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A Better “Exchange”: Some States, Including Washington, Control Their Health Care Markets While Most Surrender Autonomy to Resist Reform

Brendan W. Williams*

ABSTRACT

Litigation challenging the Patient Protection and Affordable Care Act focused on the individual mandate to purchase health insurance, while the aftermath of the Supreme Court ruling upholding the Act has brought the question of Medicaid expansion to the forefront. Little public attention has been paid to the central reform requiring health benefit exchanges, whereby the uninsured ineligible for Medicaid in each state will be able to comparison shop for private insurance and receive federal subsidies. With the battle over the Affordable Care Act lost, state legislators and governors opposed to federal health care reform are now resisting setting up exchanges. Where states failed to take federally-approved action by January 1, 2013 to set up such an exchange, the federal government will administer exchanges for states. The State of Washington has been among relatively few states actively working to set up their own exchanges. The establishment of an exchange is a complicated process, requiring work to ensure that offerings within an exchange are not disadvantaged relative to the private insurance market that will continue to exist outside it. In part, the avoidance of such adverse selection is to be accomplished by requiring that all health insurance plans, whether inside or outside an exchange, meet a certain actuarial threshold and conform to a benchmark plan’s standards.

TABLE OF CONTENTS

I. INTRODUCTION ...... 596 II. THE STATE OF WASHINGTON’S EXCHANGE ...... 599 III. STATE RESISTANCE TO EXCHANGES ...... 610 IV. STATES MOVING AHEAD ON EXCHANGES ...... 615 V. THE ROCKY ROAD AHEAD FOR EXCHANGES ...... 622 VI. CONCLUSION ...... 626

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I. INTRODUCTION

With the federal Patient Protection and Affordable Care Act (“ACA”)1 to be largely implemented by 2014, little public attention has been paid to the central reform regarding health benefit exchanges. The multi-state litigation challenging the ACA centered upon the individual mandate to purchase health insurance. The U.S. Supreme Court decision upholding the ACA was notable for affording states the choice of whether to opt in, or out, of Medicaid expansion for the uninsured.2 Yet health benefit exchanges were ignored and are the very portals through which much of health care reform will pass and either succeed or fail. Contrary to rhetoric about “Obamacare” and the specter of a federal health care takeover, almost all lines of insurance3—including much of health insurance—are still regulated by individual states.4 Health care reform is more carrot than stick. The individual penalty under the mandate to purchase health insurance begins, in 2014, at only $95 or 1% of income, whichever is greater.5 Moreover, the employer penalty for not offering health insurance applies only to those with more than 50 employees—a penalty that will not apply to 96% of the nation’s employers.6 The penalties are much lighter than the inducements.

* Deputy Commissioner, Washington State Office of the Insurance Commissioner. Views expressed in this writing are the author’s and should not be imputed to anyone else. The author is a former three-term Washington state representative and executive director of the Washington Health Care Association. Sincere thanks to WHCA members for instilling a passion for health care policy, and to the author’s son, Blake, for creating hope for the future. 1. Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010) (codified as amended in scattered Titles of the United States Code). 2. Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2608 (2012) (Writing for the majority, Chief Justice John Roberts referred to required Medicaid expansion as a “gun to the head.”). 3. The exception being employee benefit pension plans governed by the Employee Retirement Income Security Act, 29 U.S.C. § 1001b (2006). 4. See, e.g., McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015 (2006). But see United States v. Se. Underwriters, 322 U.S. 533, 541 (1944) (applying anti-trust protections of federal Sherman Act to insurance). 5. For an excellent illustration, see The Requirement to Buy Coverage Under the Affordable Care Act, HEALTH REFORM SOURCE, http://healthreform.kff.org/the-basics/ Requirement-to-buy-coverage-flowchart.aspx (last visited March 3, 2013). 6. See, e.g., Council of Economic Advisors, Executive Office of the President of the United States, The Economic Effects of Health Care Reform on Small Businesses and Their Employees, 1 (July 25, 2009), http://www.whitehouse.gov/assets/documents/CEA- smallbusiness-july24.pdf. WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

