The Shift to a National Exchange

By Kyle Cheney and Jennifer Haberkorn

June 1, 2014 07:03 AM EDT

Liberals wanted a national enrollment system under Obamacare.

They might just get it.

Right now, 36 states rely on HealthCare.gov, the federal exchange, to enroll people in health coverage. At least two more states are opting in next year, with a few others likely to follow. Only two states are trying to get out.

That’s precisely the opposite of the Affordable Care Act’s original intent: 50 exchanges run by 50 states.

The federal option was supposed to be a limited and temporary fallback. But a shift to a bigger, more permanent Washington-controlled system is instead underway — without preparation, funding or even public discussion about what a national exchange covering millions of Americans means for the future of U.S. health care. It’s coming about because intransigent Republicans shunned state exchanges, and ambitious Democrats bungled them.

Republicans had warned all along that President Barack Obama’s health law would lead to greater Washington control. “This was all predictable,” said Rep. Tom Price (R-Ga.), a physician who sees growing federal control of the health system hurting patients. “Our friends on the other side didn’t listen.”

Tevi Troy, a health expert who served in the George W. Bush administration and advised Mitt Romney in 2012, says the country needs to stop and discuss the consolidation. “We’re kind of, in a way, stumbling into this situation,” he said of the increasing reliance on the federal portal.

HealthCare.gov is more than a computerized sign-up sheet. It’s a marketplace, where people get health coverage through private insurers, for care from private doctors. It’s not a single, nationalized Canadian- or British-style program. Even within the federal model, each state has its own insurance pool and state officials still regulate health plans.

The state-exchange option gave governors and legislatures more leeway to tailor the market to suit local conditions and demands. But the states encountered political and technical obstacles, leading to investigations, recriminations, disputes with contractors and hundreds of millions of wasted dollars.

“While [the administration] spent an inordinate amount of time and energy and money encouraging states to run and own their own exchanges, I think that that has kind of shifted,” said Jon Kingsdale, a prominent consultant who helped build the original Massachusetts exchange under then-Gov. Romney. “How long can you push a boulder uphill?”

HealthCare.gov was originally conceived as a just-in-case alternative that would kick in if a state could not or would not build its own health reform enrollment system. The law didn’t even set aside money to build the federal site, let alone operate it indefinitely. Even when red states shunned a role in running Obamacare and a handful of blue states also turned to Washington, the federal system was still seen as a short-term bridge to a state-based system.

Not anymore. After its fiasco of a start, HealthCare.gov is working. No one is pushing states with successful programs, like California and New York, to switch. But there are only a few of those. Most of the other states are in HealthCare.gov. And they‘re staying put rather than start their own exchange.

“Why would any governor or legislature in their right mind step forward at this point and say maybe…that’s a good idea?” wondered John McDonough, a former aide to Sen. Ted Kennedy who worked on health reform in both Washington and Massachusetts.

In theory, states can still tap into virtually unlimited funding to create exchanges. But a number of state officials say the administration has signaled that it doesn’t want to keep pouring millions into broken state systems. A spokesman for the Centers for Medicare & Medicaid Services, which oversees Obamacare exchanges, said only that states should choose whatever path “they believe best meets the needs of their consumers and insurance market.”

“CMS is committed to working closely with states to support efforts to ensure that all consumers will have access to quality, affordable, health coverage in 2015,” spokesman

Republicans, who contributed to the growing power of HealthCare.gov by not supporting state-run exchanges, want federal investigations into why some states failed.

“While many of these states are simply moving to the federal exchange as a convenient method of alleviating the problems with their own exchanges, it is a short-sighted solution,” said Sen. Orrin Hatch, the top Republican on the Senate Finance Committee. “Nothing is more important right now than for Congress to find out what went wrong and why.”

Nevada in mid-May became the latest to scrap its system and opt into HealthCare.gov. A few days earlier, Oregon had bailed on its $250 million exchange. Massachusetts is still trying to salvage its exchange, but it’s also laying the groundwork to join HealthCare.gov.

Hawaii and Minnesota both insist they are moving ahead with their underperforming exchanges; skeptics predict they’ll have to jettison them and join the federal system sooner rather than later. And some small states with high-performing exchanges may have trouble keeping them over the long haul as federal financial support ends.

Connecticut’s exchange performed so well that Maryland wants to buy it and graft it onto its own broken one, but even the director of Connecticut’s exchange, Kevin Counihan, doubts that all the small states will be viable. “There’s going to be some consolidation there, some going to the federal exchange,” he predicted. “We don’t need 50 of these. And having this really functional federal exchange is really very, very desirable.”

