Costs Hold Back State Health Insurance Exchanges

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Nearly a third of state officials say cost is the primary challenge they face in planning health insurance exchanges (31%), while about one out of five officials (21%) cite political concerns and 11% say uncertainty regarding the future of the Patient Protection and Affordable Care Act (PPACA) is a barrier to establishing these exchanges. These statistics come from a recent poll conducted by the KPMG Government Institute.

The survey relied on nearly 80 state officials who participated during a webcast that examined the challenges of establishing health insurance exchanges, which are mandated under the Patient Protection and Affordable Care Act (PPACA). These exchanges will require a robust technological infrastructure to support and maintain websites that will be used by millions of individuals and small businesses to find and compare private health insurance plans.

The websites, which will serve as state-based competitive marketplaces where consumers can compare plans based on price and quality, are often cited as the mechanism that will bring competition to the insurance marketplace when they are established. But the KPMG poll illuminates the predicament that state officials are confronted with as they seek to develop these exchanges by January 1, 2014, the date when each state must establish a fully operational health insurance exchange.

The survey also looked at the kinds of resources respondents plan to employ in developing their exchanges. The most popular answer (given by 46% of respondents) was the use of internal resources along with an outside provider and an advisor. Fewer respondents said they would use only internal resources (21%). Another 20% said "internal resources plus an advisor."

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"The survey results suggest an intense dilemma facing many state officials. On the one hand, there are aggressive implementation deadlines suggesting immediate action for a state wishing to deploy its own functioning exchange by January 1, 2014. On the other hand, there is at the moment some real uncertainty about the future of the law pending the outcome of the Supreme Court case," Paul Hencoski, partner and KPMG's National Health and Human Services Leader, told InformationWeek Healthcare.

From March 26 to 28, the Supreme Court will hear oral arguments in a lawsuit that challenges the constitutionality of the Patient Protection and Affordable Care Act. The court will face two critical questions: 1) Whether the "individual mandate" requiring all citizens to buy health insurance is constitutional, and 2) if the Supreme Court struck down the individual mandate, which is a crucial part of the law, would that cause the entire law to fall. According to Hencoski, some states want to wait and see what the Supreme Court ruling will be before making sweeping plans for the development of health insurance exchange, but this is a mistake.

"Some states do not want to get ahead of the Supreme Court's ruling. However, waiting to begin all planning and implementation activities until the court rules could mean added and perhaps unpredictable challenges to meet the proscribed implementation milestones for individual state exchanges," Hencoski observed.

Hencoski also pointed out that KPMG has identified 212 separate provisions of the healthcare reform law that require state government action. Further complicating matters is that 26 states have challenged the act in court and about one third of states have not made substantial progress to prepare for the exchanges.

By Oct. 1, 2013 states are required to have formed new organizations to operate the exchanges, including hiring and training staff, and implementing business processes and IT systems. Nevertheless, Hencoski said 62% of respondents say they don't know the status of their organization’s current health insurance exchange development.

In the meantime, Hencoski suggested that states continue to make plans for these exchanges regardless of the pending Supreme Court decision.

"The biggest thing is that we recommend that all states be taking proactive steps to plan and prepare for implementation. Even states that perhaps are involved in challenging the law can take incremental steps to prepare themselves so that if the legal challenges fail they are in a position to implement their own state based exchange rather than default to the Federal option either temporarily, partially, or permanently," Hencoski said.

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