State-based insurance marketplaces hang in balance of Supreme Court health-care ruling

May 26, 2012

While partisan gridlock and logistical disputes have stalled preparations for the 2010 health-care law in about two dozen states, more than a dozen others have moved swiftly to set up the insurance marketplaces at the statute’s core.

So what will come of those efforts if the Supreme Court decides to overturn all or part of the law? Interviews with key officials in some of the states that are furthest along suggest the results could vary widely.

Maryland leaders said they haven’t bothered trying to put together a contingency plan.

“We are committed to finding ways to help Marylanders lead healthier lives no matter the outcome,” said Lt. Gov. Anthony G. Brown (D), who is spearheading the state’s implementation work. “But there are too many potential outcomes of the Supreme Court case to speculate.”

If the court, which is expected to rule late next month, does not uphold the law, its options range from overturning the statute to striking one or both of the two provisions whose constitutionality have been directly contested: the law’s expansion of Medicaid and its “individual mandate” requiring virtually all Americans to obtain health insurance.

Even the most limited scenario — invalidation of only the individual mandate — could jeopardize the success of the state-based insurance marketplaces, known as “exchanges,” called for by the law, said Maryland’s secretary of health, Joshua Sharfstein.

Scheduled to open in 2014, they are intended to make insurance more affordable by offering a more transparent, competitive shopping experience for small businesses and individuals who are unable to get coverage through an employer. Many of these individuals will also be eligible for federal subsidies.

Because the law bars insurers from discriminating against people with pre­existing conditions and limits how much insurers can vary rates, analysts worry that if the court were to eliminate the individual mandate, people would wait to buy coverage until they are sick. This, in turn, would force insurers to either increase rates to unaffordable levels or pull out of the exchanges.

Enacting their own versions

One solution would be for states to enact their own versions of the individual mandate — a power no one denies states have the constitutional authority to wield and one that Massachusetts has already exercised.

“I certainly could imagine that making sense,” Sharfstein said. But he added: “I’m not going to be in the position of making a snap judgment.”

Sharfstein said it was also hard to tell how much support the idea could win in Maryland.

The state was first in the nation to hire a director for its exchange. And erecting the marketplace’s architecture has proved a relatively smooth process in a state where Democrats hold the governor’s office and dominate both branches of the General Assembly — and where even some Republicans have praised Sharfstein’s approach in legislative hearings.

Still, Sharfstein said, “I don’t think the consensus is automatic.”

California Assembly member Bill Monning (D) was equally hesitant to predict the appetite for a state-imposed individual mandate in the Golden State. The state Assembly adopted such a requirement as part of a larger health-care overhaul in 2007, only to see it founder in the state Senate, said Monning, who chairs the Assembly’s Committee on Health.

“One of the challenges is how it is framed,” he said. “Do people understand that they’re going to have access to care that maybe they currently don’t have access to?”

Monning added that an individual mandate was only one of several options he would consider. Others include limiting the period in which people can enroll in plans, imposing penalties for last-minute enrollments or finding ways to automatically enroll people in plans by default.

But if Monning was unsure which option Californians would prefer in the absence of a federal individual mandate, he had no doubt they would choose one of them.

“The underlying commitment is that California will move forward to implement health reform no matter what the position of the Supreme Court,” he said.

Meanwhile, Rhode Island Lt. Gov. Elizabeth Roberts isn’t sure her state would even need to take action if the court were to throw out the individual mandate.

Rhode Island already prohibits insurers from refusing to cover people with pre­existing conditions and also curbs variation in rates, Roberts said. But though the cost of plans available for purchase by individuals is high in Rhode Island, Roberts argued that this is mostly the result of the same factors driving up prices nationwide.

“So a state-level mandate would not be my first step,” she said. “I would first see how successful we could be without it.”

Roberts said the law’s main benefit to Rhode Island will come from other provisions, such as the federal subsidies to help moderate-income workers buy plans, and the extra federal dollars to extend Medicaid to more low-income people.

Of course, those federal funds would disappear if the court were to overturn the law in its entirety.

“That’s what I call the nuclear option. I don’t even want to think about it,” said Ed Hernandez (D), who chairs the California state Senate’s Committee on Health.

“We might still want to move forward with our exchange. But the problem is without the federal subsidies, we’re going to have a much more difficult time providing health care for our most vulnerable populations.”

Peter Lee, executive director of California’s exchange, echoed that concern — pointing to a failed attempt by the state to create an exchange-like insurance pool for small businesses in 1992 without the subsidies for low-income consumers or market regulations in the federal health-care law.

By 2006, “it ended up falling apart,” said Lee, who was the pool’s final chief executive. “Exchanges must have those components to be game-changers.”

Loss of federal money

Also gone would be the federal funding the law provides to help states set up the exchanges, including money for technological systems to handle enrollment, and staff to vet insurance plans.

That could be a challenge for California — where the legislature has already adopted a law prohibiting the state from spending its own funds on the exchange and officials are grappling with a budget shortfall of at least $16.5 billion.

California has already received more than $41 million, but Lee said the state will probably need to apply for a final “level two” grant.

Maryland, which has been awarded more than $34 billion so far, will probably be submitting its application for level two funding by the end of next month. Could the state afford to proceed without that money?

“That’s not a question we can answer,” Sharfstein said. “We’d have to look at everything.”

By contrast, Rhode Island is one of two states — along with Washington — that have already received a level two grant, for a grand total of about $65 million, not including a $35.6 million “early innovator” grant it is sharing with four other states.

Roberts said she assumes that even if the law were overturned, states would not be required to give the funding back.

“We already have the resources to build our exchange, so we will go ahead and do that for our citizens,” she said.

While the loss of federal subsidies to help people buy insurance would be a “big problem,” Roberts said, “I still see a real value of the exchange for small businesses.”

“For them, a lot of this is about opening up options in the market, pushing insurers for innovative products such as a young-adult plan, and an exchange can do that even without the subsidies. . . . We’re saying to insurers, we’re going to set some standards and we’re looking for innovation in these areas, and if you want to sell insurance through us, here are the rules of the game.”

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