Research & Commentary: Exchange Regulation and State Implementation

Published July 18, 2011

The massive and complex package of proposed health exchange rules released recently by the U.S. Department of Health and Human Services illustrates once again why states should think twice before implementing the exchanges mandated by President Barack Obama’s health care law. The announced requirements offer more questions than answers – and HHS says further regulations are yet to come.
For the 12 states that have rushed into the exchange process, such as California, the 347 pages of exchange regulations present a host of new compliance problems – a fact Obama administration regulators implicitly concede by including language in which they bequeath themselves the power to issue “conditional approval” of health exchanges that do not meet requirements under the federal health law by 2013. The announcement also illustrates the risks for those governors who have attempted to invent a third path between resistance and eager acceptance of the exchange mandate.
While Republican governors Rick Scott, Bobby Jindal, Susana Martinez and others have resisted the exchange mandate in their states, others have taken circuitous routes based on the possibility of legal rulings (or intervening elections) that would likely necessitate further legislation on the federal level. Virginia’s Bob McDonnell is an example – The Washington Post wrote in February, “No governor better embodies the strategy of opposing the law in court while simultaneously planning for it to take effect.”
The first round of regulatory confines for such exchanges is now public knowledge, and it is not a pretty picture. While the exchange model may ultimately prove beneficial in some circumstances, it is more apparent than ever that it is impossible for states to implement under Obamacare exchanges that function in any pro-consumer fashion.
A Heartland Institute policy brief points out implementation of the Obamacare exchanges offers no protection against future decisions by the federal bureaucracy, requires collaboration in an unconstitutional framework, and risks undercutting court cases across the nation.
The following documents offer additional information on state implementation of Obamacare exchanges.
Health Reform Rule Unveiled
Politico’s Sarah Kliff reports, “just how flexible the Obama administration will be on health exchanges – and what role the administration will play in oversight – remains a subject of much debate” following the release of the draft regulations.
“‘There’s still a lot of questions,’ said Alissa Fox, a senior vice president at Blue Cross and Blue Shield Association, which is still reviewing the new rule.
“Fox said she likes the fact that HHS left much of the decision making to the states. She sees one red flag, though: the suggestion that the exchanges may review insurance rates.
“‘There was some language we didn’t quite understand, suggesting the exchange might have some additional responsibilities reviewing premiums,’ she said. ‘We’re looking at that as something that might be duplicative of what a state insurance commissioner already does. We’re making a list that we’ll be going through.’
“Eyebrows were also raised at the suggestion that the federal government could have a heavy hand in approving state changes to health exchanges, similar to the current process for any larger revisions to state Medicaid programs.”
Should Virginia Create a Health Insurance Exchange?
In testimony prior to the release of the HHS draft rule on state health care exchanges, Michael Cannon of the Cato Institute outlined the “faulty assumption” that “creating an Exchange will give Virginia officials more control over Virginia’s health insurance market.” He observed, “A recent Obama administration missive explains that the new law ‘authorizes the federal government to ensure that States with Exchanges are substantially enforcing the Federal standards … and to set up Exchanges in States that elect not to do so or are not substantially enforcing related provisions.” In other words, the promise of local control is a mirage. The law allows the federal government to commandeer any Exchange that falls short of full compliance with federal dictates. Creating its own Exchange will not allow Virginia to control its own health insurance markets. In the end, there is no such thing as a state-run Exchange.”
Less Flexibility than Meets the Eye
The Heritage Foundation’s Ed Haislmaier states the draft exchange regulation illustrates that the promises of flexibility inherent in Obamacare’s process were false from the beginning. He notes as an example the restriction of states’ abilities to constrain Medicaid eligibility in any way: “Section 155.110 of the proposed regulations, dealing with exchanges contracting with other entities to perform exchange functions, states in Subsection (b), ‘To the extent that an Exchange establishes such arrangements, the Exchange remains responsible for ensuring that all Federal requirements related to contracted functions are met.’ Thus, it’s difficult to see how state lawmakers can retain control over Medicaid eligibility under these regulations.”
New Obamacare Regs Confirm Americans Will Not Have Same Insurance as Congress
Conn Carroll of the Washington Examiner reports that despite promises to the contrary, the new regulations prevent Americans from access to plans with the level of coverage promised by President Obama and more: “Also still unclear is whether or not HHS will retain the authority to control health insurance premiums in the supposedly state-run exchanges and what a minimum health benefits plan must cover. Monday’s rules were vague on the first point and HHS will issue separate regulations on minimum benefits later this year.”
Obama Administration Rolls Out Standards for Health Insurance Marketplaces
The New York Timespasses along a concession from federal officials that the Obama administration was reneging on its promise the health care law would give consumers the same choices enjoyed by members of Congress: “Federal officials said they would issue a separate rule later this year specifying the ‘essential health benefits’ that must be offered by all health plans. Trumpeting the advent of the exchanges, the administration said Monday that they would ‘give Americans the same insurance choices as members of Congress.’ However, in response to questions after a news conference on Monday, health officials acknowledged that this claim was not necessarily correct.”
347 Pages of Regulations, 811 References to Mandates
John C. Goodman of the National Center for Policy Analysis passes along this emailed observation from Chris Jacobs of the Republican Policy Committee: “HHS just released part of its Exchange regulations – a 244-page regulation regarding the establishment of Exchanges, and a separate 103-page regulation regarding risk adjustment. While the Administration is trying to sell Exchanges as providing competition and flexibility, the 347 pages of regulations contain the word ‘require’ a whopping 811 times (628 instances in the Exchange regulation, and 183 in the risk adjustment regulation). It’s worth asking: How flexible can a piece of regulation that has 811 separate references to mandates and requirements be?”
Health Insurance Exchanges: What If They Issued 347 Pages of Regulations And Nobody Cared?
John R. Graham from the Pacific Research Institute discusses how the HHS regulations governing Health Benefits Exchanges and Small-Business Health Options Exchanges limit choice and competition in health insurance.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Health Care News Web site at, The Heartland Institute’s Web site at, and PolicyBot, Heartland’s free online research database, at
If you have any questions about this issue or the Health Care News Web site, contact Managing Editor Ben Domenech at 312/377-4000 or [email protected], or contact Heartland’s health care legislative specialist Kendall Antekeier, at 312/377-4000 or [email protected].