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As states lag in implementing health-care law, bigger federal role looks likely

By N.C. Aizenman,

Across the country, states are lagging in preparations to erect the health insurance market­places at the heart of the 2010 health-care overhaul, bogged down by a combination of partisan hostility and practical hurdles.

Faced with the delay, administration officials have been ramping up talks with state leaders in recent weeks over ways the federal government could pitch in without having to completely take over — speaking both informally and at a series of regional meetings underway.

The private discussions are evolving, with a range of federal-state partnership arrangements under consideration. But analysts on both sides of the health-care debate say one thing appears increasingly certain: The system of 50 completely state-operated insurance markets envisaged by the law is not what Americans will encounter when these “exchanges” open for business in 2014.

“When this law was passed in the spring of 2010, people really believed the states would get on board and we would see almost all exchanges being state-run,” said Timothy Jost, an expert on health policy at Washington and Lee University who supports the statute. “But there is a growing concern that quite a number of states will not be ready.”

Administration officials offered a more optimistic assessment.

“Many states have made significant progress [in] laying the groundwork,” said Richard Sorian, assistant secretary for public affairs at the Department of Health and Human Services. “States still have time to build on that good progress.”

State-based exchanges are crucial to achieving the law’s goal of vastly expanding access to health insurance. They will be open to an estimated 24 million Americans for whom health plans have been particularly expensive — those who buy coverage on their own or as employees of a small business. The exchanges are intended to control costs by creating a larger pool of customers and allowing them to comparison shop. Many customers will also qualify for federal subsidies.

If a state is unwilling or unable to run an exchange, the federal government can step in. But the prospect of taking over exchanges in multiple states could prove logistically and politically unpalatable for the Obama administration.

With less than a year to meet key deadlines, only about a dozen states have made robust strides toward establishing exchanges. Some others, including a number led by Republican governors, are proceeding at a moderate but still potentially viable pace. Yet about a third remain in the early stages of the process.

Technically, states have until Jan. 1, 2013, to demonstrate enough progress to avoid a federal takeover. But in reality the timeline is tighter. The deadline to apply for the final round of federal funding that a state would likely need to build its exchange is June 29. States can qualify for those funds only if they have already enacted the legal authority to establish their exchange and agreed on its governance structure and budget.

A few may have already missed that window because they have not acted, and their legislatures are not scheduled to meet again in regular session before 2013.

This group includes New Mexico, where Republican Gov. Susana Martinez vetoed a bill establishing an exchange that was sent to her this April by the majority-Democratic legislature. The only way New Mexico could now reconsider the issue is if the governor or a super-majority of lawmakers agree to a special session.

In Arkansas, the Democratic-led legislature’s opposition effectively killed the state’s ability to set up its own exchange.

“Somehow, along the way, this got tagged as supporting ‘Obama care,’ ” said state Rep. Fred Allen (D), who sponsored an exchange bill. “And I think that made a lot of Democrats afraid to sign on with it,” he said, adding that they were concerned about facing tight races.

State Rep. Jon Woods (R), who sponsored a similar bill, said he tried to warn his constituents about the consequences of ceding control to federal authorities.

If a state runs its exchange, it gets to decide key questions: Should the exchange accept all qualified plans, for instance, or negotiate with insurers over price and quality? How many doctors must a plan include in its network? If the exchange is federally operated, federal officials presumably make those calls.

But Woods said his constituents preferred he hold off, hoping the law will be overturned by the Supreme Court — which is widely expected to weigh in the spring on legal challenges brought by 27 states.

In some states, such as Alabama, the holdup appears to be mainly logistical. “No one in Alabama wants to default to a federal option for the exchange,” said state Rep. Greg Wren (R). Yet a bill that Wren sponsored last session foundered over disagreements about whether to house the exchange in an existing state agency or create it as a nonprofit. “This is just a new concept that needs to mature,” he said.

Administration officials declined to comment on details of the partnership arrangements they might offer states.

But several Utah lawmakers said they were intrigued by an HHS offer to let their state continue running an exchange it already operates for small businesses, while federal authorities handle a version for individual consumers. The latter is more politically charged because it requires states to enforce the law’s controversial mandate that virtually all Americans obtain insurance.

Sandy Praeger, insurance commissioner of Kansas, predicted that “quite a few” states will end up with a setup in which the state is essentially in command but relies on the federal government for some technical tasks — determining which customers are eligible to participate, for instance.

Allen and Woods of Arkansas said that at a recent regional meeting in Denver, HHS officials floated an option that could hold particular appeal for their state: Federal authorities would temporarily run the exchange until the state is ready.

It’s unclear how much flexibility these arrangements would give states to regulate their exchanges.

Iowa state Sen. Jack Hatch (D) said that in recent discussions of the idea, top Obama officials “made it clear” that, “even if you default to the federal model, it’s still driven by the state unless the state does absolutely nothing.”

Praeger had doubts. “There will be an awful lot of pressure on [federal authorities] to do things in a uniform fashion,” she said.

Cheryl Smith, who co-leads a prominent health exchange practice at the consulting firm Leavitt Partners, had a different warning: Don’t assume the federal government will be ready any sooner than the states.

“Political challenges aside, there are some huge logistical challenges that I don’t know if they’re going to be able to overcome,” she said. “I cannot foresee a world in which they don’t have to find a way to just push the deadline back in some way, shape or form.”

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