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Former CMS, State Officials: Time Is Ripe For States To Run Exchanges

Both GOP and Democratic-led states using should switch to state-level exchanges because it’s cheaper than relying on the federal government, gives local officials more control consumer data and allows states to control policy decisions, including potential reforms using the Affordable Care Act’s 1332 waivers, a trio of former federal and state officials, including the Trump administration’s exchange chief, recently told a group of state insurance leaders.

There are currently 18 state-based exchanges, all in Democratic-led states, but the officials said now that it’s settled law, officials in red states should drop their knee-jerk opposition to anything to do with the ACA and consider the benefits of a state-level exchange.

Exchanges are not a Democrat or a Republican concept, said Randy Pate, who led Center for Consumer Information and Insurance Oversight under the Trump administration and now runs his own consulting firm.

The message for red states is that the ACA has been in effect for 10 years and it is not going anywhere — and states that don’t run their own exchanges are ceding authority to the federal government, he said.

Earlier this month, Pate joined former executive director of Nevada Health Link Heather Korbulic, now with exchange technology company Get Insured, and former Wisconsin Deputy Commissioner JP Wieske — now with the Health Benefits Institute, in pitching state-exchanges to the audience of state insurance commissioners.

Following the presentation, Alaska Division of Insurance Director Lori Wing Heier said that officials in her state had considered a state-based exchange but were unsure where to even start the process. She also worried switching to that model could be too expensive.

The first step is to examine the population and the state’s need for an exchange, and then to figure out the necessary user fee rate to support operations, said Korbulic, who shepherded Nevada’s transition to a state-based exchange in 2019. The cost-per-enrollee might be more difficult for states with smaller populations, she acknowledged. But Alaska could consider sharing costs with other states that use the same platform. Several states that use Get Insured technology share the costs of certain updates, she noted.

Alaska is interested in setting up a state-based exchange and sharing costs with other states might be the way to do it, Wing Heier replied.

Commissioners also sought Korbulic’s insights on the biggest hurdles to the transition. The financial arguments must be made and there could be nervousness about risking the stability of the market when taking on such a large endeavor, but political will is the first – and largest — barrier to overcome, Korbulic said.

Despite the challenges, all three experts said they believed that states are taking a serious look at the option and expect that more states will be announcing a switch sometime in 2023.

The ACA requires each state to have a health exchange that consumers can use to buy plans with the help of government subsidies. In the years following the law’s enactment, CMS offered millions in grants to support states in planning and setting up their marketplaces. But, whether due to ideological opposition to the ACA or worries about costs or other reasons, only about a dozen states — all Democratic led – had state-level exchanges ready when the marketplaces went live in October 2013. Remaining states either fully or partially relied on the federal government for all exchange functions, including costumer service, plan management, eligibility, and enrollment and financial management.

But the federal platform wasn’t free. From 2014 through 2019, CMS charged a fee of 3.5% of total monthly premiums to states that fully relied on the federal government and slightly less for the partnership exchanges, which later became known as state-based marketplaces on the federal platform (SBM-FPs). The Trump administration reduced the fee structure during its tenure, eventually setting it at 2.25% of premiums (1.75% for SBM-FPs) for plan year 2022. The Biden administration, however, increased the fee back to 2.75% for states using (2.25% for SBM-FPs) to help fund navigator grants.

Meanwhile, exchange technology advanced significantly, and several companies developed “off the shelf” platforms that states could purchase and customize instead of having to build a product from scratch. States can now operate exchanges on their own and the costs are less than they pay the federal exchange, and those savings could go toward lower premiums or be used to support additional features, said Korbulic.

In 2019, under Korbulic’s leadership, Nevada became the first state to transition from to a state-based exchange and the state’s exchange went live for the 2020 plan year.

Over the next two years, Maine, New Jersey, New Mexico and Pennsylvania also fully transitioned to state-run exchanges, and other states, like Virginia and Oregon, took steps toward a transition.

There are now 18 state-based marketplaces, including the District of Columbia.

“Any state that isn’t already doing a cost-benefit analysis (of switching to a state-run exchange) should,” Korbulic said.

On that point, Pate said that larger states, like Ohio, Florida and Texas, could be paying the federal government up to $200 million a year to operate in their state. They could set up a good state exchange for that amount, he said.

State autonomy is another powerful argument for the transition, Korbulic said. Nevada knows Nevadans best, she argued. When the state had to rely on the federal platform, state exchange officials had limited access to consumer data. Once Nevada Health Link became fully state run, they were able to use that information to drive policymaking and to figure out how to better target their outreach and marketing. By the time she left her position as exchange head, enrollment had increased by 25%.

Wieske also pointed out that due to improvements in recent years, some state-based exchanges are performing better than The Health Benefit Institute issued an annual exchange scorecard, and their most recent report from November 2021.

 found that state exchanges in Connecticut, Colorado, New Jersey and the District of Columbia exceeded the FFM’s performance.

Wieske and Pate also said states’ ability to make substantive policy decisions on their own is a key reason for red states to consider the transition, particularly in light of federal rules that they may find problematic. For example, states have complained about CMS’ 2023 network adequacy rules that set new time and distance standards, but those issues could be avoided If the state made its own rules.

Some states are also interested in pursuing reforms that include changes to the ACA subsidy structure, Wieske said, which is possible under a 1332 innovation waiver — but not if the state is reliant on Pate also encouraged states to consider switching to their own exchange to take advantages of the 1332 flexibilities that are not feasible for states.

Pate also told commissioners that it’s time to dispel the idea that switching to a state-based exchange is a risk to the market and stressed that the exchanges are more stable than ever, particularly compared to the early days when they were plagued by outages and glitches.

He also touted the Enhanced Direct Enrollment (EDE) feature CMS implemented under his tenure, which allows certified vendors or insurers to enroll consumers without having to visit the federal hub.

Those vendors, along with certified agents and brokers are now responsible for more than half of the plan selections, he said. New state-based exchanges should build-in an EDE function from the very beginning to make sure that consumers continue to have that option, he added. — Amy Lotven ([email protected])

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