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Insurance Exchanges Could Be At Risk If States Flout Federal Rules

Florida is on a collision course with the federal government over the nature of the health insurance exchange that must be established in that state under the Affordable Care Act. If other states follow Florida's example, the insurance exchanges designed to help small businesses and individuals find affordable coverage could be in danger.

Republican legislators in Florida created the Florida Health Choices program in 2008 as a way to deregulate the insurance market for small employers. The idea was to allow businesses to choose among a wide variety of products with very different benefit structures. Another state program for individuals, known as Cover Florida, offers a number of low-cost, high-deductible policies. In contrast, the federal statute requires minimum levels of benefits that would make the average insurance policy more expensive.

"The federal government is completely 180 degrees opposite of what we have done," says Aaron Bean, chairman of Florida Health Choices.

Partly because it took a long time to staff up and find a CEO, Florida Health Choices has not yet been launched. Cover Florida has been around for over a year, but has enrolled only 5,400 of the state's 3.8 million uninsured people. So it might make sense for the state to launch a new exchange that meets the federal requirements. But Bean says Florida Health Choices will continue to move ahead.

If the state doesn't change the program by 2014, Washington has the option to start its own insurance exchange in Florida. That raises the uncomfortable possibility that there could be two competing exchanges in the state.

It's unclear where other states stand on this issue, but the history is not encouraging. First there was the revolt of the state attorneys general against the federal reform law. Then there were the states protesting the Medicaid expansion and declining to participate in the high-risk insurance pools. So it's very possible that some fractious states -- especially those with Republican legislative majorities and/or Republican governors -- could try to scuttle reform by refusing to create insurance exchanges in conformance with federal law.

During the debate over healthcare reform, progressive Democrats favored a national insurance exchange, and that's what the House bill proposed (with an opt-out provision for states that wanted to run their own markets). But the more conservative Democrats in the Senate successfully pushed for state-based exchanges. Conservative ideologues argued that a national exchange would be too bureaucratic and confusing for consumers, and would duplicate existing state functions. The compromise was to have the states run the exchanges, but under federal rules.

The federal regulations protect consumers by making sure that the policies they buy will actually help pay their medical costs when they get sick. But Republican politicians, employers, insurers, and some consumers (especially the young and healthy) want to allow bare-bones packages that kick in only when the insured has a catastrophic illness or a traumatic injury.

What happens if some states set up their own exchanges in competition with federally sponsored insurance markets, as Florida seems to be planning? My prediction is that neither will attract enough participants to build sufficient market power to reduce insurance rates. That would be a tragedy for small businesses and the uninsured, but it wouldn't be a victory for Republicans, either.

Image supplied courtesy of Wikimedia Commons

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