Rhode Island’s Gov. Lincoln Chafee, who has faced calls from political opponents to abandon the state exchange, said in an interview that he’s determined to keep it. But he is open to an eventual regional solution, maybe a merger with the Massachusetts exchange. But those conversations have been very preliminary.

The migration toward a national exchange may have been unforeseen and in some cases unwanted. But it is closer to what the liberal House of Representatives wanted in 2009 and 2010 when Obamacare was being crafted. The argument at the time was that a national model would be more efficient, more consistent and less vulnerable to shifting political winds. Politically, that centralized approach was a nonstarter.

Senate Democrats, who prevailed, wanted states to run their exchanges, partly because they had always regulated insurance. A state-centered system let Democrats push back against the charge that Obamacare was a federal “takeover” of the health care system. They also hoped, naively as it turned out, that giving states more control would entice some Republicans to buy in.

When HealthCare.gov collapsed in the fall and a handful of states showed early success, the Senate vision seemed vindicated. Then the roles reversed. HealthCare.gov recovered. States floundered. Even some early advocates for state control have had second thoughts.

Kansas Insurance Commissioner Sandy Praeger, a Republican who has had a national voice in the health policy debate, used to advocate a state exchange. Now, she thinks building one is too expensive and risky.

“I don’t see our state ready to make that financial commitment. I think it would probably not be very practical,” she said. Praeger wants Kansas to stay in HealthCare.gov, which she’d like to see modified to give states more flexibility. She can envision a national exchange evolving into “a comfortable fit rather than an imposed upon, top-down requirement.”

There’s already some basis for that. Seven states, including Arkansas, New Hampshire and Michigan, have exchange partnerships in which they use HealthCare.gov but maintain control over aspects of the Obamacare markets. The partnerships were improvised during the state decision-making process in early 2013 and were supposed to last just a year or two. But none of the seven are moving to run things on their own. Instead, their partnerships could become the blueprint for a national system.

“If the [federal system] can evolve quickly to allow state flexibility, then there will be little reason for states to take on the IT challenge,” said Jon Gruber, an economist at the Massachusetts Institute of Technology who advised both Massachusetts and the White House on health reform.

Aneesh Chopra, former chief technology officer for the White House, says each state could run its own “personalized” website while redirecting consumers to HealthCare.gov. The feds would handle the IT architecture, and states would have the facade of state-run exchanges.

How that flexibility would come about — or how to pay for the federal exchange in the long term — has barely been discussed. Republicans are still focused on repealing Obamacare, Democrats on preserving it, and at least until after the November elections, nobody is doing a whole lot of talking about what has to come next.

Joel Ario, who ran the Department of Health and Human Services exchange office until 2012, prefers state control but worries that time is running out as the insured and the insurers alike get accustomed to HealthCare.gov.

“I think forces inside the federal government think the federal government should run this,” said Ario, now a consultant with Manatt Health Solutions. “I think those folks are now pushing hard, and if the states aren’t careful, there may be some … motion to make it harder for the states to reclaim their role.”

Right now, only two are trying to do that. New Mexico, which tried to create its own exchange for 2014 but switched to HealthCare.gov when it realized it wouldn’t be ready, is preparing to transition out by November. Idaho officials say they’ll deliver a blueprint to the Obama administration by Sunday and are paying careful attention to what worked in other states and what tripped them up.

“Hindsight is 20-20 so we have the benefit to see what happened,” said Jody Olson, a spokeswoman for Your Health Idaho. Lesson One, she said, is to be “very streamlined, very efficient, rather than trying to do a hundred things in a hundred different ways.”

Others in favor of state control are urging patience, arguing that it’s worth giving states the option even if it takes time. It’s easier for states to do local outreach, to work with brokers and agents, to integrate the health care law with existing social services programs. Mistakes can be fixed, they argue.

“It’s not that [states] can’t do it. It’s apparently they didn’t do it right upfront,” said Rep. George Miller (D-Calif.), an architect of the House bill that favored the national approach who now wants states to have time to make their own choices work. “But that can’t be the test to just say we’ll just throw away that model. This model lets them choose, and I think that choice is fairly important still.”

Miller’s own state, California, surpassed enrollment goals and is seen as among the most viable exchanges. But what worked in one huge and very Democratic state may just not be all that relevant to the rest of the country, according to Bryce Williams, managing director at Towers Watson, which has a Web brokerage division that helps people sign up for HealthCare.gov.

“It’s not out of the question,” he said,” that in less than five years, you would see 49 states be in the federal exchange and California.”

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