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.