Federal guidelines assist states in building mandated competitive health insurance marketplaces.

Nicole Lewis, Contributor

July 12, 2011

5 Min Read

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The Obama administration has caved on its hard deadline of January 2013 to certify state health insurance exchanges (HIEs), and is now proposing that state exchanges can receive "conditional approval" if it appears that they are making progress towards becoming fully operational by January 2014.

The change is one of several included in a proposed rule that was introduced Monday. According to officials at the Department of Health and Human Services (HHS), the proposed guidelines introduce a framework to provide greater flexibility and assist states in building HIE websites, which serve as state-based competitive marketplaces where individuals and small businesses will be able to purchase private health insurance.

According to the document, "although the statute requires HHS to approve state exchanges no later than January 1, 2013, there will be systems development and contracting activities that continue to occur in 2013 after the statutory deadline for approval. In order to accommodate states that are making progress towards the operational date of January 1, 2014, HHS may issue a conditional approval."

The document went on to say that conditional approval assumes that the state exchange would be operational by January 1, 2014 "even if it cannot demonstrate complete readiness on January 1, 2013."

During a press briefing, HHS officials reiterated that by January 2014 each state will have an operational HIE, but noted that some states are further along in establishing them. Officials also said if states are unable or unwilling to establish a state exchange, the federal government will step in to establish a state exchange to meet the January 2014 deadline.

Additionally, a framework has been established to transfer federally operated HIEs to states, which will give states more time to assume responsibility for their exchanges, said Steve Larsen, HHS director for the Center for Consumer Information and Insurance Oversight.

"A state, under the proposed regulation, can decide that although it may not be ready in January 2014, they can transition into a state-based exchange at a later point in time as long as they provide us with 12 months' notice and essentially a transition plan to get from the federal facilitated exchange that would be in place on 2014, and the one that may go into effect, say, in January 2015," Larsen said.

He also noted that an evaluation of the exchanges will be made in January 2013 to measure the relative readiness of key state exchange functions such as their certifying plans, and financial management, IT, and Web capabilities.

According to HHS, the proposed new rules will offer states guidance and options on how to structure their exchanges in two key areas:

-- Setting standards for establishing exchanges, setting up a small business health options program (SHOP), performing the basic functions of an exchange, and certifying health plans for participation in the exchange.

-- Ensuring premium stability for plans and enrollees in the exchange, especially in the early years as new people come in to exchanges to shop for health insurance.

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HHS secretary Kathleen Sebelius said the proposed rules are the latest steps toward implementing the Affordable Care Act to make the health insurance market work better for families and small business owners.

"We have a lot of hard work ahead of us, but are already making progress with states led by Democratic and Republican governors leading the way. Altogether, 49 states have accepted grants to help plan and operate their exchanges, and over half the states have passed legislation or taken administrative action to begin building exchanges. The draft guidelines we're releasing today help states build on that progress," Sebelius said.

The proposed rules further clarify the structure of state exchanges and give officials charged with establishing these exchanges greater leeway to develop their HIEs. These proposed rules include:

-- Each state can structure its exchange as a non-profit established by the state, as an independent public agency, or as part of an existing state agency. In addition, a state can choose to operate its exchange in partnership with other states through a regional exchange or it can operate subsidiary exchanges that cover the regions of the entire state. Any combination of these options can be approved as long as the exchange meets the guidelines laid out in the proposed rule.

-- HHS has identified several key functions that can be shared across state lines and set up a process to build those functions in a way that gives states the choice of working together to share resources and technology. Earlier this year, HHS awarded more than $200 million to a group of states to start developing HIE prototypes. The grantees offer a diversity that is valuable to all states as they work to set up their exchanges. The grantees represent different regions of the country, as well as different exchange governance structures and information systems. This diversity ensures that a wide range of IT models are developed, and that every state will benefit from these models.

-- To avoid duplication of effort and reduce the administrative burden on the states, HHS will partner with states to make exchange development and operations more efficient. This includes business functions like eligibility and enrollment systems, financial management, and health plan management. States can choose to develop an exchange in partnership with the federal government or develop these systems themselves. This provides states more flexibility to focus their resources on designing the right exchange for local insurance markets.

HHS said it is accepting public comment on the proposed rules over the next 75 days to learn from states, consumers, and other stakeholders how the rules can be improved. HHS will modify the proposal based on the feedback it receives. To facilitate that public comment process, HHS will convene a series of regional listening sessions and meetings.

InformationWeek Analytics is conducting a survey to determine what federal government IT organizations are doing to tackle diverse challenges and make tough decisions. Respond to the survey and be eligible to win an iPod Touch. Take the survey now. Survey ends July 15.

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