States Struggle With Health Reform Implementation

A recent letter from 21 state governors to Health and Human Services (HHS) Secretary Kathleen Sebelius has asked for six specific changes to give states more control over insurance exchanges established under the Patient Protection and Affordable Care Act (ACA).

The letter recognizes that neither the courts nor Congress may ultimately repeal health reform, and thus the governors “face the decision of whether to participate in the bill by operating state exchanges, or to let the federal government take on that task, if the bill remains in effect in 2014.”

The governors note “We believe the system proposed by the [ACA] is seriously flawed, favors dependency over personal responsibility, and will ultimately destroy the private insurance market.

“Because of this, we do not wish to be the federal government’s agents in this policy in its present form.”

The letter requested the following changes:

• Provide states with complete flexibility in operating the exchange, most importantly the freedom to decide which licensed insurers are permitted to offer their products.


• Waive the [ACA’s] costly mandates and grant states the authority to choose benefit rules that meet the specific needs of their citizens.


• Waive the provisions that discriminate against consumer-driven health plans, such as health savings accounts (HSAs).


• Provide blanket discretion to individual states if they chose to move non-disabled Medicaid beneficiaries into the exchanges for their insurance coverage without the need of further HHS approval.


• Deliver a comprehensive plan for verifying incomes and subsidy amounts for exchange participants that is not an unfunded mandate but rather fully funded by the federal government and is certified as workable by an independent auditor.


• Commission a new and objective assessment of how many people will end up in the exchanges and on Medicaid in every state as a result of the legislation (including those “offloaded” by employers), and at what potential cost to state governments.

Government Response

In response, Ms. Sebelius wrote, “The Affordable Care Act puts states in the driver’s seat because they often understand their health needs better than anyone else‑and that is why it is so frustrating to hear opponents of reform falsely attack the law as nationalized health care.”

“The truth is that states aren’t just participating in implementation of the law; they’re leading it.”

In addition, a February 10 HHS memo outlines the how the Administration feels the law provides flexibility for the states:

• States will determine which insurers are permitted to offer products in the Exchanges. Under the law, States will have wide latitude to run their own insurance marketplaces and determine which insurance companies may operate in the new State-based Exchanges. Utah and Massachusetts, for instance, already operate their own Exchanges. And while they’ve taken different approaches, with Utah allowing all insurers to participate and Massachusetts having stricter standards, both models could meet the goals of the law.


• States can choose benefit rules that meet the needs of their citizens. The Affordable Care Act ensures health insurance plans offered in the Exchanges provide at least what a typical employer currently provides today. Accordingly, the benefits offered through the State-based Exchanges will reflect what is offered today in the private sector. States have flexibility to go beyond that minimum standard and determine what, if any, additional benefits insurance companies that sell policies in the Exchange must provide. States that choose to require more generous coverage must bear the cost of those benefits.


• Consumer-driven health plans and Health Savings Accounts (HSAs) will be available. The new State-based Exchanges will offer individuals, families and small businesses a wide range of plans from lower-cost consumer-driven health plans and those coupled with Health Savings Accounts (HSAs) that tend to have a higher deductibles and higher cost sharing to more comprehensive plans with lower out-of-pocket costs. Exchanges will offer health plans at the “bronze” or basic level, which will expand availability of consumer-driven plans and HSA-eligible plans to new consumers. And, young adults and people for whom coverage would otherwise be unaffordable will have access to catastrophic coverage.


• States have discretion over Medicaid coverage. Under the Affordable Care Act, States may structure their Medicaid programs to more closely resemble the private insurance coverage options available in the Exchanges. States can tailor the benefit packages based on private coverage options available in their States – such as the standard Blue Cross/Blue Shield plan, the State employee health plan, and the largest commercial HMO available in the State. States can go beyond these standards to provide additional benefits but are not required to do so.


• New funding to establish Exchanges and modernize eligibility systems is available. The law provides full funding for States to conduct planning activities needed to develop an Exchange and funding through 2015 to establish an Exchange. States can also receive funding to update antiquated systems used to verify who is eligible to purchase insurance in the Exchanges and who is eligible for Medicaid benefits. Many States have not updated their Medicaid eligibility systems since the mid-1980s.

For a comprehensive analysis of the Patient Protection and Affordable Care Act, including the full text of the law and additional information on health reform implementation and other recent developments in employee benefits, just click here.