Chief Justice Roberts Responsible for Exchanges Going Forward, Courtesy AP

The U.S. Department of Human Services (HHS) is giving states new funding opportunities to help them establish health care exchanges, a day after the Supreme Court upheld the mammoth health care reform law.  

HHS officials presented a vision of state-based exchanges rooted firmly throughout the nation, irrespective of statutory deadlines, by offering the possibility of transformation of an exchange under federal oversight to one under state oversight after statutory deadlines to create them have passed.

See also: Where States Stand on Implementing PPACA

“Our objective — every state will operate a state-based exchange,” said Mike Hash, interim director, Center for Consumer Information and Insurance Oversight (CCIIO).

HHS announced Friday it will provide 10 states with additional opportunities to apply for funding to establish a state-based exchange, state partnership exchange, or to prepare state systems for a federally facilitated exchange.

On a press call Friday, neither Hash nor HHS Secretary Kathleen Sebelius, gave a total funding cap or amounts for these grants, nor would they disclose the states applying. Sebelius underscored the fact insurers now will be accountable to the public.

HHS exchange implementation officials did seem to offer great amounts of flexibility and future funds  to states in the future in helping them create exchanges.

The current round of funding announced today will also give states more flexibility — they can transfer this money if they decide not to pursue a state-based exchange into a federally-facilitated one or a partnership with HHS, and if they have a state-federally-facilitated partnership, they can use that after the statutory deadlines “as an on-ramp” or a “stair step” to elevate their exchange to one that is state-run, Hash said.

This is perhaps the first time HHS officials have publicly announced that exchanges created by 2014 are not to be set-in-stone federally-run exchanges, or even a partnership, but a state-based exchange in waiting. HHS officials said it hopes the exchanges will evolve to a state exchange at some point in the future, irrespective of the Jan. 1, 2014 deadline.

Observers have noted that the federal government does not want to be running exchanges into the future, and HHS is motivated to get states to run the exchanges themselves. On today’s call, Hash did indicate that federally-facilitated exchanges would indeed be eligible for subsidies, as well.

Although some states have indeed lagged behind, waiting for the Supreme Court to rule, and won’t have the infrastructure in place in time regardless of their current intent, other states, like Floridaand Kansas and Texas, have rejected the PPACA-mandated health exchanges in whole, and may be waiting until the presidential  elections to take any action whatsoever, as their governors have indicated at different points, Kansas’ governor most recently. Some states have given back grant money, frustrating some state insurance departments, and may not take a step toward an exchange this year. Other states, like California, already have multiple millions of dollars earmarked for information technology, and an IT consultant hired (Accenture.)

HHS expects to receive these grant requests from states that have not previously applied, as well, Hash said. He said the money awarded would be based on the programs proposed for the states that are applying for grants.

Sebelius stated that, “this new funding opportunity will give states the resources they need to establish affordable insurance exchanges and ensure Americans are no longer on their own when shopping for insurance.”

About half the states have passed enabling legislation for an exchange, or did so under a state decree and can move forward with state-based exchanges, according to a tally this week from the National Association of Insurance Commissioners (NAIC), and a quarter of the states have actually begun work on the infrastructure and started to build their marketplaces.

The rest won’t meet the statutory deadline, NAIC officials have  acknowledged.

HHS did state today in its guidance that the new funding opportunity announcement (FOA) “does not change the deadlines for state exchange approval, which are set forth in the [Patient Protection and] Affordable Care Act (PPACA) and regulations.” Those deadlines are cooked into the law, but the Exchanges themselves can change in the future so the federal government can step back and let the states run exchanges.

Applicants’ grants will be decided within 45-60 days, and officials said this wouldn’t be the last funding opportunity.

Exchanges must be up and running Jan. 1, 2014, whether they are state-based or federally-based, or a combination of both. The deadline for committing with a declaration or blueprint to a state exchange or a state-federal partnership program is Nov. 16, 2012.

“We are planning to follow the timeline,” Hash said, referring to this first benchmark.

“If a state should not be ready for certification,” by the deadline — they can do so in the future — even if we have a schedule to do so, they can work with us, Hash told reporters.

“We think we will be able to work with all the states,” Hash said. “January 2014  will not be the last opportunity. Not the last opportunity.” A Federal exchange could evolve into a state-based changed, Hash said. He said the goal would be to have all states have state-based exchanges.

CCIIO has stated in its guidance that, “The first year of exchange activity is critical to ensuring Exchange self-sufficiency. The establishment of an Exchange and activities related to such establishment also include start-up year expenses to allow consumer outreach, testing and necessary improvements during the initial start-up year. CCIIO sees much money in the first year going to enhancing systems, developing protocols, raising consumer awareness, training staff, and strengthening the overall effectiveness of operations.”

To date, 34 states and the District of Columbia have received approximately $850 million in Exchange Establishment Level One and Level Two cooperative agreements to fund their progress toward building exchanges.

See also: State-Based Exchange Status Map

In addition to the final funding opportunity under the old FOA, HHS anticipates Level One Establishment and Level Two Establishment applications will be due: August 15, 2012; November 15, 2012; February 15, 2013; May 15, 2013; August 15, 2013; November 15, 2013; February 14, 2014; May 15, 2014; August 15, 2014; and October 15, 2014.  

Under today’s announcement, states can apply for exchange establishment cooperative agreements through the end of 2014. These funds are available for states to use beyond 2014 as they continue to work on their exchanges. This ensures that states have the support and time necessary to build the best exchange for their residents.

Hash said he expected the states to take advantage of the Medicaid expansion but would not speculate that each state would be in within two years.

Insurance lobbyists who have spoken with Republican Congressmen have said they won’t be expanding Medicaid in their states to those at 133% of the poverty line.

Scott Sinder, an insurance regulatory partner at Steptoe & Johnson in Washington, warned that many of the details of the Medicaid expansion would have to be reconceived. He said the Medicaid expansion decision is the “underbelly of the [Supreme Court] decision,” and blows a hole in some of the PPACA issues. 

Sinder and other insurance regulatory lobbyists have discussed a huge group of poor people that won’t be covered by Medicaid and won’t be eligible for subsidies so they can buy the exchanges, those who will fall through a “donut hole.”

For exclusive, ongoing coverage of the PPACA decision and its impact on the industry, visit www.lifehealthpro.com/PPACA