Pioneering a State Health-Insurance Exchange

Either a Republican victory in next year's presidential election or an adverse U.S. Supreme Court decision could undermine implementation of the landmark federal health-care law that's due to take full effect in 2014.

But given the long lead-times needed to put in place everything that's required to make it work, officials can't afford to wait on these uncertain outcomes before pushing ahead with preparations. While most of the law's provisions for making health-care coverage more accessible and affordable will emanate from Washington, the brunt of the responsibility for delivering these benefits is vested in state exchanges that are the chosen instrument for connecting health insurers with consumers and determining the subsidies to which lower-income purchasers are entitled.

Nowhere are the burdens of constructing such an exchange greater than in Nashville. Up to now the initial groundwork, including analysis of thousands of pages of proposed federal regulations, has been conducted by a two-person planning team headed by Brian Haile, who has been deputy director of the state's own employee health insurance plan. He's been guided by advisory committees comprised of actuaries, insurers, health-care providers, employers, and consumer advocates with funding from a $1 million federal grant.

Haile stresses that no decision has been made as yet whether the state should even create its own exchange or defer, as the law allows, to letting the federal government run it. But all of the stakeholder groups favor a state-run exchange, and it seems clear that Gov. Bill Haslam and the state Legislature will opt for one, despite their many grievances with the totality of the federal health-care law.

Approval by early next year is needed in order to qualify for a federal grant that Haile places in the $50 million to $100 million range to cover substantially all the costs of implementing the exchange and running it through 2014. (After that, it's supposed to become self-sufficient with revenues derived from assessments on insurers.) "If the decision is to go, then we really need to be ready to hit the accelerator because there are so many moving pieces to bringing up something this complicated that time is of the essence," Haile says.

Sophisticated information technology will be needed to support what Haile terms the "Travelocity of Health Plan Selection." Web portals will display the offerings of insurers in ways that facilitate comparison shopping, but tough choices remain as to how much variety or standardization of benefits to allow. All plans offered on the exchange must offer federally-set "essential health benefits" in four value categories—Bronze, Silver, Gold, and Platinum—but Haile evinces frustration that the federal Department of Health and Human Services has yet to define what they are.

Another challenge is calculating the federal income tax credits to which insurance purchasers with incomes of up to 400 percent of the federal poverty line ($88,000 for a household of four) will be entitled. These credits can only be obtained for insurance bought on an exchange and are set at the amount by which the second-lowest-cost Silver plan exceeds 9.5 percent of the purchaser's income. But an automated way to get the income information that is needed from the Internal Revenue Service has yet to be established. And with some 350,000 purchasers of individual policies projected (plus another 350,000 enrollees in small employer group plans), the capacity and accuracy of tax-credit calculations is in doubt, and Haile is concerned about exchange liability for any inaccuracies. A further complication is that any employee whose share of the premium on any employer insurance plan exceeds 9.5 percent of their income or whose benefits don't meet the minimum federal standard are also entitled to get subsidized coverage, but determining their eligibility can take a lot of delving on the exchange's part.

Even more burdensome and perilous in my mind is a federal requirement for the exchange to make what are known as risk adjustments. These adjustments, in simplified terms, take the form of payments from any insurance plan in the state whose enrollees have been determined to have below-average actuarial risk to exchange plans whose enrollees have been determined to have above-average risk. The impetus for these payments arises from the law's prohibition against insurers any longer denying or delaying coverage (or charging higher premiums) to people with pre-existing conditions. This leads to fears that subsidized exchange plans will attract more sick folks (a process known as adverse selection). The risk adjustment payments are intended to equalize plan costs, and thus their premiums, for this effect if it occurs. But its equitability turns on the accuracy with which the actuarial risk of various health plans can be calculated based on enrollee demographic and diagnostic data. After reading an HHS release asking for comment on dozens of different ways in which this risk might be calculated, I came away clear that it's anything but an exact science and fearful of abuses such as one known as "upcoding," whereby patients are overdiagnosed.

Haile is very sensitive to this and other risks associated with a highly complex new undertaking. "We've got a tremendous amount of uncertainty, and our responsibility to deal with some real technical things like risk adjustment is the most important thing we can do, because if we get it wrong, we should call it quits," he told a recent gathering of health-care providers.

Given all of the complexities and uncertainties involved, there's lots of room to doubt the feasibility of getting a health-insurance exchange up and running in Tennessee by 2014. But speaking as someone who has long supported the goal of making health coverage accessible and affordable to all, I'm encouraged about the state's ability to do so on two accounts.

For one, the federally mandated exchanges in all other states are patterned in nearly every respect after the Commonwealth Connector that has brought near universal coverage to Massachusetts and, by most reports, is working very well. Moreover, Brian Haile impresses as someone who has a thoroughgoing grasp of everything that's entailed in making this model work in Tennessee and will succeed in doing so if he is selected to head the implementation effort.

There will be a Health Insurance Exchange Forum at the East Tennessee Historical Society (601 S. Gay St.), Monday, Nov. 14 at 7 p.m.; Brian Haile, director of the state's insurance exchange planning, will discuss implementation of the Affordable Care Act and insurance exchanges.