Republican Governors and Their State Exchanges- Difficult Choices

The state health benefits exchange is one of the central concepts embedded in the Patient Protection and Affordable Care Act (PPACA).  The new federal reform law mandates that each state have a state health benefits exchange for individuals, and a SHOP exchange for small group employers, or offer one merged public exchange, to help consumers access, compare and purchase health insurance programs.   PPACA requires each state-based exchange to be certified by the U.S. Department of Health and Human Services (HHS).   BenefitMall has covered this issue at length.  Click here for additional information on the exchange concept. 

Last month, HHS issued rules to provide further information on the creation, operation and certification of a state health benefits exchange.  States wishing to establish a public exchange must submit an Exchange Plan to HHS and then receive written approval or conditional approval of its Exchange Plan before commencing operations.  The rule sets a firm deadline of January 1, 2013 for HHS to certify that a respective state has made or is making sufficient progress in establishing a state-based exchange – and that the exchange would be able to enroll persons on October 1, 2013 – in order to support the open enrollment activities for a January 1, 2014, effective date.

Establishing a state-based exchange is an exceptionally complicated process involving the establishment of operational infrastructure, including advanced IT systems.  Such an exchange requires a significant investment in time, energy and money to hire experienced senior leadership, create operational policies and procedures, implement an IT system that can interface with the Medicaid and Medicare systems, hire and support staff, and carryout all of the other tasks necessary to establish a major enterprise.

Some Republican governors support the state health benefits exchange concept because they feel it will allow the free market to operate more efficiently. However, other Republican governors are holding off establishing their state exchanges – many object to  the president’s health care reform initiative, and most are hoping the Supreme Court will deem the individual mandate, if not the entire Act, unconstitutional later this month.

The anti-state exchange Republican governors represent some very large states. Rick Scott of Florida, Chris Christy of New Jersey, Rick Perry of Texas, and John Kasich of Ohio are among the Republican governors refusing to set up exchanges despite the risks in this approach.  For example, these governors face the challenge of meeting a January 1, 2013, deadline and the amount of time that it takes to fulfill the criteria that the HHS rules established to pass the certification process.

If President Obama wins the 2012 election, and the U.S. Supreme Court upholds the constitutionality of PPACA, it is doubtful these states will be able to pull together a credible state exchange application in the next six months to meet the January 1 deadline for certification. If these respective states do not have a certified exchange by that date, PPACA mandates that the federal government step in and operate a state exchange in each state.  While these Republican governors object to their own state running an exchange, they likely will object even more to a federal exchange operating within their state.

Most experts believe that the U.S. Supreme Court will release its legal decision concerning the constitutionality of PPACA later this month.  BenefitMall has covered the legal dispute in great detail.  Depending on the Court’s ruling, BenefitMall will provide an update on how the decision will impact the development and timing of PPACA’s exchanges. 

We will continue to keep you up-to-date on these and other developments in our ever-evolving marketplace. If you would like to read more about the state health benefits exchange concept, please click here.  Please visit www.HealthcareExchange.com for blog posts, polls, surveys and numerous resources, or you may visit www.benefitmall.com to view past Legislative Alerts.

The views expressed in this post do not necessarily reflect the official policy, position, or opinions of BenefitMall. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.