Why HHS Created Partnership Exchanges and Why More States Are Choosing Them

New Hampshire: We’re in.

North Carolina: We’re not.

The two states on Tuesday were the latest to announce their intentions on the Affordable Care Act’s health insurance exchanges. States have until Feb. 15 to tell HHS whether they’ll retain even some control over the exchanges, or let the Obama administration run the exchanges for them.

And while New Hampshire made clear that it wants to partner with the federal government to launch an insurance exchange, North Carolina backed out of a previous plan to do exactly that.

By Friday, we’ll know where half a dozen other states stand, too.

Background on Partnership Model
The Affordable Care Act didn’t originally spell out the partnership model; under the law, states faced a binary choice of running their own insurance exchanges or punting the responsibility to the government.

But HHS officials realized they needed to tweak the ACA’s approach, as more than 30 states — increasingly led by Republicans, who took over 11 statehouses in the 2010 election — announced they planned to opt out of the exchanges altogether. This would leave HHS officials with “an awesome task in establishing and operating exchanges in [so many] different states and coordinating those operations with state Medicaid programs and insurance departments,” before open enrollment begins in October 2013, Paul Starr writes in The American Prospect.

As a result, the agency in 2011 introduced the partnership model in hopes of shifting some of the responsibility for running exchanges back to the states.

Under the hybrid approach, the federal government takes on setting up the exchange’s website and other back-end responsibilities, while states keep functions such as approving health plans and setting up consumer assistance programs. HHS also hopes that the partnership model will be a path for states that weren’t ready to run their own exchanges to take them over eventually.

“The best case for the government is a state setting up [its own] exchange and operating it well,” Avalere Health President and CEO Dan Mendelson tells me. But “the worst case … is that a state tries to run it, and run it badly.”

“A partnership is somewhere in between.”

As of press time on Wednesday, seven states — including New Hampshire — have signaled that they will participate in partnership exchanges, and Avalere anticipates that five more states will do so by Friday. Those states are Ohio, New Jersey, Tennessee, Virginia and West Virginia.

Politics Matter
Where states stand on the insurance exchanges has emerged as an important battleground over implementing the health reform law, albeit less publicized than states’ decisions to opt into the ACA’s Medicaid expansion. About 27 million Americans are expected to gain health coverage through the new marketplaces.

In general, “Democratic governors moved aggressively” to set up the exchanges, Mendelson says, with most of those leaders choosing to run their own marketplaces.

But GOP leaders tended to dawdle on announcing their plans, in hopes that the health reform law would be overturned by the Supreme Court or repealed after last year’s election.

Friday’s deadline represents a final chance for undecided states to take part in an exchange, but also represents a difficult decision. Many conservative governors who traditionally support states’ rights are weighing whether to hand over more responsibility to the federal government, or retain some control over implementing a law that they’ve opposed. Seven of the states that Avalere has identified as likely participants in partnership exchanges are led by Republicans.

Meanwhile, local politics in Arkansas — which has a Democratic governor who favors the ACA, but a GOP-controlled Legislature that refused to approve legislation for a state-based exchange — played a role in that state’s decision to pursue the partnership model, an official told American Medical News.

Size Matters, Too
But for Delaware, the decision to go with a partnership exchange wasn’t politics. It was dollars and sense.
Specifically, the decision to pursue a partnership model meant Delaware would benefit from “economy of scale,” Rita Landgraf, the state’s health secretary, told HealthLeaders last month.

Delaware’s small population — with fewer than 100,000 residents likely to enroll in an insurance exchange — meant that a state-based exchange would be “cost-prohibitive.” As Governing’s Dylan Scott reported, Delaware officials estimated that it would cost about $87 per member per month to run their own health insurance, or roughly six times as much as if the federal government ran the exchange.

“If we couldn’t spread costs over [a] larger population, which includes both individuals who are healthy as well as those who have medical challenges,” premium costs for insurance participants would rise, Landgraf told Scott.
And while Delaware officials did approach neighboring states like Maryland to ask about folding its pool into those states’ exchanges, “officials in those states weren’t interested, particularly because insurance regulation — traditionally a state government’s responsibility — gets messy when you start crossing state borders,” Scott writes.

Dan Diamond (@ddiamond) is Managing Editor of the Daily Briefing, a CaliforniaHealthline columnist, and a Forbes contributor. This post originally appeared at CaliforniaHealthline.org.

7 replies »

  1. “Each state has a civil and moral obligation to take charge of its future and take an active role in reducing heath care disparities.”

    Depends what book state politicians get their “morals” from. There are no morals in the book of state lobbyist special interest. What moral obligation is NC fulfilling by refusing to expand federally funded Medicaid? What moral obligation is NC fulfilling by cutting unemployment benefits in almost half and reducing collection period while also forgoing Federal unemployment payments?

    There is only the book of ideology and political fund raising.

  2. The health care partnership model is great way of revising state insurance exchange systems to grant accessibility to affordable and quality health care coverage for millions of Americans. As stated by the website, Avalere Health President and CEO Dan Mendelson, “The best case for the government is a state setting up [its own] exchange and operating it well”. Each state has a civil and moral obligation to take charge of its future and take an active role in reducing heath care disparities.

  3. Without this partnership approach, HHS could not have possibly managed to get exchanges up and running in all the states that opted out of running their own. This is still going to be a monumental task, even with help from the states, but at least some of the burden will be shared. That’s important because, while a state running its own exchange poorly would be bad, the Feds running several exchanges poorly would be a disaster.

  4. So, will the federal exchange offer larger groups to spread the risk and lower insurance costs? Bet not.

  5. I’m confused. I saw that Illinois chose a partnership exchange. Was that because of politics, or size?