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Federal money for health exchange puts Brewer in bind

Gov. Jan Brewer, during a Nov. 29 speech at the American Legislative Exchange Council summit in Phoenix. (Photo by Ryan Cook/RJ Cook Photography)

The $30 million that Arizona received this week from the Obama administration will help the state develop and design a health insurance exchange website that can seamlessly interact with Medicaid.

But the pot of money, particularly given its size, potentially poses legal and political complications for Gov. Jan Brewer, who is against the federal health care overhaul and led Arizona in suing over its constitutionality.

Some view Brewer’s decision to seek the grant as tantamount to surrendering Arizona’s case.

The grant money also likely puts the governor on the defensive because it provides critics of the health exchange with ammunition to argue that the state is“entrenching” a law that it views to be unconstitutional.

The health exchange is a critical component of PresidentObama’s health care law, derisively dubbed “Obamacare,” that is scheduled to go into effect inJanuary 2014, barring a successful legal challenge.

The money also comes despite an uncertainty about whether the state will establish and run the online marketplace for insurance plans. One view is that the governor will ultimately need to seek approval for the exchange from theLegislature, where it has several hard-line critics.

The Brewer administration,however, is taking a pragmatic approach and is preparing in case the federal law is upheld.

Don Hughes, who heads planning for the exchange in the Governor’s Office, took pains to explain that Arizona is moving forward on a “step-by-step” basis and there is no commitment to actually create the exchange.

The Brewer administration, along with the insurance industry and other consumer advocates, wants Arizona to run the health exchange and not defer to the federal government if the health care overhaul is upheld in court.

Under that law, the federal government would operate the exchange for Arizona if the state decided not to create one.

If states want to operate their own, they have to show by January 2013 that their exchanges will be operational by 2014. These state-based exchanges must also be ready for an open-enrolment period beginning next October.

The $30 million from the Obama administration is on top of a $1 million planning grant that Arizona earlier received.

With this recent funding, the state moves on to the next phase of preparing for the exchange, which essentially will be a web portal that is aimed at making it easier for people and small businesses to purchase health insurance.

Arizona will use the bulk of the money to secure the IT infrastructure for a user-friendly website that can interact with Medicaid. As envisioned, the exchange would let people know whether they’re eligible for Medicaid and enroll them in the program.

Designing and creating that website is expensive because of the scale of the project, Hughes said.

“It’s not something the geek squad can come over in an hour and put up for you,” he said.

The website has to be able to handle large data and accommodate millions who may visit the site and eventually get health coverage through it or use the web portal to enroll in Medicaid, he said.

The U.S. Department of Health and Human Services said Arizona will also use the money to continue working on how to manage health plans, including their certification, recertification and decertification.

• • •

On Nov. 29, Arizona and a dozen other states were awarded a total of nearly $220 million. Arizona pretty much got the financial aid it sought from the Obama administration.

But not everybody is happy with Arizona’s tentative moves toward establishing the exchange.

Diane Cohen, an attorney with the Goldwater Institute, complained that the governor’s actions are “entrenching”

a law whose constitutionality it is challenging in court.

“At least one federal court has recognized that when a state who is a party to the lawsuit is actually going ahead and implementing provisions of the law that they are challenging as unconstitutional, they’re prejudicing the lawsuit,”

she said.

Contrary to the view expressed by the Governor’s Office and the U.S. health department, Cohen said she believes that Arizona committed itself to creating the exchange by accepting millions of dollars in federal money.

“She’s helping enforce the key provision of this statute,” she said. “Arizona should just not be wantonly asking for and spending taxpayer dollars for an exchange that shouldn’t be moving forward in the first place.”

Cohen said now that the case is before the U.S. Supreme Court, states like Arizona should return any money they get from the federal government and cease establishing the exchanges.

Some influential lawmakers share Cohen’s aversion toward the exchange. They believe that the federal government is eager to provide funding for state-based exchanges in order to bolster its case and show, among others, bipartisan “buy-in” for the health care law to the courts.

Sen. Nancy Barto, chairwoman of the Senate Healthcare and Medical Liability Reform Committee, said what Arizona is doing is a big a mistake.

Like Cohen, Barto doesn’t buy the notion that running the exchanges would mean states would preserve some modicum of control.

“That’s the rumor,” she said.

Ultimately, these exchanges are subject to federal approval and “perpetual oversight,” she said.

Barto said she views the grant money as a commitment on Arizona’s part to create the exchange.

“It’s going to be politically difficult to spend $30 million in this state and then to shut it down, unless the law gets overturned or repealed,” she said. “We’re doing the federal government’s dirty work on this issue and implementing an unconstitutional law, and the federal money is the lure and the stick that we shouldn’t be responding to.”

But Hughes said all Arizona committed to is “the next level of planning activities that are laid out in our grant application.”

“This does not commit us to establishing an exchange.

It simply takes us to the next level so that we will be ready to go if we decide to move in that direction,” he said, noting that the health care law is still under litigation.

Hughes reiterated that should there be an exchange, it’s better for Arizona to operate it rather than let the federal government run it.

• • •

In a telephone conference, U.S. Health Secretary Kathleen Sebelius also announced more flexibility for states, including an extension of the deadline to apply for grants to June 29, 2012. Originally, the deadline for the second round of grant money was Dec. 30, 2011.

“As we’ve seen today, states are moving at their own pace to get their exchanges up and running,” Sebelius said. “This is a natural result of the process that gives states maximum flexibility.”

The federal health department also clarified the following: • Exchange grants may be used to build a state-based exchange that is operational after 2014.

• State-based exchanges won’t be charged for accessing federal data needed to operate the exchanges in 2014.

• And even if the federal government is running an exchange for a state, it will, as much as it can, look to state insurance rules to try and harmonize them with the federally run exchange.

Chiquita Brooks-LaSure, the health department’s director of coverage policy, explained that Arizona and other states that applied for grant money didn’t have to commit to establishing the exchange in order to receive the funds.

“Different states will make different deliberations. As I said, if a state chooses not to run an exchange, we will operate a federally facilitated exchange, but we encourage states to continue to make progress,” Brooks-LaSure said.

Under the law, states have some flexibility in designing and running the exchange. The exchange, for example, can operate as an “active purchaser,” where a state solicits bids and negotiates with insurance firms in order to reduce prices for residents.

Under this model, states can select which health plans can be sold on the exchange.

Arizona’s policymakers, however, appear inclined to adopt the “open marketplace” model, where insurers are allowed to sell so long as they meet certain standards.

According to the governor’s estimates, the exchange, once it is fully operational, has the potential to reduce the number of uninsured Arizonans by nearly half a million.

About 1.2 million Arizonan residents currently do not have health coverage.

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