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Health Care Reform: Patient Protection, Affordable Care Act and Implications for State Governments

Things we are thinking about now

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA). On March 30, 2010, he signed into law the Health Care and Education Reconciliation Act, which made a number of significant changes to the PPACA. And, these reforms will have sweeping implications for States.

We continue to work with our clients to explore the full range of Reform implications. However, in our view, State Governments should begin contemplating a number of key issues immediately:

  1. Rapid but Time-Limited Expansion of an Old Idea
    Temporary State High Risk Pools. State high-risk insurance pools — programs designed to cover individuals with preexisting conditions who are unable to purchase coverage on their own in the open market—are not a new idea. They have been around since Gerald Ford was in the White House. Thirty-four States operate high-risk pools today. However, fewer than 200,000 individuals are insured through those pools across those 34 states. The PPACA authorizes creation of a temporary high-risk pool program to bridge the gap between enactment of the bill and the effective date of the new individual health insurance exchanges on January 1, 2014. HHS will design the program, stand it up within 90 days of enactment, and may contract with States to administer the pools. Congress has authorized $5 billion for benefit and administrative funding needs. We think it is likely that HHS will seek to include interested States in program administration. Under this scenario, States should review HHS requirements, evaluate their interest in participating, and as appropriate, manage the transition from their existing programs to the new temporary program.

  2. If We Fund It, Will They Come? The Potential Role of CO-OP Plans.
    Congress is providing $6 billion in federal funding to introduce a new creature in the health insurance ecosystem: Consumer Operated and Oriented Plans (CO-OPs). As envisioned in PPACA, CO-OPs will be new, non-profit, member-run health insurance companies in all 50 States and the District of Columbia. While there are examples of similar plans in certain markets today, we think that the combination of Federal funding and new HHS rules will help to make these CO-OPs unique. This raises the question of whether market conditions and substantial Federal seed money could drive the creation of important new health plan competitors in some State and local markets. Our early thinking is that CO-OPs appear unlikely to become formidable and impactful players in most major US insurance markets. But with the impetus of Federal funding and State/local stakeholder encouragement, CO-OPs could be important new competitors in select States and markets. States will need to evaluate the competitiveness and dynamics of their insurance markets—and decide whether the new CO-OP authority and funding offers promise for improving their State health insurance marketplace.

  3. Moving From Concept to Reality: Implementation of American Health Benefit Exchanges.
    The PPACA mandate to establish insurance exchanges in each State by January 1, 2014 is one of the cornerstones of Reform. It is also one of the most challenging and uncertain implementation priorities. There will be great focus on the degree to which the Federal government promulgates national standards and requirements on the essential parameters of the exchanges—and conversely, what discretion will be left to (and taken by) individual States. While the Massachusetts Connector provides a real-world example today, we think that American Health Benefit Exchanges could look and operate quite differently. It is common to hear exchange proponents express their hope that exchanges will resemble an Orbitz or Expedia for health insurance. We think that vision is technically possible, but we do not underestimate the investment and change required to achieve that vision. State participation in the HHS exchange design effort would provide substantial value to the national framework. Once HHS finalizes requirements and associated funding, States should evaluate how to develop their exchange(s). Should they combine the individual and small group product lines and operations within the exchange? Should they join with other States in a regional approach? Should they maintain direct State operational control of the exchange, or form a non-profit entity to carry out the requirements? Or, most dramatically, should a State stay out of the exchange business altogether, and simply allow HHS to run the exchange in their State?

  4. The Next Wave of Consolidation: Mergers, Acquisitions and Strategic Alliances.
    Many industry analysts seem to believe that Reform will spur increased consolidation among health plans and providers. We tend to agree that M&A activity will increase in the wake of Reform, though we recognize some potentially mitigating factors, including the potential for increased Federal and State regulatory barriers to mergers and acquisitions. We also expect that strategic alliances of many stripes may emerge—providing some of the benefits of consolidation, while steering clear of some of the legal, regulatory, governance, public relations, political and other hurdles associated with M&A deals. States should prepare for what we expect will be a very active period of insurance company and health system desires to merge, driven by new market realities in the post-Reform era, and the changing financial opportunities and challenges of individual corporations, both for-profit and non-profit.

  5. Bigger and Better? Medicaid Expansion.
    Expanding Medicaid to cover all Americans up to 133 percent of the Federal poverty level is one of the cornerstones of Reform. In addition to being one of the two major Reform approaches to solving the problems of high uninsurance rates, some in Congress believe that enhanced Federal matching payments and simplified, nationally-consistent eligibility standards will bring improved stability and predictability to a program that has lacked both. We know that many States have significant work to do to fulfill this vision, and to address the host of new Medicaid requirements that will emanate from Reform. We also recognize that planning for this dramatic change must occur in a period of unprecedented State Medicaid challenges and growth, driven by continuing economic challenges and a downward spiral of employer-sponsored health coverage. Our sense: While Medicaid expansion under the PPACA does not take effect until 2014, States will need the intervening time to prepare adequately for this transformation of State Medicaid programs.

The twists and turns of Health Reform throughout the last year are likely only the beginning of a new era in State responsibility. The State’s role in health care will be larger than it has ever been before. While the State Government’s role as a payer is expanding, the most significant transformation is the State’s overall role in the health care environment. Recent activity in Health Information Technology combined with new responsibilities related to high-risk pools and insurance exchanges place the State in the center of one of the most significant transformations of health care since the advent of Medicaid.


Patrick Howard, Principal
National Leader, State Health
Deloitte Consulting LLP

Gregory Scott, Principal
National Leader, Government Programs
Deloitte Consulting LLP

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