States Can Safely Put Off the Insurance Exchanges

A possible motto for the exchanges: Why do today what you can put off until tomorrow?

Margot Sanger-Katz
Jan. 10, 2013, 11 a.m.

Flor­ida Gov. Rick Scott, a former hos­pit­al ex­ec­ut­ive, has been one of the most strident crit­ics of the Af­ford­able Care Act. His state led the Su­preme Court law­suit against it. But since the elec­tion, his tone has softened — at least when it comes to state ex­changes, the new in­sur­ance mar­ket­places that will come on­line this fall. He told the As­so­ci­ated Press in Novem­ber that he wants to “get to yes.” And after Scott met on Monday with Health and Hu­man Ser­vices Sec­ret­ary Kath­leen Se­beli­us, a de­part­ment spokes­man hin­ted to The Wall Street Journ­al that the gov­ernor may opt in.

It’s too late for Scott and the oth­er 30 gov­ernors who missed last year’s ap­plic­a­tion dead­line to launch state-run ex­changes next Janu­ary, but there’s noth­ing to stop them from tak­ing con­trol back from Wash­ing­ton some­time down the line. And that may be a smart move. Lead­ing-edge states have struggled with murky reg­u­lat­ory guid­ance, in­ex­per­i­enced IT vendors, and nev­er-be­fore-con­sidered policy ques­tions. States that enter the sys­tem later, by con­trast, should be able to learn from the trav­ails of those who go be­fore. “The in­stall­a­tion manu­al is be­ing draf­ted as you’re build­ing it, and that’s why it’s been so chal­len­ging for these states,” says Bryce Wil­li­ams, a man­aging dir­ect­or at Towers Wat­son, which runs one of the biggest private in­sur­ance ex­changes in the coun­try. “The people who delayed for polit­ic­al and just-not-ready reas­ons are at a big ad­vant­age.”

State ex­changes are sup­posed to work like easy, one-stop portals to find cov­er­age — a health care ver­sion of Or­bitz. Con­sumers should be able to an­swer a few ba­sic ques­tions about them­selves and im­me­di­ately see which in­sur­ance plans will cov­er them, how much these will cost, and what fed­er­al sub­sidies are avail­able to help pur­chase them. But be­hind that simple front end are more-com­plex mat­ters. The IT sys­tems need to be able to com­mu­nic­ate seam­lessly with state Medi­caid data­bases and fed­er­al in­come in­form­a­tion. States must also de­cide which plans can be sold on the ex­change: Will they take all comers, or de­mand cer­tain qual­ity meas­ures or stand­ard be­ne­fits? If states can’t (or won’t) sort all this out, the feds must do it for them. So HHS has offered them a com­prom­ise: If they take some ex­change man­age­ment, the agency will do the rest. The dead­line for states to ap­ply for these “part­ner­ship ex­changes” is next month.

Late ad­op­ters learn from mis­takes made by oth­ers.

For many, it may come to that. Tech­no­logy, for ex­ample, has been a ma­jor hurdle for states. Vendors and con­sult­ants have moved in­to the ex­change-build­ing busi­ness, but it is es­sen­tially a brand-new en­ter­prise. By the end of 2014, states on the side­lines will have a clear­er idea of which sys­tems work well and which are buggy. Off-the-shelf sys­tems will prob­ably be cheap­er than the ini­tial products be­ing built now. “Over time, [tech­no­logy] im­proves and the sys­tems get easi­er to man­age,” says Joel Ario, the man­aging dir­ect­or at Man­att Health Solu­tions who used to run the Obama ad­min­is­tra­tion’s ex­change op­er­a­tion.

In New Hamp­shire, the Le­gis­lature barred a state ex­change last year, but of­fi­cials are con­sid­er­ing a part­ner­ship that would al­low Con­cord to over­see in­sur­ance plans. Jen­nifer Pat­ter­son, leg­al coun­sel in the state’s In­sur­ance De­part­ment, says that delay provides the most flex­ib­il­ity in the fu­ture: New Hamp­shire wants to see how the fed­er­al ex­change works and may nev­er want to pur­sue a fully state-run sys­tem. “I’m not sure it makes sense to re­in­vent the wheel be­fore we see the wheel in op­er­a­tion,” she says.

Oth­er states have struggled with the re­l­at­ive si­lence from Wash­ing­ton. Be­cause of the rol­lout timeline, HHS has been is­su­ing reg­u­lat­ory guid­ance (and design­ing the in­come-eli­gib­il­ity portal that every state must use) at the same time that states build their sites. So gov­ernors today face un­cer­tainty that will be re­solved once the fed­er­al ex­change is op­er­a­tion­al, says Dan Schuyler, a dir­ect­or at Leav­itt Part­ners, a con­sultancy that is help­ing states. Schuyler thinks that nearly every state will have its own ex­change with­in five years.

States that opt for a fed­er­al ex­change now and a loc­al ver­sion later may also dodge some polit­ic­al bul­lets. The feds will take the ini­tial blame for any chaos in the rol­lout and for con­sumer frus­tra­tion with the price of in­sur­ance — both of which are likely. Later, the sys­tem will prob­ably run more smoothly, and people will be used to the prices.

Wait­ing has dis­ad­vant­ages, of course. The biggest op­por­tun­ity to shape new in­sur­ance mar­kets will come on Day One, when mil­lions of new cus­tom­ers sign up for in­sur­ance. Evid­ence from ex­ist­ing in­sur­ance mar­ket­places sug­gests that par­ti­cipants won’t es­pe­cially want to switch later, even if states design in­nov­at­ive plans or in­vite new car­ri­ers. Fed­er­al money to help states may also dry up: Grants will be avail­able for at least an­oth­er year but prob­ably not after that, so states that de­fer might miss their chance for the max­im­um sub­sidy. That’s why many ex­change ex­perts, in­clud­ing Ario, think early ad­op­tion will be worth the trouble.

But the late ad­op­ters will be­ne­fit from the road-test­ing else­where — in­clud­ing hav­ing the op­tion to look around and de­cide that a fed­er­al ex­change was the best choice after all. Tevi Troy, a seni­or fel­low at the Hud­son In­sti­tute and a deputy HHS sec­ret­ary un­der Pres­id­ent George W. Bush, likens the pro­cess to “late in­dus­tri­al­iz­a­tion,” which al­lowed some na­tions to de­vel­op far more rap­idly in the 20th cen­tury than those who had led the way in the 19th. “People who try to do something later, even at a na­tion­al level, of­ten be­ne­fit from the tri­al-and-er­ror ex­per­i­ence of their pre­de­cessors,” he says.