By offering states the option to run a key piece of the federal health care overhaul, the law is forcing Arizona’s lawmakers into the ultimate conundrum: Do nothing and potentially lose significant control over the state’s health care system or help implement a program they’d rather see in the gutter.
The resulting squeeze is most acutely felt by Republican politicians who despise the federal law but understand that operating it, rather than deferring to the federal government, is the state’s best defense against what they have derisively dubbed “Obamacare.”
And that is why even some of the state’s most conservative lawmakers authored legislation to set up the required health insurance exchange — at the risk of being perceived as furthering a program they routinely attack as the clearest sign that America is teetering on the brink of socialism.
Meanwhile, tentative steps by the Governor’s Office to plan for its implementation could also put the governor on a collision course with a Legislature that currently has no intention of approving the program.
At issue is the Patient Protection and Affordable Care Act’s health insurance exchange, which will ultimately be a Web portal to help individuals and small businesses purchase health insurance.
Under the federal law, states have the choice of operating their own exchanges or letting the federal government run one for them.
Arizona’s exchange will be operational by 2014 — whether elected officials and business interests like it or not.
For many policymakers and the local insurance industry, the idea of the feds running Arizona’s exchange is unsettling at the least.
The federal law gives states flexibility in designing their exchange and deciding how it operates. Since the U.S. Department of Health and Human Services has emphasized that states may determine if health insurance plans offered through the exchange are “in the interests” of consumers and employers, some take that to mean the provision may be used to selectively contract with insurance carriers and even negotiate price discounts, much in the same way that large employers do.
The insurance industry in Arizona is expectedly wary of this “active purchaser” model and would prefer that the exchange act more like a passive facilitator, which means accepting plans so long as they meet specific requirements.
Those who are familiar with the insurance market in Arizona say the industry has two major concerns. One is that an exchange run by the federal government will be set up as an active purchaser, limiting the number of health plans that may be offered.
With most people who currently buy individual health plans expected to move over to the exchange because of the subsidies it offers, along with many businesses with 50 or fewer employees, those health plans allowed on the exchange would come to dominate the market or at least a huge chunk of it.
Another concern is that a federal exchange will effectively become a de facto second regulator of the insurance industry.
“Arizonans know the state’s needs the best, and this is an opportunity to build a distinctly Arizona exchange, preventing federal control of our state insurance market,” said Kathi Beranek, a lobbyist for Blue Cross Blue Shield of Arizona.
The federal government will ultimately make those choices for Arizona if the state decides not to implement the exchange.
And that’s not all.
In addition to facilitating the purchase of health plans for individuals and small groups, the exchange must also be able to determine eligibility for Medicaid, the Children’s Health Insurance Program and other applicable state or local health programs.
The federal government sets minimum eligibility requirements for programs that it helps to pay for, such as AHCCCS.
Those basic eligibilities may not change, but if the federal government were to run Arizona’s exchange, the state wouldn’t be able to reject anyone who is enrolled erroneously into AHCCCS, said Don Hughes, a former insurance industry lobbyist who now heads the state office that is planning the exchange’s implementation.
“If there are errors made by the federal exchange, Arizona will be required to accept those people into our public programs and pay the corresponding state share of that person,” Hughes said.
So if the federal exchange used dated IRS data in determining eligibility, for example, Arizona won’t be able to prevent or correct any mistakes, he said.
This could also impact efforts by Arizona to ensure only eligible persons receive the benefit, such as when it decides how frequently to check a beneficiary’s eligibility, since it’s the federally-run exchange that will decide who may enroll in a program anyway.
GOP lawmakers wrestle with decision
Rep. Nancy McLain, a Republican from Bullhead City, grappled with the conundrum before ultimately deciding that the best option for the state is to act — and to act now.
She and two other legislators sponsored legislation this year to establish the exchange.
Aiming to preserve the level of competition among insurers here, their proposal expressly forbade the exchange from negotiating the prices of health plans.
Additionally, the bill, HB2666, contained a “poison pill” provision. If the federal law (or at least the part that creates the exchanges) is declared unconstitutional, the state law is automatically repealed under the measure.
For McLain and the bill’s co-sponsors, the move was ultimately defensive. The last thing they want to see is the federal government making important health care decisions for Arizona.
She said they all hope Obamacare is declared unconstitutional, but if it’s upheld and President Obama is re-elected, then the state would have already missed its chance to run the exchange.
“With no planning or no structure in place, then we know we’re going to get the feds’ way of doing it, which I don’t believe would be the best way to do it,” McLain said.
Actually, the state doesn’t have as much time as many think it does.
Under the federal law, the exchange must be fully operational by 2014.
But guidelines from the federal health department say the exchange must be ready for an initial open enrollment period in 2013. Taking into account the time to develop the Web portal and to set up the bureaucracy to run it, the 2013 deadline is suddenly looking a lot closer.