2012/13] A BETTER “EXCHANGE”: HEALTH CARE CONTROL 597

An extraordinarily complicated law (with regulatory guidance equally as complicated),7 the ACA in toto is too broad a subject to be covered in this article. Rather, this article focuses on the requirement that each state establish a health benefit exchange by 2014, or defer to, or partner with, the federal government.8 The State of Washington is among the more than one-third of states that have moved to set a state-administered exchange.9 Exchanges are the conduit through which federal subsidies for private insurance will be available under the ACA for those ineligible for Medicaid expansion.10 Think of a website like Expedia, where the user can submit parameters to find the best deal. Exchanges will fill a similar role relative to health insurance options for the individual and small group markets.11 By 2017, large group plans may also be offered through exchanges.12 The “carrots” of exchanges are the tax subsidies available to those with incomes up to 400% of the Federal Poverty Level who purchase insurance through them.13 Premium tax credits would be both refundable, for those who

7. I have likened the obtaining of ACA guidance from the United States Department of Health & Human Services, and the federal Center for Consumer Information and Insurance Oversight, to be similar to that of an oracle: Cryptic, susceptible to more than one interpretation, and never in writing. 8. See Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 1321(b)- (c), 124 Stat. 119, 186-87 (2010) (codified as amended at 42 U.S.C. § 18041). 9. See, e.g., State Actions to Address Health Insurance Exchanges, NATIONAL CONFERENCE OF STATE LEGISLATURES (Feb. 18, 2013), http://www.ncsl.org/issues-research/ health/state-actions-to-implement-the-health-benefit-exch.aspx; Noam N. Levey, More States Cleared to Operate Health Insurance Exchanges, LA TIMES (Jan. 4, 2013), http://articles.latimes.com/2013/jan/04/nation/la-na-healthcare-states-20130104; WASH. REV. CODE § 43.71.020 (2012); Washington Health Plan Finder, WASHINGTON HEALTH BENEFIT EXCHANGE, http://wahbexchange.org (last visited March 3, 2013). 10. See generally Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 1402, 124 Stat. at 220-224 (2010) (codified as amended at 42 U.S.C. § 18071) (explaining premium subsidy mechanics). Medicaid itself may be accessed through Exchange websites; however, this article focuses on private insurance. 11. Small businesses will be able to purchase coverage through what’s called a Small Business Health Options Program – sometimes called a SHOP exchange, just to add to the terminology confusion associated with the ACA. See Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 1311(b)(1)(B), 124 Stat. at 173 (2010) (codified as amended at 42 U.S.C. § 18031). 12. See Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 1312(f)(2)(B)(i), 124 Stat. at 184 (2010) (codified at 42 U.S.C. § 18032(f)(2)(B)(i)). 13. See Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 1401(a), 124 Stat. at 213 (2010) (codified as amended at 26 U.S.C. § 36B). WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

598 GONZAGA LAW REVIEW [Vol. 48:3 have no tax liability, and advanceable at the time of insurance purchase for those who do.14 No one would be required to purchase insurance through such exchanges, and the existing private insurance market would continue outside an exchange. Indeed, a number of self-styled private exchange entities have sprung up on the Internet, and Consumers Union has warned of “imposter websites.”15 For many states, even one with an exchange like California, such sites may come up more readily than official websites through internet search engines. By January 1, 2013 the United States Department of Health and Human Services was supposed to approve state exchanges for operation beginning January 1, 2014.16 It granted “conditional approval” to states demonstrating “significant progress.”17 However, states could not bluff their way past this deadline, as a state had to demonstrate it will be “operationally ready for the initial open enrollment period beginning October 1, 2013.”18 Exchanges can be established by states as either public or nonprofit private entities.19 Some states have set them up as hybrids. States may also partner with the federal government by having it administer some aspects of an exchange through what is called a “state partnership exchange.”20 In the event a state is not ready, or is unwilling to operate an exchange, the federal government will operate a “federally-facilitated exchange” for the state.21

