By Jocelyn Guyer

Last week, HHS released new guidance on how it will operate federally-facilitated exchanges (FFE) in states that are not ready to operate their own.  It is a sparse 19-pages, but it will have a super-sized impact on how ACA is implemented in the months and years ahead.  We now are looking at all but a dozen states or so states relying on a FFE to implement the ACA, at least during the early months and years of full ACA implementation.

The new guidance is chock full of concrete, valuable information, but it also highlights the high-stakes nature of the game that opponents of the ACA are playing by working to stop states from setting up their own Exchanges.  While their efforts may have stalled action on health reform implementation, they also are setting these states up for loss of control over how health insurance options are structured in their states.  It may be with great reluctance and with constant encouragement that states reconsider, but the new FFE guidance makes it clear that the federal government is willing and increasingly prepared to operate Exchanges on behalf of states if it must do so.

For states that want to avoid this outcome, they need to demonstrate by January of 2013 that they are ready to operate their own Exchanges or, at least, that they will be ready to do so in time for open enrollment in October of 2013.  On a call releasing the FFE guidance, HHS officials indicated that to begin the process of securing a green light, states must submit their applications by November 16, 2012.  (A draft application, known as the Exchange blueprint, is available here.)

If states elect not to establish their own Exchange, they have two major options for the federal fallback:

• FULLY FEDERALLY-FACILITATED EXCHANGE. The federal government can and will operate a state’s entire Exchange if necessary, although HHS repeatedly emphasizes that the federal government would very much like to avoid this outcome.  Under this model, the federal government will take on all Exchange responsibilities, including offering qualified health plans, providing consumer assistance, operating a SHOP for small businesses, and conducting eligibility determinations for affordability programs.  Under this model, the federal government will allow all plans that meet basic standards to be offered as “qualified health plans” (QHPs) through the Exchange (i.e. it will not be going into the business of selecting which plans should be offered in an individual state).

• PARTNERSHIP MODEL.  Under the partnership model, states can take on selected functions of operating an Exchange.  Specifically, they can assume primary responsibility for 1) the plan management function (i.e., selecting the qualified health plans that will be offered to consumers), 2) in-person consumer assistance functions, including the operation of a Navigator program, or 3) both.  The guidance, however, makes it clear that even under a partnership model, the federal government is ultimately responsible for the operation of the Exchange.

The new FFE guidance and the activity surrounding its release, including this week’s Exchange meeting with state officials, also makes it clear that HHS is working diligently to ensure that it has the administrative and operational capacity to operate Exchanges for states if necessary.  The federal government is building an electronic plan management system that can be used to gather the data needed to identify qualified health plans for each state, as well as the infrastructure needed to conduct eligibility determinations.  It will operate the Exchange web site and call center in all states with an FFE, even in those that elect to handle in-person consumer assistance on their own.

Finally, a few words on Medicaid eligibility determinations in FFEs and beyond.  For this topic, you need to check out the important information tucked away in the footnotes to the new guidance.  In footnote 2, HHS indicates that it will be re-opening – yes, actually re-opening – the section of its final Medicaid rule on eligibility determinations made by Exchanges.  The purpose will be to gather comments on how to ensure that government agencies – rather than non-profits and private contractors – make eligibility determinations.  In footnote 6, HHS says that, if states elect to use the FFE for Medicaid eligibility determinations, they can do so for free, making it more likely that these states will look to the federal government to fully evaluate Medicaid eligibility for them.  We’ll have more to say about these changes in the weeks and months ahead.

For now, though, the most notable feature of the new guidance is that it makes it clear that states bypassing the chance to set up their own Exchanges will not willy-nilly get to pick and choose which pieces of the ACA they feel like implementing.  The tone of the guidance remains encouraging and accommodating of states, but it also makes it clear that it will not allow residents of any state to be left behind in gaining access to more competitively priced health insurance through an Exchange.   A state’s failure to act will necessarily result in the federal government stepping in to run things with some standardized federal models in order to ensure that residents of all states have the opportunity to obtain the benefits promised by the new health care law.