In short, if Arizona wants to run the exchange, waiting isn’t an option.
But for McLain and others pushing the exchange to be successful, they’ll have to do a lot of convincing. Many of McLain’s colleagues didn’t want to touch the bill.
“Nobody wanted to be perceived as supporting ‘Obamacare’,” said Rep. Cecil Ash, chairman of the House Health and Human Services Committee and a co-sponsor of McLain’s bill. “(But) the more control we can maintain over it, then the more options we have if we have to go through this to make it a successful program. I don’t trust the federal government’s one-size-fits-all philosophy to be imposed upon us.”
The bill got out of the House Banking and Insurance Committee, which McLain chairs, but it never received a vote on the House floor.
Legislature yet to act on exchanges as clock ticks
The prevailing sentiment at the Capitol is that lawmakers’ approval is necessary to establish the exchange, and given the deadlines, they will need to pass the law authorizing its creation by next year.
But the difficulties that McLain faced in pushing for the measure this year don’t bode well for any future proposal.
Told of the stark choices, some lawmakers maintained that the risks and the costs of running it outweigh any benefits the state might accrue.
Sen. Nancy Barto, chair of the Senate Healthcare and Medical Liability Reform Committee, said the more she and her colleagues have learned about what’s entailed to run the exchange the more they leaned toward saying “no.”
For Barto, implementing the federal law contradicts the strong message the public sent last year in electing politicians who favor its repeal.
Some also view running the exchange as capitulating to the federal government.
“Even if it’s state-run it’s still conceding to the federal government, and I think it’s wrong,” said Sen. Frank Antenori, R-Tucson.
Others feel it’s simply time for Arizona to tell the federal government to take a hike.
Supporters of the exchange will also have to contend with vocal criticism from outside groups like the Goldwater Institute, which argued that any step — no matter how small — to implement the exchange will undercut a state’s arguments against Obamacare in court.
“If a state is simultaneously saying the entire Obamacare system needs to be struck down because it’s unconstitutional, while at the same time they’re implementing it, (courts) view that as unclean hands and an inconsistent position,” said Nick Dranias, a Goldwater Institute attorney.
But Dranias said that’s just the short-term implication.
No one really knows how much freedom states will have in running the exchange since the federal health department has yet to issue the final rules that govern it, he said.
Ultimately, the concern is that Arizona will be laying down in state law a huge chunk of Obamacare, Dranias said.
So, even if major components of the federal law are struck down as unconstitutional, what might remain are its “superstructures” in various states, he said.
Eric Novack, a Valley doctor who chaired the successful ballot measure campaign last year to guarantee Arizona residents the right to participate in any health care plan that they choose or opt out completely, also said he doesn’t believe Arizona will have any more autonomy in running its health care exchange than it does in running its Medicaid program.
“I think that’s, frankly, a myth being put forward by the groups that are lobbying heavily for the exchange,” he said.
Lawmakers may come around if prompted by courts
While it may be challenging, convincing the Legislature to give its consent to set up the insurance exchange isn’t entirely impossible.
The fact that Republicans like McLain and Ash can put aside their distaste for the federal law, given what the alternative looks like, means others may be persuaded to do the same.
But the fate of any future legislation to set up the insurance exchange will depend on several factors, among them how the courts rule on the federal health care overhaul.
In addition, aggressive lobbying by the Governor’s Office could change the balance in the Legislature. (This year, the governor signaled to sponsors she didn’t want HB2666 to move forward because her office is still studying the pros and cons of Arizona running the exchange.)
Some Republicans probably won’t be persuaded to support the establishment of the exchange, so the key for the Governor’s Office is to cobble together a coalition of Republicans and Democrats with enough votes to approve the program.
And since the legislation doesn’t need an emergency clause, a simple majority doesn’t seem like too high of a hurdle.
In 2010, the governor applied for and received $1 million in grant money to plan for the exchange.
Also, the Governor’s Office of Health Insurance Exchange formed a number of work groups to examine specific issues, including assessing the existing technology infrastructure in Arizona and what resources would be needed to run the exchange.
The office also completed research regarding the scope of the insurance market and the size of uninsured population here, and made some estimates about how many might take advantage of insurance exchange.
But Brewer’s decision to plan for the exchange and lawmakers’ resistance to it could put the two sides on a collision course.
Most Republicans who spoke with Arizona Capitol Times supported the cautious approach the governor took, but many also said they expect her to involve the Legislature in making a final decision.
Hughes, who heads the state office that is planning the exchange’s implementation, said it’s too early to speculate what might happen at the Legislature or what position the governor or lawmakers will ultimately take.
“First, we have to decide: is this really a good idea and if so, what enabling legislation do we need (and) when do we need to pass that enabling legislation if it’s all required?” Hughes said.