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September 2011 St@teside

State Roundup: Health Benefit Exchange Updates

State Roundup

The 10 states that enacted legislation in 2011 establishing state-based exchanges are moving forward with the implementation process. One state—Rhode Island—is establishing an exchange through an executive order. Michigan has recently introduced legislation to establish an exchange. Other states are also making progress in investigating whether or how to set up a state-based exchange.

In response to Michigan Governor Rick Snyder’s request that the legislature pass legislation establishing a state-based exchange by Thanksgiving, Senator Jim Marleau introduced a bill (SB 693) in the Senate Health Policy Committee. The bill is supported by Governor Snyder and would establish the MiHealth Marketplace as a nonprofit corporation running individual and Small Business Health Options Program (SHOP) exchanges. The exchange board would be composed of seven voting members, five of whom would be appointed by the governor. The Senate and the House would each appoint one member as well. Board members cannot be employed directly or indirectly by a provider, a carrier, or a producer. The bill details the many duties required of the exchange.

Rhode Island’s Governor Lincoln Chafee signed an executive order on September 19 establishing a health benefits exchange. Rhode Island’s exchange legislation failed in July, but the state needs to have the authority to establish and operate an exchange before it could apply for a Level Two Establishment Grant by September 30.

The executive order notes that the goal of the exchange is to provide consumers with the best combination of choice, value, quality, and service. Additionally, the exchange may help individuals and employers choose the plans most suitable to them. The executive order also includes a requirement that the exchange addresses payment reforms and benefit designs that promote quality and efficiency.

The exchange board is composed of 13 members appointed by the governor. Four members will come from the government and nine from the public, with at least two representing consumer organizations and two representing small businesses. Board members cannot be practicing providers or in any way connected to a provider, an insurer, an insurance broker or agent, or a health facility. The exchange will create an advisory committee of health industry experts that will provide the expertise that might be lacking as a result of disallowing representatives from certain professions from serving on the board. The governor appointed the public members of the exchange board, including U.S. Attorney Margaret “Meg” Curran as chair and Donald Nokes, president and co-founder of NetCenergy, as vice-chair.

In August, both California and Maryland named their Health Benefit Exchange directors. On August 25, the California Health Benefit Exchange board unanimously approved the appointment of Peter Lee as its executive director. Mr. Lee currently serves as deputy director for the Center for Medicare and Medicaid Innovation Center. On August 16, the Maryland Exchange board named Rebecca Pearce as its executive director. Ms. Pearce was previously an executive with Kaiser Permanente and CareFirst BlueCross BlueShield in Maryland.

Establishment Level One Grants

Although legislation to establish a state-based exchange failed in some states, a total of 16 states and the District of Columbia were awarded more than $185 million dollars in Exchange Establishment Level One Grants. The first round of grant application approvals was made on May 23, when three states—Indiana, Rhode Island, and Washington— received the awards. On August 13, 13 additional states and D.C. received approval. The U.S. Department of Health and Human Services (HHS) announced the availability of these grants in January 2011. States have the opportunity to apply for a Level One Grant during each quarter through June 2012.

Insurance Regulation for Multistate Plans in Exchanges

In its August 10 letter to the Office of Personnel Management (OPM), the National Association of Insurance Commissioners (NAIC) warned that exempting multistate plans from exchange regulations and exchange rules could create problems of risk selection, solvency, and weakened consumer protections. To expand coverage options for consumers, the Affordable Care Act (ACA) requires OPM, which runs the benefit programs for federal employees, to contract with at least two insurers to offer plans in every exchange.

The NAIC letter points out that multistate plans already have a competitive advantage in that they will automatically be deemed to be certified for sale in exchanges and their policies will be offered in every state. This will allow them to spread their administrative costs over a larger number of lives. If they are exempt from state rules that go beyond the federal requirements, that advantage would be greatly amplified. It could draw business away from those plans that are subject to state laws and potentially put them out of business. On the other hand, the ACA includes provisions intended to guarantee a level playing field that exempt other plans from state and federal laws if the multistate plans are not bound by them. This would undermine consumer protections included in other plans.

Finally, the NAIC urged OPM to require multistate plans to be subject to all fees and assessments levied by state exchanges in order to finance their operating expenses.

Early Innovator Grants Returned

Two of the seven states that received Early Innovator Grants from HHS in February have returned them.  Kansas announced on August 9 that it will return $31.5 million in grant money. In April, Oklahoma returned its $54 million award. The grants were intended to help states implement the information technology (IT) infrastructure needed to operate health insurance exchanges.

According to policymakers from both states, the reason for their state’s return of the grant money is that accepting the Early Innovator Grant would have attached too many federal requirements to their states’ exchanges. In spite of returning the grants as well as failing to introduce (Kansas) or pass legislation (Oklahoma), both states continue to explore the idea of building an exchange.1





1Millman J. and Nocera K. (2011, June 27). Kansas returns $31.5M health exchange grant. PoliticoPro│Health Care. (Subscription only). Retrieved September 19, 2011 from