AFP Arkansas Healthcare Policy Paper

March 29, 2011

Understanding Health Insurance Exchanges and Health Care Implementation
Prepared by
Eric Novack, MD, Chairman, US Health Freedom Coalition and Senior Policy Fellow for Americans for Prosperity
And Teresa Oelke, Arkansas State Director

In brief, AFP Arkansas opposes House Bill 2138 and Senate Bill 880 and will be scoring both bills.

Where We Are:
The state has accepted (along with every other state except Alaska and now Florida) federal funds for planning the exchange.

As of this point, the federal rules about what an exchange must look like, what parameters must be followed, what ‘flexibility’ really means, and what will be defined as making progress toward January 1, 2014, remain completely unknown.

Facts:

With the uncertainty in the health care marketplace that the law has created, combined with the abject failure of the so-far implemented components of the law, the potential financial liabilities of the state to maintain and manage another bureaucracy, the devastating budgetary impact that the exchange mechanism has brought upon Massachusetts (the model upon which the system is based), the overwhelming opposition of the people of Arkansas to the law, and the pending litigation that has a real likelihood of overturning much of the substance of the law, now is exactly the wrong time for state leaders to make new commitments with the potential for unintended consequences that will be bad for Arkansas families.

Remember, we are currently seeking a waiver from its Medicaid requirements!

The only groups in the state of Arkansas who really want the new exchanges created are the industries who stand to benefit financially from further centralizing health insurance and health care decisions – by creating a new bureaucracy inside of which rules and regulations that limit competition, reduce consumer choices, and become a funnel through which government subsidies for individuals and families can be directed to companies, without patients ever having control over the dollars.

The exchange desired by large hospitals and big insurance supporters of the exchange would:

· Be created now, and start spending money now, even though the law and its provisions are being litigated.… While the federal government is offering ‘seed money’, where will the dollars come from once that money runs out?
· Make a mockery of “free markets” in health care, since the new exchange bureaucracy would inevitably crowd out other choices.
· Allow the exchange to set rates for patients — meaning zero free market, since the government agency will decide prices.
· Preserve the ability for insurers and hospitals to cut special deals like the “most favored nation” clauses that are under scrutiny around the country for stifling competition
· Have the insurers to carve out administrative fees and expenses for the exchange, and force consumers to completely fund the running of their exchange through these extra fees. By doing so, the cost of the exchange that they see as such as an imperative, and which they will have enormous influence over, should be paid for completely by their customers… with the side benefit that the same administrative fees that they will benefit from do not get counted toward the federal “medical loss ratio” regulations.

Supporters will offer up scare-tactics about lost state control and lost federal dollars. But signing up for a program with no regulations and no true cost estimate is a calculated risk in itself. For example, the high risk pool, which are completely an underfunded product: after 6 months, the program has fallen short of its predicted impact by nearly 98%, while still spending twice per enrollee than promised!

The federal government has already needed to grant waivers to over 700 companies, unions and states—impacting over 2 million workers and their families.
On the six month anniversary of the signing of the health care law, the Boston Globe- hardly a conservative voice- ran a front cover story :

To quote from the article “It’s insane,’’ said Ori Ron, managing partner of Hudson Group North America, whose small Swampscott real estate firm faces premium increases of more than 31 percent.

When last checked, support for the REPEAL of the health care law in Arkansas was 70%1 and since national support for the law has fallen since March, the opposition in Arkansas today is at least as strong.

Many legislators and the Governor ran on a platform that included verbal opposition to “Obamacare”. Since the law’s future is uncertain, it is a slap in the face of the voters to move forward implementation at this time. There will be time in the future to go back and develop an exchange, either in 2012—when Arkansas leaders have had a chance to see what ‘best practices’ may exist in other states, saving time and money—or in the future, using the same waiver process that Arkansas’ is using for the Medicaid system. In either case, the legislature should have oversight on the process as it will affect the quality of life of a significant number of Arkansans.

Arkansas decision makers need to know that we can implement alternatives that a consumer focused, that will give small businesses and families more choices, that will serve as a magnet for new businesses to move into Arkansas to grow, and most fundamentally, are fair.

For too long, individuals and small businesses have been living in a more expensive and less informed health care and health insurance environment than bigger businesses and even state and public employees. Arkansas should take the leadership role and show the country that pro-consumer, pro-opportunity reforms built on a foundation of the protection of individual rights, is the best prescription for state health care reforms.

Massachusetts is not the only state to look at for concern. Utah attempted to create a looser exchange… and after 4 years, leadership changes, and numerous false starts, the best that can be said is that they are STILL in ‘beta-testing’ mode. If this will be an example of “simple to create” with “minimal administrative cost”, the state and its citizens are in big trouble.

The exchange model, as envisioned by its biggest supporters, will create a health care environment where the receiver of the subsidies have no real control over the dollars.

