid director;
    • A representative of a health-related consumer advocacy organization; or
    • A representative of a union eligible to participate in the SHOP exchange who has significant experience in health insurance plans.

In each state, the board appointment and composition will be a blend of usual state practices and best practices being established by states as they propose and pass exchange legislation. States are also considering the pool of local talent and who would be available and needed to serve on the exchange board.