First to act

States are beginning to set up the necessary infrastructures to implement provisions of the federal health reform law, and California is first out of the gate.

Not only will states carry out many aspects of the Patient Protection and Affordable Care Act, but also they must resolve existing state regulations with the federal law.

For most states, this work won’t begin until January, when their legislatures reconvene. But a number of states that have been in session this summer are already getting started.

Thirty-one states have taken initial steps to implement the federal health reform law, according to the National Conference of State Legislatures (See chart, p. 9).

The action so far consists mostly of convening task forces or work groups to examine the law in detail and propose recommendations for implementation. States that have formed these groups include Delaware, Iowa, Minnesota, Mississippi and New Mexico. Other states have pending proposals for such task forces.

California has done the most legwork on implementing the reform bill. Republican Gov. Arnold Schwarzenegger in April convened a task force, chaired by the state Health and Human Services Agency secretary.

Last week, the Democratic-controlled California Legislature passed two bills that would establish a state-run health insurance exchange starting in 2014. The bills, approved along party lines, would set up an Internet-based exchange where consumers could compare participating insurance plans and purchase coverage. One bill authorizes the state to operate the exchange, overseen by a state-appointed five-member board. The other bill outlines the role of the exchange and creates a California Health Trust Fund to handle financing. State Republicans opposed this structure, saying, among other concerns, that the state doesn’t have the capacity to operate it.

Some health plans also opposed the bills. In a written statement, Patrick Johnston, president and CEO of the California Association of Health Plans, said that “with considerable government regulation at the federal and state level, it is important that the exchange refrain from becoming a third regulator.”

An estimated 4 million Californians would be able to purchase insurance through the exchange starting in 2014, according to Health Access California, a consumer advocacy group.

Schwarzenegger has until Sept. 30 to sign the bills and has not indicated whether he will do so.

Under the federal health reform law, state-based exchanges must be operational by Jan. 1, 2014. States have until the end of 2012 to decide whether they will participate. If they do not, the federal government can step in to provide the exchanges. Beginning in 2014, individuals and small businesses will be able to buy insurance through these exchanges, and some will get government subsidies to do so.

States have a number of factors to consider when setting up the exchanges, and there’s no set template, said Joy Wilson, health policy director at the National Conference of State Legislatures. “Some states don’t have broadband in major regions, so doing a Web-based exchange may not be sufficient, for example,” Wilson said.

States will be looking to HHS for guidance on basic benefit packages that must be offered by participating health plans, Wilson said. They will then have to reconcile these benefits with their own statutes. For instance, some states require insurers to cover treatment for autism. If that coverage isn’t in the basic benefit package approved by HHS for the exchanges, the state might have to pay the difference, Wilson said.

“It’s hard for states to write legislation when you don’t know what the rules will be,” she said. “I think that’s where we will have a lot of friction.”

Sept. 1 is the deadline for states to submit planning grant applications to HHS on the exchanges. These grants of up to $1 million aim to help states start conducting market research to determine how to operate and run their individual exchanges.

Beyond the exchanges, states will have to revise their Medicaid programs to comply with the federal law, which expands eligibility starting in 2014.

In California, lawmakers are passing bills that put aspects of the federal law on state books. But, like many other states, California is grappling with a stagnant economy and a large budget deficit. This fiscal year budget, overdue since July 1, will likely contain significant cuts to Medicaid and other health services. The governor is proposing $900 million in cuts to the state Medicaid program, Medi-Cal. The proposal “goes backwards” in terms of providers’ ability to care for their patients, said Casey KirkHart, a physician who practices at the Saban Free Clinic in Los Angeles.

There’s a lot happening behind the scenes now, too. Because this is an election year, leading gubernatorial candidates are working on their healthcare strategies ahead of November, Wilson said. And incoming state insurance commissioners will have to get up to speed quickly come January. “There’s a fair amount of activity going on that’s not related to pending legislation,” Wilson said.