The Good, the Bad, and the Ugly: Disappointing New Federal Guidance on Health Insurance Exchanges

Earlier this week, the Centers for Medicare & Medicaid Services (CMS) issued sub-regulatory guidance aimed at clarifying some of the outstanding questions related to implementing health insurance Exchanges as part of the Affordable Care Act (ACA). On the whole, we found the guidance (which posed and answered thirteen questions in total) disappointing. Here’s a rundown of the key issues addressed in the guidance (the good, the bad and the ugly).

The Good

CMS does attempt to resolve some issues in a way that is positive for consumers such as:

• • Reaffirming that consumers purchasing coverage through a federally-facilitated Exchange will have access to premium tax credits (including in advance).
• • Clarifying that the federal government will not penalize states in audits or error-reduction programs for using streamlined Medicaid and the Children’s Health Insurance Program (CHIP) eligibility procedures required by rulemaking to implement the ACA.

A Mixed Bad

• • Allowing states to receive establishment grants all the way through the end of 2014 to support state activities to interface with a federally-facilitated Exchange. This will give states more time and resources to build an Exchange, which may include needed improvements to IT and eligibility systems. But it’s not clear to us why states should be eligible for grant funding if they are not actually working on an Exchange. It is also concerning that this could give states a further incentive to not take constructive steps to move forward with Exchange implementation in a timely manner.
• • Noting that states cannot use Exchange establishment grants to investigate the feasibility of the Basic Health Program (BHP). Given how important the BHP is to making coverage as affordable as possible for consumers and given how interconnected policy decisions about the BHP and the Exchange are, this seems overly restrictive to us. However, this concern is at least somewhat mitigated because the guidance goes on to say establishment grants can be used for activities related to the BHP that overlap with specific Exchange functions (e.g., establishing a call center that provides information on a range of coverage options including the BHP).

The Ugly

The points made in the guidance that are most deeply concerning are:

• • Granting a large number of options to states concerning how responsibility for determining Medicaid and CHIP eligibility will be handled. In particular, we are deeply disappointed to see that if a state opts for a federally-facilitated Exchange, they will be able to retain final authority over Medicaid and CHIP eligibility determinations. This type of arrangement will make it difficult to ensure that consumers have the kind of streamlined application experience that the ACA envisions. In addition, the potential loss of control of Medicaid eligibility processes was a useful incentive to get reluctant states to act on a state Exchange – this tool will now be off the table.
• CMS also proposes that even states choosing to implement a state-based Exchange can pick and choose which eligibly functions it wants to do and which it wants to outsource to the federal government. This kind of flexibility is going to lead to a dizzying array of arrangements that will likely be difficult for HHS to effectively administer, leaving consumers caught in the crossfire.
• • Clarifying that a federally-facilitated Exchange will defer to existing state insurance laws whenever possible. While harmonizing rules and standards inside and outside of the Exchange is a part of preventing adverse selection, it won’t matter much if the federal government succeeds in limiting adverse selection at the expense of access to essential consumer protections like robust network adequacy standards, rigorous marketing materials standards, and strong consumer complaint processes. Of course, there’s nothing wrong with deferring to state standards where these are strong but the approach should be for CMS to determine the standards as a floor and then determine to what extent using state standards is desirable.

Where does all of this leave us? While we know the Administration is trying to walk a line between discretion and valor in implementation to keep the disparate interest groups together, in this instance, we think they have strayed too far. We need a commitment from CMS to move forward aggressively on implementation, which includes raising the bar in states. This means advocates at both the national and—most importantly—the state level need to redouble efforts to make their voices heard to ensure that Exchanges are implemented in the most consumer-friendly way possible across the country. Together, we can make this vision a reality despite the challenges we face.

-- Patrick M. Tigue, Senior Policy Analyst