WASHINGTON — State flexibility takes center stage in proposed federal rules governing marketplaces where individuals and small businesses can shop for health insurance starting in 2014.
The long-anticipated rules, released Monday, are less prescriptive than some consumer advocates desired, but they grant states' requests that they get broad leeway to design and regulate the marketplaces, called exchanges.
The exchanges are a key element of the 2010 federal health care overhaul law. About 9 million people are expected to use them the first year — growing to 23 million by 2018 — to comparison-shop for coverage.
Consumers who qualify for assistance also will use the exchanges to receive federal subsidies or tax credits to purchase insurance or to gain access to Medicaid, the state-federal program for the poor.
Under the proposed rules, the marketplaces will have to post information online about price and quality, offer specific standardized plans and set annual open enrollment periods.
Despite lobbying from consumer groups, insurers will be allowed to hold seats on exchange oversight boards and states won't be required to negotiate with plans on price or benefit offerings.
Although there's a deadline of Jan. 1, 2013, for states to show they'll have exchanges up and running a year later, the proposal offers some wiggle room: States that show progress will be granted "conditional approval."
Still, states that can't — or won't — set up their own marketplaces will see the federal government step in and do it for them. States that get ready later can still set up their own exchanges, so long as they give the federal government a year's notice, the rules say.
America's Health Insurance Plans, a major trade group, appeared to have won some of what it was lobbying for. In a statement issued Monday, the group's president and CEO, Karen Ignagni, welcomed the authority states would have, saying they "have the experience and local-market knowledge to ensure exchanges meet the needs of consumers in their state."
In the weeks leading up to the release of the regulations, the industry argued that insurer representatives shouldn't be barred from memberships on boards that oversee exchanges, saying their expertise would be valuable. In an October letter to the Department of Health and Human Services, America's Health Insurance Plans urged regulators to give states the flexibility to take all qualified insurers — and not to require price negotiations or competitive bidding. Such restrictions could limit consumer choice, the group wrote.
The proposed rules grant states the authority to follow either path — allowing any qualified insurance plan to be sold on the exchange or setting tighter rules limiting insurer participation. But the rules also say that competitive bidding could boost state efforts to provide "additional value and quality objectives."
Terry Gardiner, a lobbyist for Small Business Majority, a small business group that strongly supports the health law, cited another benefit to state flexibility: Reluctant states would be more willing to start exchanges because now they know they'll have several options to meet the federal law's requirements.
The National Federation of Independent Business, a critic of the law, said small businesses had an enormous stake in the viability of the exchanges. However, said Amanda Austin, the director of federal policy for the group, "the devil's in the details. You can talk the talk about flexibility, but that doesn't mean the regs dictate it."
So far, about a dozen states have adopted legislation creating exchanges. Some states, such as Florida, have refused to implement any part of the law.
Two states — Massachusetts and Utah — already have exchanges, although they represent two ends of the spectrum of how they can be run.
Massachusetts, for example, allows only those insurers that meet certain standards to participate; Utah's accepts any insurers and sets few rules. While the Obama administration says there's room for such wide flexibility in design, the proposed rule could pose a problem for Utah because it says existing exchanges are OK only if the state's insured rate is at least the national average after the law is implemented.
Federal officials estimate that the national coverage rate in 2016 will be 93 to 95 percent. The latest data show Utah at 86 percent, while Massachusetts is at 95 percent.
"Today's market is broken, especially for small business owners and individuals who buy their own policies," said HHS Secretary Kathleen Sebelius, who unveiled the proposed rules during a press event at a hardware store in Washington. "These rules will help guide states as they create new competitive insurance marketplaces."
Industry groups, consumer advocates and others have 75 days to weigh in with comments on the proposed rules. Final rules are expected later this year.
Consumer groups on Monday urged the states to take a tougher stand on exchange participation.
"HHS today released a menu, not a recipe," U.S. PIRG policy analyst Mike Russo said in a statement. "State leaders should take the flexibility they've been given to design a strong, negotiating exchange on behalf of consumers."
Additionally, the proposed rules say health insurers or their sales agents can't dominate oversight boards.
States, however, can adopt more stringent rules or create special conflict-of-interest statutes. Consumer advocates say such rules are needed.
"I would prefer to see them barred from the boards, but a number of states have already given insurers seats," says Timothy Jost, a professor at Washington and Lee University School of Law. "If they're not barred, we need very strict rules to keep them from voting or participating in any issues that could financially affect their companies, which basically would be most issues."
(Kaiser Health News is an editorially independent news service of the Kaiser Family Foundation, a nonpartisan health care policy organization that isn't affiliated with Kaiser Permanente.)
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