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Exchange Outlook for 2012 Is Fuzzy As States Await Supreme Court Ruling, Face IT Hurdles

Stakeholders closely watching the development of the health insurance exchanges will continue to see a very nuanced picture from states as the New Year begins, with an expected ruling by the Supreme Court this summer on the constitutionality of the health reform law throwing a new element into the mix. Yet a handful of states are still expected to pursue legislation in 2012 that could result in exchange establishment. Plus, states continue to face exchange IT challenges and are likely to look toward leveraging technology that already exists in the marketplace to build their infrastructure instead of starting from scratch, sources tell Inside Health Policy.

Setting the Framework: Exchange Establishment

Alabama, Indiana, Pennsylvania and Michigan are states that sources collectively name as ones likely to show movement toward passing exchange enabling legislation in 2012. Arizona could also be a possibility, said Cheryl Smith, a director with Utah-based consulting firm Leavitt Partners.

Smith said states’ cost estimates for how much it will take to operate their exchanges will become clearer in 2012, as several get further along in their IT development and procurement. Additionally, she predicted that there would not be too many exchanges created via executive order in 2012, as Rhode Island Gov. Lincoln Chafee (I) took that approach and is now facing a lawsuit.

In 2011, 10 states passed exchange establishment legislation, and two – Rhode Island and Indiana – issued executive orders related to establishing their exchanges, though Indiana’s is only provisional pending a future decision by the state to operate an exchange.

Dan Schuyler, also a director with Leavitt Partners, said in a recent interview with Inside Health Policy that Leavitt knew of six additional states that would apply for the Level One grants now that HHS has extended the application deadline. Level One grants – which 29 states have received – allow states to fund ongoing planning but recipients do not have to commit to building an exchange.

Still, Cindy Gillespie, who leads the health care policy team at McKenna Long & Aldridge, said that in the early part of 2012 states would most likely just stay on the course they are on due to the Supreme Court’s decision to hear oral arguments on the constitutionality of the health reform law in March and a likely verdict by the end of June.

Because HHS clarified that states can receive Level One grant funding without committing to establish an exchange – and the application deadline for that grant has been extended until June 29, 2012 -- states can still do the preliminary work toward exchange establishment while simultaneously waiting for the Supreme Court’s ruling. These are topics that states will be thinking about in the first few months of 2012 and during legislative sessions, she said.

“You can’t underestimate the impact the Supreme Court is having out in the states,” Gillespie said.

Until the legal issues get resolved, states that are moving along will continue to do so, and states that are reluctant to stand up their own exchanges are more likely to keep waiting, she added. But the case is already proving to affect some states' progress – according to multiple news outlets, Wisconsin Gov. Scott Walker (R) recently decided to halt work on his state's exchange until the high court rules on the law's constitutionality.

Still, Gillespie said states such as Mississippi, which is designing an exchange but is not one that would necessarily be compliant with the health reform law, could continue to go on to establish its exchange even if parts of the law or the entire law is deemed unconstitutional.

Exchange Nuts And Bolts: IT

In terms of IT development, sources agree that building an exchange from the ground up at this point would be very difficult if not impossible for states, and there are significant advantages in leveraging existing technologies already in the marketplace. Gillespie said this is particularly true with small business exchanges, pointing to Utah’s exchange and Florida’s small business exchange, Florida Health Choices.

Schuyler says a state looking to build an exchange from the ground-up will likely need 18 to 24 months, so at this point it is becoming impossible for states that do not have legislation passed and are not in the procurement phase to take that approach and still meet the October 2013 open enrollment start date. States that haven’t already started at least the initial planning of their exchange are going to have to rely on existing technology to meet that deadline, he said.

Adding to the uncertainty is the definition of "conditional approval" for exchanges that HHS outlined in its proposed exchange establishment rule. HHS has not defined what that approval means or how a state might meet it, so that also leaves things up in the air in terms of how far a state might be able to develop its IT and still receive approval from HHS for a state-based exchange rather than a federally facilitated one, sources say.

Using existing technology would allow a state to build its exchange in nine to 12 months, Schuyler added, plus such an approach would be less expensive and carry less risk.

For the most part, states seem to be split 50-50 in terms of whether they will use existing technology or build exchanges from the ground up, Schuyler said, though it will become increasingly difficult to pursue the latter approach in 2012. But at this point that seems to be the breakdown because HHS is providing large grants to help states build their exchanges.

A Dec. 9 analysis by McKenna Long on exchange IT showed that eight states have issued requests for information asking for descriptions of technology available from vendors, and six states have issued requests for proposal that list terms, deadlines, requirements and functions.

States might also wait to see what the "early innovators" develop to examine whether they can tap into those models for their own exchanges, Schuyler added.

Gillespie cautioned that while that could be a possibility, many of the states she has spoken with feel they may not be able to use the early innovator work because it will be tailored to the states that received that specific grant. The early innovator grants that HHS awarded for developing model exchange IT systems went to six states and one multi-state consortium in New England – though two of the states have since returned their awards and Wisconsin was also a recipient – and totaled more than $241 million.

Gillespie said that while there is technology in the current marketplace that would help states build their exchanges, a big question mark is how states will hook into the data hub that HHS is working on building for exchanges. That connection between states and the federal government is not one that exists, she said, and HHS has to design and develop its data hub to the point that states can figure out how to connect with it.

Even Massachusetts, which has a working exchange and is the only one in the country that allocates subsidies, is going to have to figure this out, Gillespie added.

Source:Inside Health Policy