Before Arkansas dives into setting up an insurance exchange, they should consider making the following request as Governor Mitch Daniels did in a letter to Kathleen Sebelius 2 “saying that if her department wants Indiana to run its program for it, we will do so under the following conditions:
ü We are given the flexibility to decide which insurers are permitted to offer their products.
ü All the law’s expensive benefit mandates are waived, so that our citizens aren’t forced to buy benefits they don’t need and have a range of choice that includes more affordable plans.
ü The law’s provisions discriminating against consumer-driven plans, such as health savings accounts, are waived.
ü We are given the freedom to move Medicaid beneficiaries into the exchange, or to utilize new approaches to the traditional program, instead of herding hundreds of thousands more people into today’s broken Medicaid system.
ü Our state is reimbursed the true, full cost of the administrative burden to be imposed upon us, based on the estimate of an auditor independent of HHS.
ü A trustworthy projection is commissioned, by a research organization independent of the department, of how many people are likely to wind up in the exchange, given the large incentives for employers to save money by off-loading their workers.”

Constitutionality of Health Care Law Must Be Addressed First
The constitutionality of the law should be determined before lawmakers waste taxpayers money implementing a program whose future is uncertain.
An article written by Grace-Marie Turner, that appeared in National Review Online March 4, 2011, gives an important update on the Florida courts ruling.
On March 3, 2011, Florida “Judge Vinson leapfrogged over the administration and said he was going to interpret the administration’s request for him to “clarify” his ruling as a request for a temporary stay of his order. And he gave the administration seven days to appeal his ruling or stop all action to implement the law.”3

In his January decision, he ruled that the administration itself had said the individual mandate was central to the functioning of the whole law, and he “reluctantly” concluded that “Congress exceeded the bounds of its authority … Because the individual mandate is unconstitutional and not severable, the entire Act must be declared void.”

He said in January his decision was “the functional equivalent of an injunction” that would bar the administration from proceeding with implementing the law.

But the administration simply ignored him, causing significant confusion among the states.

“The sooner this issue is finally decided by the Supreme Court, the better off the entire nation will be,” Vinson wrote in his latest ruling yesterday. “And yet, it has been more than one month from the entry of my order and judgment and still the defendants have not filed their notice of appeal.” (We can only speculate that the administration wants to drag its feet as long as possible in order to sink its regulatory roots as deeply as possible into our health sector and economy.)

In order to avoid a further delay, the judge interpreted the administration’s request for “clarification” as a request for a stay, which he granted for just seven days. If the government fails to file an appeal to his ruling, then all work to implement the law must stop.”

Certainly, Arkansas legislators do not want to run the risk of implementing a law that is very likely unconstitutional.

An Alternative for Arkansas:

The state cannot wish away the federal health care law. Arkansas CAN take steps to ensure that ALL options are examined.

The state ought to use the money to:
1. Study the efforts in the other states — millions of dollars will be wasted on ideas that simply will not work – we should step back and have a legislative oversight commission authorized and designed to study best practices.
2. Examine specific alternatives for Arkansas.
3. One alternative the should be included must be the creation of private accounts where the federal premium subsidies can be controlled by patients and families, to decide where and with whom the premium dollars are best spent.
4. Report back to the Legislature and Governor in January 2012 as to its findings and recommendations, so that policy makers can make an informed decision, not driven by back room, closed door negotiations where, once again, patients have no substantial ‘seat at the table’.

Background
What the federal law act actually says:

The most critical piece of information regarding the exchanges is simply- what exactly does the PPACA say about states’ obligations? Here is the actual language from the law: (the timeline piece is in red)

http://www.gpo.gov/fdsys/pkg/BILLS-111hr3590enr/pdf/BILLS-111hr3590enr.pdf

H. R. 3590—68
PART III—STATE FLEXIBILITY RELATING TO EXCHANGES
SEC. 1321. STATE FLEXIBILITY IN OPERATION AND ENFORCEMENT OF EXCHANGES AND RELATED REQUIREMENTS.
…
(b) STATE ACTION.—Each State that elects, at such time and in such manner as the Secretary may prescribe, to apply the requirements described in subsection (a) shall, not later than January 1, 2014, adopt and have in effect—
(1) the Federal standards established under subsection (a);
or
(2) a State law or regulation that the Secretary determines implements the standards within the State.
(c) FAILURE TO ESTABLISH EXCHANGE OR IMPLEMENT REQUIREMENTS.—
(1) IN GENERAL.—If—
(A) a State is not an electing State under subsection (b); or
(B) the Secretary determines, on or before January 1, 2013, that an electing State—
(i) will not have any required Exchange operational by January 1, 2014; or
(ii) has not taken the actions the Secretary determines necessary to implement —
(I) the other requirements set forth in the standards under subsection (a); or
(II) the requirements set forth in subtitles A and C and the amendments made by such subtitles; (III) the Secretary shall (directly or through agreement with a not- for-profit entity) establish and
operate such Exchange within the State and the Secretary shall take such actions as are
necessary to implement such other requirements.

(2) ENFORCEMENT AUTHORITY.—The provisions of section 2736(b) of the Public Health Services Act shall apply to the enforcement under paragraph (1) of requirements of subsection (a)(1) (without regard to any limitation on the application of those provisions to group health plans). (d) NO INTERFERENCE WITH STATE REGULATORY AUTHORITY.—
Nothing in this title shall be construed to preempt any State law that does not prevent the application of the provisions of this title.

1 – http://www.rasmussenreports.com/public_content/politics/elections/election_2010/election_2010_senate_elections/arkansas/election_2010_arkansas_senate

2 – http://online.wsj.com/article/SB10001424052748703652104576122172835584158.html

3 – http://www.galen.org/component,8/action,show_content/id,13/category_id,2/blog_id,1545/type,33/

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