14. See THE HENRY J. KAISER FAMILY FOUNDATION, EXPLAINING HEALTH CARE REFORM: QUESTIONS ABOUT HEALTH INSURANCE SUBSIDIES (July 2012), available at http://www.kff.org/healthreform/upload/7962-02.pdf.; see also Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 1412(c)(2)(A), 124 Stat. at 232 (2010) (codified at 42 U.S.C. § 18082) (“The Secretary of the Treasury shall make the advance payment under this section of any premium tax credit allowed under section 36B of [the Internal Revenue Code of 1986] to the issuer of a qualified health plan on a monthly basis . . . .”) 15. Steve Dixon, Don’t Be Fooled by California Exchange Imposter Websites, CONSUMERS UNION (June. 29, 2011), http://yourhealthsecurity.org/posts/2435-dont-be- fooled-by-california-exchange-impostor-websites. 16. See U.S. Dept. of Health & Human Servs., Blueprint for Approval of Affordable State-Based and State Partnership Insurance Exchanges, http://www.healthreformgps.org/ wp-content/uploads/hie-blueprint-0813121.pdf (last visited March 3, 2013) [hereinafter “Blueprint”]. 17. Id. 18. Id. 19. See Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 1311(d)(1), 124 Stat. 119, 176 (2010) (codified as amended at 42 U.S.C. § 18031(d)(1)). 20. Blueprint, supra note 16, at 3. 21. See Ctr. for Consumer Info. & Ins. Oversight, General Guidance on Federally- facilitated Exchanges, 1, 3 (May 16, 2012), http://cciio.cms.gov/resources/files/ffe-guidance- 05-16-2012.pdf. WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

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Given that insurance would otherwise be state-regulated, it is ironic that critics of “Obamacare” make federal intervention in their state’s private health care market inevitable by not affirmatively setting up a state-run exchange.22 This article examines progress made by states in establishing exchanges, as well as the spirited resistance in some states to doing so. Part I of this article focuses on the State of Washington. Determined to go its own way, as early as 2011 Washington was recognized as one of a dozen “pace car” states in implementing the ACA and establishing its own exchange.23 Progress brings with it challenges, as illustrated by the Washington example, including the fact that, although established through federal grants, exchanges are required to be self-sufficient by January 1, 2015, with no further federal grants available.24 Part II explores the common themes of state resistance to exchanges— resistance that has been expressed in the majority of states by governors, legislatures, and even voters upon referral of ballot questions by legislatures. Part III examines the states in addition to Washington that are part of the small coalition of the willing in setting up exchanges. Those exchanges will vary in appearance from state to state in ways that might surprise, and perhaps discomfit, ACA proponents. Lastly, Part IV addresses the rocky road forward, given the examples of exchange progress in various states as well as common challenges that include shortcomings of the ACA itself.

II. THE STATE OF WASHINGTON’S EXCHANGE

Washington State’s 2011 law creating a public-private Washington Health Benefit Exchange25 took a uniquely bipartisan approach.26 RCW 43.71.020 limits the Governor to choosing eight voting board members from names

