State-Federal Partnership Health Insurance Exchanges: The Great Unknown

Beginning in 2013, states will commence implementing health care insurance exchanges as required by the Patient Protection and Affordable Care Act (PPACA). To this point most legislators, policymakers and health care experts have discussed the state-based and federal insurance exchange options at length, with more than 30 states opting out of the state-level exchanges. However, there is another form of insurance exchange that states are beginning to explore that could be a big headache for the federal government: the “partnership”.

In a state-federal partnership, states will divide obligations with the federal government. For this partnership model, as well as the state-state partnership option, there is no requirement for a 50-50 split of labor. The states are actually more of a façade, whereby the consumers (individuals and employers) merely interact with the state. The federal government, on the other hand, will essentially perform all functions of exchange management except customer service and plan management. Moreover, states have the choice to take responsibility for only one or both of those functions.

According to former head of insurance exchange planning at HHS Joel Ario, “States that choose this option are ceding the more technical aspects of exchange activity to the federal government but can retain control
of insurer oversight and consumer assistance.”

In the state-federal partnership model, the federal government will operate everything from consumer eligibility and enrollment to financial management and risk corridors. This essentially means that the federal government will take on almost all responsibility for the partnership exchanges, while granting states many of the perks they would receive if they had created a state-based exchange.

If the federal government is left to the heavy lifting, what exactly will the state portion of labor entail? The states can choose to be responsible for plan management, meaning they will be charge of qualified health insurance plan certification and reinsurance, data collection and basic supervision. The states can further choose to be in control of customer service functions such as in-person assistance. Nonetheless, even in this case, the federal government will oversee websites and call centers where the heavy lifting will occur.

At present, even the Department of Health and Human Services (HHS) has written very little about this vague form of “partnership,” leaving many to question if the federal government knows exactly what it is getting into. Rumor has it, even proponents of the idea have suggested to HHS that it move the partnership designation from the federal governments responsibilities (section 1321 of the PPACA) to states governments responsibility (section 1311 of the PPACA).

To date, only a few states have revealed that they intend to participate in a state-federal exchange. Illinois, whose Governor Pat Quinn announced its intention to run a partnership exchange in July of 2012, has already received $39 million for the state, and this sum does not include Medicaid expansion. Arkansas has been making significant progress on their partnership since 2011. For its hard work, the federal government has given the state nearly $9 million in grants.

Last week at the HHS deadline, West Virginia became the seventh state to commit to participating in a state-federal partnership exchange. At the time of decision, West Virginia was the last state with a Dem. Governor to make up its mind about PPACA implementation.

With the exception of the 16 states and the District of Columbia who have committed to creating a state-level exchange, most other insurance exchanges will fall to the federal government. Further, as of now most responsibilities for the states planning a state-federal partnership exchange will fall to the federal government, giving HHS much control over implementation of PPACA, but also exceptional planning and implementation hurdles.