With Many States Behind Schedule, CMS Is Likely to Set Low Bar for Certification

Featured Health Business Daily Story, Feb. 22, 2012

With Many States Behind Schedule, CMS Is Likely to Set Low Bar for Certification

Reprinted from INSIDE HEALTH INSURANCE EXCHANGES, a hard-hitting monthly newsletter with news and strategic insights on the development and operation of state and private exchanges.

By Steve Davis, Managing Editor – February 2012 – Volume 2 Issue 2

While HHS collectively has awarded $729 million to help states stand up an insurance exchange (see table, p. 4), many states will run out of time long before they run out of cash. As a result, HHS is expected to set the bar low when evaluating certification applications for state insurance exchanges, industry observers tell HEX.

The reform law requires HHS to certify state exchanges no later than Jan. 1, 2013. But with many states still waiting for their legislatures to act, or for the Supreme Court to rule on the constitutionality of the reform law, overall development of state exchanges is woefully behind schedule.

In November 2011, CMS issued a 14-page draft certification application, which states must submit this fall. But HHS has said little about what the certification process will look like. And given that a majority of states won’t be fully ready for certification — either by choice or circumstance — HHS is expected to help states make progress, rather than reject applications that fall short, according to a source who has worked with CMS’s Center for Consumer Information and Insurance Oversight (CCIIO) but asked not to be identified. HHS will most likely allow conditional approval with an action plan for states that don’t meet all of the certification requirements, she tells HEX.

Joel Ario, who headed HHS’s Office of Insurance Exchanges until last September, predicts that “substantially less than” half of the states that apply will receive full certification next January. Most of the others will need to rely on federal partnership options, which allow for “a certain amount of mixing and matching” of functions, he tells HEX. A state, for example, can focus on traditional functions such as insurer oversight and consumer assistance, while relying to varying degrees on the federal government for the front-end eligibility and enrollment system. “My hope would be that many states in this middle ground can move to a full state exchange over time, as the proposed rules allow.”

Frank Micciche, a senior advisor at the Washington, D.C., law firm McKenna Long & Aldridge LLP, says he’s not surprised at the approach. “Everything that CCIIO has done for the last few months now has been extremely solicitous of the states, doing everything possible to keep them from walking away from exchange establishment,” he says. The main motivation for such a strategy, he quips, is “complete terror” at HHS over the thought of having to run a large number of exchanges.

Deborah Chollet, a senior fellow at Mathematica Policy Research, agrees that HHS is likely to make the certification as “friendly” as possible, and notes that CMS would prefer that states operate their own exchange.

“States will be all over the map regarding their exchange progress…and a majority of them will be nowhere near ready by the Jan. 1, 2013, deadline. As such, HHS will need to issue ‘conditional approval’ based on different levels of progress,” predicts Dan Schuyler, who heads the health insurance exchange practice at the Utah-based consulting firm Leavitt Partners.

States that opt to build an exchange from the ground up will need between 24 and 36 months to develop the necessary information technology (IT). That means certification by next January will be virtually impossible for those states unless HHS is very flexible. Moreover, it’s unclear if the federal government will have enough time to create a federal program that can be plugged into states that can’t or won’t stand up their own exchange. And even if some form of a federal exchange model is operational early next year, Leavitt says it will be extremely costly for HHS to implement a federal exchange in states that have made progress but still lack a certifiable exchange. Prior to joining Leavitt, he helped define the technical goals and business processes for Utah’s insurance exchange.

Micciche anticipates that about 35 states will seek level one grants, but probably closer to 25 states will seek actual certification of an exchange this fall. “And if you get there, I think you’ll get the green light.” But he says HHS could face problems if states that received conditional approval aren’t ready to enroll people on Oct. 1, 2013.

‘Operational Readiness’ Will Be Challenging

The application is broken into three parts. The first section — Enabling Authority and Governance — requires a copy of the law or regulation granting the state authority to create an exchange. It notes that pending legislation won’t be enough. Applicants also must describe the entity’s governance structure and provide an overview of the board’s composition as well as details about how and why those members were selected.

Part 2, Exchange Functions, requires applicants to outline strategies for member outreach and education, call centers and the Web portal. States also must “provide evidence” that they have enough staff to process applications through a variety of channels, and ensure there are safeguards in place that will allow the exchange to receive federal tax information.

Part 3, Operational Readiness, will be difficult for many states to complete, says Micciche. “You have to have your act together from an IT perspective and that’s where most states will get caught up,” he predicts. “Most of the other requirements are pretty easy to meet as long as they have legislation and have started doing their work. It’s the operational readiness part that is going to mean everything. That will be what really determines if a state is ready to be certified.”

But it’s highly unlikely any state will have everything complete by Jan. 1, 2013, which means applicants need to demonstrate only future capabilities. And how HHS measures that is anyone’s guess, he adds.

States that receive conditional approval can enter into a partnership with HHS to provide some services until the state transitions to a fully state-based exchange, according to a prepared statement CMS supplied to HEX.

Editor’s note: Here’s a link to the CMS page that includes the exchange certification application: www.cms.gov/paperworkreductionactof1995/pral/itemdetail.asp?itemid=CMS12….

Kevin Wrege, Esq.

Founder & President

Pulse Issues & Advocacy LLC

Office: 202-625-1787

Mobile: 202-253-4929

4410 Massachusetts Ave., NW, #150

Washington, DC 20016

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