22. See, e.g., Edmund F. Haislmaier, A State Lawmaker’s Guide to Health Insurance Exchanges, BACKGROUNDER NO. 2534, at 1-2 (Heritage Foundation, Mar. 21, 2011), available at http://report.heritage.org/bg2534 (“[R]efusing to create an Obamacare state exchange, while politically appealing, would leave state health insurance markets vulnerable to even more federal interference and disruption over the next two years.”). 23. John Reichard, Ario: Dozen ‘Pace Car’ States in Line for Bigger Insurance Exchange Grants, THE COMMONWEALTH FUND (Jan. 19, 2011) available at http://www.commonwealthfund.org/Newsletters/Washington-Health-Policy-in- Review/2011/Jan/January-24-2011/Dozen-Pace-Car-States.aspx. 24. 45 C.F.R. § 155.160(b) (2013). 25. The Washington Health Benefit Exchange, in an October 18, 2012 meeting, decided to rebrand itself the Washington Healthplanfinder. See Press Release, Washington Healthplanfinder, Washington Health Benefit Exchange Reveals New Name (Oct. 23, 2012), http://www.hca.wa.gov/Releases/Washington%20Health%20Benefit%20Exchange%20Reve als%20New%20Name.pdf. 26. See WASH. REV. CODE § 43.71.020 (2012). WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

600 GONZAGA LAW REVIEW [Vol. 48:3 nominated by the House and Senate Democratic and Republican caucuses.27 Each of the four caucuses forwarded five names to then-Governor Christine Gregoire, from which she had to choose two.28 A governor-chosen chair is to vote only in the case of a tie on a board split evenly between the two major political parties.29 The state’s elected Insurance Commissioner, and the appointed head of the Health Care Authority (the state’s Medicaid administrator), serve in an ex officio capacity.30 The result is a largely bipartisan board composition. Compared to other states, Washington was the one state where the party controlling the executive and legislative branches of government yielded so much power over an Exchange board to the minority party; ACA-opposing Republicans in Washington’s case.31 Tactically, this was risky, particularly given that a governor-appointed chair could break tie votes.32 As early as 2011, the foreseeable Republican nominee in the 2012 governor’s race was Attorney General Rob McKenna—who had joined the lawsuit to overturn the ACA.33 The party caucuses are assigned the responsibility of each nominating at least one person with a certain aptitude—with Republicans responsible for nominating at least one health economist or actuary and one small business representative, and Democrats responsible for nominating at least one employee benefit specialist and one representative of health consumer advocates.34 Service on the board is prohibited for those with a personal or professional financial stake in decision outcomes.35 Three of the initial Republican appointees, however, included two with active insurance brokerages and one who was the immediate past president of a statewide trade association (the Washington Farm Bureau) with an association

27. Id. 28. See § 43.71.020(b). 29. See § 43.71.020(c). 30. See § 43.71.020(d)(i)-(ii). 31. Key has been which party controls the governor’s office – in Nevada, for example, the 2011-passed law gave the Democratic majority that controls Nevada’s Legislature two appointments to the Exchange Board and the Republican governor five. See NEV. REV. STAT. § 695I.300(2)(a)-(c) (2011). 32. See WASH. REV. CODE § 43.71.020(c) (2012). 33. See Petition for Writ of Certiorari, Florida v. U.S. Health & Human Servs., No. 11-400, 3-4 (U.S. Sep. 27, 2011). 34. It is not clear why this concession of expertise on the part of one or the other party was made. For example, are we to believe that one party knows small business owners better than the other? See WASH. REV. CODE § 43.71.020(1)(a)(iv) (2012). 35. See § 43.71.020(1)(d)(4). WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

2012/13] A BETTER “EXCHANGE”: HEALTH CARE CONTROL 601 health plan, clearly problematic under the ACA.36 Even the governor’s chair appointee was a past senior vice president at Regence BlueShield—one of the Washington’s largest health insurance carriers.37 The real work of tasking the Exchange occurred during the 2012 legislative session, when an ACA-implementation bill, requested jointly by then-Governor Gregoire and Insurance Commissioner Mike Kreidler, both Democrats, passed into law.38 The new law made it clear that the Exchange must be self- sustaining, required at least annual reporting to the Legislature, and allowed Exchange employees to participate in state retirement and health care plans while otherwise exempting them from state civil service laws.39 In Washington (as may prove true in other states), the establishment of an independent Exchange through which private insurance will be purchased creates an interesting dynamic in that such insurance is still regulated separately by the Office of the Insurance Commissioner (“OIC”).40 As of the date of this article, among the states that have established an Exchange following passage of the ACA, Washington is one of just two that elects its insurance regulator.41 Elected insurance commissioners can be presumed to feel more accountable to consumers (i.e., voters) than appointed officials. The 2012 legislation clearly delineated the responsibilities between the Exchange and the OIC, drawing health carrier concern that too much authority was being vested in the insurance commissioner.42

36. See, e.g., 45 C.F.R. § 154.102 (2011) (“Coverage that would be regulated as individual market” or small group market coverage “if it were not sold through an association is subject to rate review as individual market” or small group market coverage.). 37. See Press Release, Office of Wash. Governor Chris Gregoire, Gov. Gregoire names nine to governing board of state’s Health Benefit Exchange (Dec. 15, 2011), available at http://www.digitalarchives.wa.gov/GovernorGregoire/news/news-view.asp?pressRelease= 1822&newsType=1. 38. Elizabeth Festa, State PPACA Reform News: Wash. State, Penn. Advance Reforms, LIFE HEALTH PRO (March 26, 2012), http://www.lifehealthpro.com/ 2012/03/26/state-ppaca-reform-news-wash-state-penn-advance-re. 39. See WASH. REV. CODE § 42.71.30(2) (2012). 40. See § 43.71.005(2)(i). 41. The other is California. See, e.g., Nat’l Ass. of Ins. Comm’rs, Table 1, available at http://www.naic.org/documents/members_state_commissioners_elected_appointed.pdf; see also, Noam N. Levey More states cleared to operate health insurance exchanges, L.A. TIMES (Jan. 4. 2013), available at http://articles.latimes.com/2013/jan/04/nation/la-na- healthcare-states-20130104. 42. Wash. State H.R. B. Rep., Engrossed 2nd Substitute H.R. B. 2319 (2011), available at http://apps.leg.wa.gov/documents/billdocs/2011-12/Pdf/Bill%20Reports/House/ 2319-S2.E%20HBR%20PL%2012.pdf. The breakout of support versus opposition was interesting. Washington State is dominated by three nonprofit health carriers: Group Health Cooperative, Premera Blue Cross, and Regence BlueShield. Barbara Flye, The Affordable WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

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The Exchange also provided a clear victory for consumers by its prohibiting carriers from “gaming” the system when choosing what plans to offer—that is, carriers cannot manipulate their exposure by exclusively offering low-cost plans outside the Exchange.43 The insurance business plays on the law of averages; the theory being the bigger the pool, the wider the risk- sharing, and therefore, the lower the cost.44 As the United States Department of Health and Human Services notes, “[s]uccessful Exchanges will avoid adverse selection by ensuring that those who buy through the Exchange are a broad mix of the healthy and the less healthy.”45 Avoiding adverse selection is really where the promise of health care reform breaks down, particularly if a state elects not to expand Medicaid. If a state chooses not to expand Medicaid, the exchange should be the main conduit to provide health coverage for the uninsured. However, an individual mandate imposing a penalty of as little as $95 a year is not enough to incentivize personal responsibility. Because states retain their prerogative to regulate insurance—with the ACA providing, at most, light interference—states hostile to the ACA and friendly to insurers could choose to set up an exchange where insurance companies dictate the coverage offered through the exchange.46 Thus, an exchange could simply become a federally-subsidized purgatory of high risk and high premiums. The ACA requires that all individual and small group plans sold after January 1, 2014 include those essential health benefits identified by the federal government—with a conforming “benchmark plan” to be selected by the

Care Act & Exchanges: Prospects for a Healthy Marketplace, (June 13, 2011), http://www.academyhealth.org/files/2011/monday/flye.pdf. Only Group Health supported the legistlation. See Scott Plack, Washington Enacts Landmark Exchange Legislation, GROUP HEALTH (Apr. 5, 2012, 12:20 PM), http://www.ghinnovates.org/?p=471. 43. See WASH. REV. CODE § 48.43.700 (2012). 44. See, e.g., Critical Issues in Health Reform: Risk Pooling, AM. ACAD. OF ACTUARIES (July 2009) (“Pooling risks together allows the costs of those at higher risk of high medical costs to be subsidized by those at lower risk.”), available at http://www.actuary.org/pdf/health/pool_july09.pdf. 45. U.S. DEP’T OF HEALTH & HUM. SERVICES, Initial Guidance to States on Exchanges (Nov. 18, 2010), available at http://www.healthcare.gov/law/resources/ regulations/guidance-to-states-on-exchanges.html. 46. See, e.g., Robert Pear, Administration Defines Benefits That Must Be Offered Under the Health Law, N.Y. TIMES (Nov. 20, 2012), http://www.nytimes.com/ 2012/11/21/us/politics/administration-defines-benefits-under-health-law.html?_r=0 (“The rules lay out 10 broad categories of essential health benefits, but allow each state to specify the benefits within those categories, at least for 2014 and 2015. Thus, the required benefits will vary from state to state, contrary to what many members of Congress had assumed when the law was adopted.”) (emphasis added). WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

2012/13] A BETTER “EXCHANGE”: HEALTH CARE CONTROL 603 state.47 The ACA classifies health plans based upon their actuarial value—that is, how much of your premium pays health care costs.48 Plans are classified by “metal” tiers: the minimal standard of a Bronze plan would have an actuarial value of 60%, leaving a patient to account for 40% of his or her health care costs out-of-pocket through co-pays or deductibles.49 In contrast, a Platinum plan has an actuarial value of 90%, a Gold plan has one of 80%, and a Silver plan (the cost basis for tax subsidies under the ACA) has a 70% actuarial value.50 Beginning January 1, 2014, plans sold in the individual and small group market must meet at least the Bronze standard.51 It cannot be overstated what a change this is. Currently, most people in the individual market have what could be called “tin” plans, of less than 50% actuarial value, which have huge out-of-pocket costs should those enrollees dare need and receive actual medical care.52 Washington’s 2012 law requires that for any plan or policy year beginning after January 1, 2014, those carriers offering a Bronze plan outside the Exchange must also offer Gold and Silver plans outside the Exchange.53 Bronze plans are less expensive because of their comparatively low value. The concern was that carriers might simply establish themselves outside the Exchange and draw away those looking for bargain-rate health care by providing Bronze plans only. If they are concurrently required to offer more expensive plans, their overall care framework will be sturdier than the flimsy pup tent of a Bronze plan.

47. See Health Insurance Issuer Standards under the Affordable Care Act, Including Standards Related to Exchanges, 77 Fed. Reg. 70669 (proposed Nov. 26, 2012) (to be codified at 45 C.F.R. pt. 156). 48. The Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat.119, 167, § 1302(d) (2010) (codified as amended at 42 U.S.C. § 18022). 49. Id. 50. Id.; see also THE HENRY J. KAISER FAMILY FOUNDATION, WHAT THE ACTUARIAL VALUES IN THE AFFORDABLE CARE ACT MEAN (2011), available at http://www.kff.org/healthreform/upload/8177.pdf. 51. WASH. REV. CODE § 48.43.705 (2012). In contrast, Vermont’s universal coverage law will require richer benefits—with each resident to receive benefits “actuarially equivalent to at least 87 percent of the full actuarial value of the covered health services.” See VT. STAT. ANN. tit. 33, § 1825(a)(2) (Supp. 2012). 52. See Jon R. Gabel et al., More Than Half Of Individual Health Plans Offer Coverage That Falls Short Of What Can Be Sold Through Exchanges As Of 2014, 31 HEALTH AFF. 1339, 1343 (2012). 53. WASH. REV. CODE § 48.43.700 (2012). WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

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Even for those insured in Washington, the ACA represents perhaps the nation’s most significant increase in health insurance comprehensiveness.54 This is a reason why one Washington carrier, which offers an individual market plan with an extremely low actuarial value, has warned of a rate increase apocalypse under the ACA.55 The Washington law further provides that catastrophic plans, as defined in the ACA, may only be sold inside the Exchange.56 The ACA makes provision for the sale of catastrophic plans, the most bare-bones coverage available, only to those under 30.57 These so-called “young invincibles” are a coveted demographic in health insurance as they are most likely to be healthy; their inclusion in any risk pool can only lower costs for everyone.58 Were a special

54. In one magazine’s rating, Washington ranked last in health insurance comprehensiveness, with only 4% of plans earning 4 or 5 stars on a 5-star scale. Health care reform pioneer Massachusetts, at 100%, ranked first. Steve Sternberg & Chris I. Young, Many Insurance Plans Heap Healthcare Costs on Consumers: Plans with lower premiums could burden members with crushing costs, U.S. NEWS & WORLD REP. (Oct. 3, 2012), http://health.usnews.com/health-news/health-insurance/articles/2012/10/03/many-insurance- plans-heap-healthcare-costs-on-consumers. 55. See Erik Smith, Staggering Health Insurance Premiums Right Around the Corner, Predicts Premera Vice President, WASH. ST. WIRE (July 12, 2012), http://washingtonstatewire.com/blog/staggering-health-insurance-premiums-right-around- the-corner-predicts-premera-vice-president/. But see John Webster, Premera moderates warning about rates, SPOKESMAN-REVIEW, March 22, 2013, http://www.spokesman.com/ stories/2013/mar/22/premera-moderates-warning-about-rates/. That one could say consum- ers will finally receive value for premiums may be of little comfort to many—it would seem too parens patriae. It is quite possible that public ire toward the ACA will reach its pinnacle once people see higher rates, even if the ability to access subsidies for this more substantive coverage provides an offset for those purchasing through the Exchange. In reviewing requested rate increases, the Washington insurance commissioner lacks the statutory authority to account for nonprofit health insurers’ surpluses, despite the fact that two nonprofit insurers each accounted for over $1 billion in surplus (above reserves necessary to pay claims) by the beginning of 2013. See, Valerie Bauman, Insurance chief Kreidler seeks more control of rate hikes, PUGET SOUND BUS. J. (Jan. 8, 2013, 2:58 PM), http://www.bizjournals.com/seattle/news/2013/01/08/insurance-commissioner-seeks- more.html?page=all. In other states, insurance regulators lack any rate review authority whatsoever. See Reed Abelson, Health Insurers Raise Some Rates by Double Digits, N.Y. TIMES (Jan. 5, 2013), http://www.nytimes.com/2013/01/06/business/despite-new-health-law- some-see-sharp-rise-in-premiums.html?pagewanted=all&_r=0 (noting that in California, for example, “the state can only question the basis for the high rates” but not disapprove them). 56. See WASH. REV. CODE § 48.43.700(2) (2012). 57. See The Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 1302(e), 124 Stat. 119, 168 (2010) (codified as amended at 42 U.S.C. § 18022(e)(1), (2)). 58. Age rating restrictions dictate that starting in 2014, older individuals cannot be charged more than three times what younger individuals pay in premiums; previously, the National Association of Insurance Commissioners has found “overall variation of 5:1 or less WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

2012/13] A BETTER “EXCHANGE”: HEALTH CARE CONTROL 605 market to exist for them outside the Exchange, the Exchange would lose that good risk.59 For those actually requiring care under catastrophic plans, the costs can be quite disastrous. Because prescription drugs are such a health care cost-driver, the OIC is required to evaluate prescription drug benefit cost-sharing across the metal tiers of plans to ensure that costs are not driving certain plans to be adversely selected against.60 If they are, rulemaking may require substantial equivalence across the tiers.61 The OIC, as required,62 adopted a benchmark plan for Washington in October 2012.63 That plan meets the standards for essential health benefits, as well as requiring coverage for pregnancy termination.64 is reasonable in the small group market based on the expected claim costs of 22-year-olds and 62-year-olds.” NAT’L ASS’N OF INS. COMM’RS, RATE REVIEW WHITE PAPER 2, 7 (2012), available at http://www.naic.org/documents/committees_b_related_wp_rate_review.pdf. If older individuals are to be charged less, younger individuals will be charged more. At least one commentator thinks the young are being used. See Chris Conover, Young People Under Obamacare: Cash Cow for Older Workers, FORBES (Nov. 27, 2012, 10:06 AM), http://www.forbes.com/sites/chrisconover/2012/11/27/young-people-under-obamacare-cash- cow-for-older-workers/. However, Washington law already had a narrower age band of 3.75:1, which should lessen rate shock. See, e.g., WASH. REV. CODE § 48.44.022(1)(d) (2012). 59. In an October 2012 rule comment letter to the federal government, the National Association of Insurance Commissioners warned of a similar threat posed by federally- approved multi-state plans: If federal regulations allow MSPs to pool risk separately from other policies offered by the same carrier in the individual and small group markets of a state, the single risk pool requirement will have been frustrated and a potential will have been created for MSPs to separate Exchange business from business sold outside of the Exchange. Insurers could exploit this ability to segment risk by offering predominantly bronze-level and catastrophic plans outside the Exchange, which will likely attract a disproportionate share of younger and healthier enrollees. Letter from Nat’l Ass’n of Ins. Comm’rs, to John J. O’Brien, Dir., Healthcare and Ins., U.S. Office of Pers. Mgmt. (Oct. 24, 2012), available at http://www.naic.org/documents/index_health_reform_section_commentletter.pdf. 60. See WASH. REV. CODE § 48.43.700(4) (2012). 61. See id. 62. See § 48.43.715(1). 63. See 12-19 Wash. Reg. 79 (Oct. 3, 2012). 64. See id. at 79-80. Abortion has been a controversial subject under the ACA. Notwithstanding free market rhetoric, Republicans in Utah, for example, banned abortion coverage in any private insurance sold in the state—not just through its exchange—except in cases where the mother would die, be at serious risk of substantial and irreversible impairment of a major bodily function, or was a victim of incest or rape. UTAH CODE ANN. § 31A-22-726 (LexisNexis Supp. 2012). Such measures are facilitated by the so-called Stupak amendment to the ACA, offered by former Michigan U.S. Representative Bart WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

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A major challenge confronting Washington, and any state setting up an Exchange, is the development of an information technology infrastructure. In Washington, the federal resources dedicated to this effort are considerable. In a May 2012 report, a consultant estimated $135.6 million in Exchange development costs from 2012 through 2014—of which 71% would be dedicated toward “Systems Development & Support.”65 Complicated information technology system designs have a way of blowing up.66 Without reinventing the wheel, or empire-building, it had appeared logical to use the existing System for Electronic Rate and Form Filing (“SERFF”) interface employed by the National Association of Insurance Commissioners. That system is already utilized by commercial insurers in rate filings. However, the Washington Exchange decided to utilize an outside vendor’s software—which will result in carriers making dual filings assuming the software is even developed in time.67

Stupak, which prohibits using federal subsidies available through exchanges to purchase abortion coverage—effectively ensuring such coverage cost must be segregated from any more comprehensive health insurance policy. See Bart Stupak, Why I wrote the ‘Stupak amendment’ and voted for health-care reform, WASH. POST (Mar. 27, 2010), http://www.washingtonpost.com/wpyn/content/article/2010/03/26/AR2010032602921.html. A separate firestorm has arisen over the requirement that contraception be provided to women free-of-charge as a preventative service. This rule was even subject to contentious debate between Joe Biden and Paul Ryan during the 2012 vice presidential campaign. See Kathryn Smith, