Blueprint: Advancing Health Security by Ensuring Strong Exchanges

The Patient Protection and Affordable Care Act has been the topic of heated political debate since becoming the law of the land almost one year ago. As right-wing calls for repeal continue to make headlines, many positive and popular provisions of the law are already benefiting families across the nation. Working-class and middle- class families have seen their health security increased by provisions that rein in insurance industry abuses and expand coverage, making it less likely that they will lose their savings due to an illness or injury, or be unable to afford needed treatments.

But as the curtain draws on the first year of the life of the Affordable Care Act, what happens in the second year at the state level may prove to be even more critical to its ultimate fate.

In 2011, the shape of the most prominent piece of the law -- and the health security and economic security of American families for decades to come -- will be decided in statehouses across the nation. This legislative session, states have a once-in-a-generation opportunity to put consumer protections and stronger access to affordable health care coverage in the hands of their residents.

Under the health law enacted in March 2010, states are tasked with setting up health care "exchanges," or marketplaces that will create new incentives for the health insurance industry to deliver quality care at lower prices. Exchanges will require insurance companies to spend more of consumers’ premium dollars on actually providing health care -- instead of bloated administrative overhead and egregious compensation for CEOs.

As part of our 2011 Blueprint for Economic Security, Progressive States Network has compiled an overview of how to Enact a Progressive State Exchange this session, including a focus on key legislative elements of a strong exchange such as determining the Governance of the health exchange and creating a Board Structure that will ensure a strong governing body, as well as a set of Next Steps for creating a strong exchange.

Under the timeline set out in the Affordable Care Act, state exchanges are scheduled to begin operating in 2014 -- but every state legislature must act this session to pass a strong version of an exchange in their state if they do not want the federal government to run their exchange. By implementing a strong exchange, states can allow the uninsured, self-employed and small businesses to shop for insurance in a competitive marketplace, giving consumers greater control and power through information and choice.

While conservatives remain focused at the federal level on judicial and legislative attempts to overturn or repeal the law, at the state level they have largely been focused on implementing the same law they want to see overthrown. But as the right attempts to shape weak exchanges that protect the insurance industry while gutting the consumer protection and affordability provisions of the law, progressives can counter with proposals to build strong exchanges that protect the health security of everyday families.

At a moment when unemployment remains high and good jobs (including jobs that provide health coverage) are still not being created fast enough, health security remains a primary concern for families everywhere. In making the economic and pragmatic argument to build strong state health exchanges this year, progressives can also help ensure that the policy debate around health care starts to reflect the dinner-table debate that families are having across the nation.

Read more on Health Security as part of Progressive States Network’s Blueprint for Economic Security 2011, or click any of the links below for more on the following critical elements of state exchange implementation:

Enacting Progressive State Exchanges: Overview

Perhaps the most prominent policy to come out of the Affordable Care Act (ACA) is one that will not take effect until 2014: new state-based insurance marketplaces, also known as “exchanges.” These marketplaces will be one-stop shops where individuals and small businesses can find information on insurance options for health care coverage that provide for portability. The plans sold through the exchanges must meet certain criteria to ensure that consumers receive quality, affordable coverage. However, these criteria are a floor, not a ceiling -- and states have the opportunity to create additional standards that might include transparency and information disclosure, the creation of benchmarks to ensure health outcomes, and other standards that optimize affordable health care delivery to the broadest consumer base possible.

Exchanges are also marketplaces where individuals with tax credits can shop for their insurance needs and individuals who are eligible for Medicaid or other public programs can enter the exchange and be directed to appropriate services. It is here where states have discretion to determine eligibility and enrollment – a critical aspect of the program in terms of cost containment and ensuring the exchange program coordinates with existing state agencies (Medicaid and CHIP) to cover those most in need of affordable coverage.

The ACA provides for states to be able to successfully implement their own exchange laws with flexibility to utilize state-specific structures and resources. States should either already be in the process of developing their exchanges in the current legislative session, or else working within their administrative powers to identify the most appropriate avenue for implementation. However, if any state fails to act this session to begin the implementation process, the law allows for the federal government to impose a federally operated exchange for consumers within that state.

Overall, it is Progressive States Network’s strong recommendation that individual states take advantage of the flexibility provided for in the law, and design an exchange that fits the state best and keeps the consumer’s interest in mind. In order to do this, it is important for most states to implement their own exchanges before the federal government can preempt them. The goal is to provide quality, affordable coverage to all Americans, and to ensure a strong exchange that will build health security for families.

A strong exchange is the most critical element that progressive policymakers and legislators can focus on right now in order to build the health security of all families and the economic security of our states. The recommendations that follow outline a basic set of standards for the structure of an exchange. Each state can build on this foundation -- the models outlined below should be seen as a floor, not a ceiling.

Some key points to keep in mind during the process:

  • Ensure the exchange covers the broadest set of people
  • Ensure that consumer protections are as strong as possible and cannot be undercut by interstate compacts
  • Ensure that states pursuing more comprehensive approaches (i.e., Vermont, Connecticut, California) are an active part of the debate
  • Use the health reform process to facilitate a broader discussion about the critical need for consumer protections and measures that will ensure the economic security of families and states alike
  • Ensure that the exchange operates in as public and consumer-friendly a manner as possible
  • Consider the exchange as one step in a long-term plan to build towards affordable, quality health care for all

Progressive States Network is identifying approaches that will provide guidance to state legislators throughout the process. The ensuing guidance on governance and oversight is the first building block for creating a progressive structure for a state to work toward implementation of a strong, state-run exchange. We will follow up with additional policy guidance on topics that include: minimizing adverse selection (which can occur if a state exchange were to enroll a greater proportion of individuals with higher health costs, causing premiums to rise), cost containment and funding opportunities, and benchmarks for establishing a strong exchange that keeps open the door for improvement.


Ensuring Strong State Exchanges: Governance

Progressive States Network has reviewed guidance on the governance of the exchange based on National Academy of Social Insurance (NASI) model legislation, and recommends the following menu of options for legislators, with consideration for each state’s differing political reality:

Option 1: An Independent Executive Branch Exchange
(Based on Alternative 2 in the
NASI Legislative Toolkit)

An independent executive branch exchange may be created with its own governing board. This would give the governor and the legislature an opportunity to appoint members to the exchange board to provide balance (with the understanding that it may not be legally possible to do so in states which do not allow for appointment by the governor or legislature). This approach could give an exchange political independence, operational flexibility, and public accountability as a state agency separate from the administration.

If this approach is taken, a state exchange could have flexibility, along with good visibility and public accountability. The state would not necessarily be required to give appointment powers to the governor and the legislature, but could provide for the exchange to operate as a separate or quasi-state agency with inherently governmental functions (such as oversight, rulemaking authority, staffing, and procurement). However, giving the governor and legislature appointment powers would allow for a check-and-balance structure instead of a single entity appointing members of the governance structure.

If a state does commit to appointing the board in this manner, there may be potential for political imbalance and obstruction by special interests. Therefore, lawmakers must be prescriptive in the legislative language in defining the board structure -- specifically regarding conflicts of interest and consumer rights (see the following section on Board Structure Recommendations).

Option 2: Utilizing an Existing State Agency
(Based on Alternative 1 in the
NASI Legislative Toolkit)

This option would establish a state exchange within an existing executive branch agency, either as part of the Governor’s cabinet or subordinate to the administration. By utilizing an existing state agency, the exchange can take advantage of already available resources and infrastructure, potentially offering greater coordination and cost savings.

An exchange run by the executive branch is potentially a good fit for states, since the exchange functions are inherently governmental. An agency-run exchange needs the support of leadership in that department, and the existing state agency could provide for an opportunity to make decisive and nimble actions for a progressive exchange utilizing current staff and budgets. In states where the current political climate favors progressive leaders, this is an ideal option. This is an option in states with agencies that work collaboratively and have strong knowledge of consumer-friendly protections.

However, if a state were to allow for exchange governance and oversight to be operational under the executive branch, it has the potential to open up the exchange to the potential for significant uncertainty as administrations change during election cycles. Existing administrative agencies may not keep the consumer in mind if the administration has a set agenda, and a governing board is usually not involved. The administration is the oversight authority, which doesn’t necessarily adjust for political neutrality or independence. In cases like this, a strong governing board or strong agency leadership can provide the consumer protections needed to operate (see the following section on Board Structure recommendations).

Option 3: A Non-Profit Exchange
(Based on Alternative 3 in the
NASI Legislative Toolkit)

Opting to establish a nonprofit entity would separate an exchange from state government. This approach could result in an exchange having greater flexibility and independence in operational matters, yet would still allow it to be established by state legislative authority. However, creating a nonprofit exchange does create uncertainty when it comes to certifying health plans, levying taxes, and allowing health plans to operate in the exchange. State law may also preclude a nonprofit entity from operating under this authority. Therefore authorizing legislation may need to be enacted in order to give the exchange operational functionality.

A nonprofit exchange may be problematic due to the lack of public accountability and oversight functions if it is too far removed from the state’s authority.

If this is the most viable option for a state, the recommendation would be to take all necessary legislative and administrative steps to ensure that the exchange would operate in the consumer’s best interest. A nonprofit exchange can be set up under the purview of the state (as is the case in Washington state), but when setting up a nonprofit, the emphasis needs to be on the consumer and stakeholders. Legislative language should ensure that a nonprofit exchange is subject to state law, such as open meetings, open records and public hearing laws, and operates similarly to a quasi-governmental entity. By writing prescriptive language on board structure, authority to operate, and overall governance, there will be greater potential for this option to be effective.

Ensuring Strong State Exchanges: Board Structure

Perhaps the most significant guidance that Progressive States Network recommends related to governance is that lawmakers write prescriptive language defining the governance of the exchange and the board structure. Doing so will ensure that the oversight and operation of the exchange is the most efficient for consumer navigation and provides strong consumer protections. Board members of the exchange must be politically balanced, represent consumers and the community-at-large (including meeting diversity guidelines), and not present any conflict of interest, such as membership by an insurance company or regulator. It is further recommended that the board structure be subject to state open meetings laws, open records laws, and public hearings laws. This will give the public an opportunity to weigh in and provide input, providing a greater consumer perspective to hold the exchanges accountable. 

In order to ensure a strong board, membership may be on staggered terms and have term limits. This will allow for a more diverse governing structure and the flow of ideas and measures that can keep the exchange at optimal performance for the consumer. It is also recommended that the following areas be represented on the board to allow for expertise in such matters:

  • Individual health care coverage
  • Small employer health care coverage
  • Health benefits plan administration
  • Health care finance
  • Actuarial science
  • Administration of public and/or private health care services delivery
  • Purchasing health plan coverage

In addition to including experts in the above areas, it is recommended that board membership also include:

  • Representatives of health care consumers
  • Small business owners
  • Representatives of labor
  • Other organizations eligible to purchase in the exchange

Restrictions on board membership -- in order to include experience and expertise but also to refrain from conflicts of interest -- may include the following:

  • No member of the board shall be or will be employed as a lobbyist in health care matters.
  • No member of the board shall have a vested interest in benefiting from exchange operations, functions, or products.

Ensuring Strong State Exchanges: Next Steps

Over the next few weeks, crucial decisions regarding implementation of the Affordable Care Act will be made during state legislative sessions. With that in mind, Progressive States Network is prepared to provide guidance on the key issues relevant to lawmakers in 2011 and the upcoming months. We are in the process of identifying the next steps to aid in the implementation process. Issues of immediate importance include: Benchmarks, Transitioning and interface between systems including Medicaid and other public programs and the exchange, Cost Control and Funding, and Essential Benefits:

  • Benchmarks (to be released late February): Benchmarks will be made available as a resource to guide the process of creating a progressive exchange.
  • Transitioning and interface between systems (to be released in March): Persons eligible for Medicaid and/or other public program coverage may find themselves transitioning back and forth between the public program and the exchange because of income fluctuations and other determinates. Therefore it is crucial to consider how the exchange and programs will work together to ensure that people are able to receive the coverage they need. The federal government has provided for grants to select states to model upgrades to public program systems in order to interface with the exchange. By having models in place that work, each state will not have to recreate the wheel when upgrading their systems and programmatic functions.
  • Essential Benefits (to be released early March): In determining what exactly the plans must cover to be offered in the exchange, a package of essential benefits as outlined by the ACA will be described. This step will coincide with the layout of the exchange, not only to determine what plans will be offered in the exchange but also for the state to comply with the federal guidelines regarding essential benefits. If the state decides to go above and beyond the federal essential benefit coverage, then the state will be on the hook for those costs associated with those benefits.
  • Cost Control and Funding (to be released late March): In order to ensure long term stability for consumers and accountability to taxpayers, cost control measures and funding mechanisms are a must for state exchanges. The Congressional Budget Office projects that the ACA will cut spending and bring down the deficit over the long term. With states facing budget shortfalls and funding reductions, cost control as part of implementation is imperative. Funding measures can be one of the cornerstones to a successful exchange and overall state budgeting.

Full Resources from this Article:

State Refor (um) from the National Association of State Health Policy --
Families USA --
Kaiser Family Foundation --
Center on Budget and Policy Priorities --
Community Catalyst --
Georgetown Health Policy Institute --
National Women’s Law Center --
Consumer’s Union --
National Partnership for Women and Families --
This article is part of PSN's email newsletter, The Stateside Dispatch.
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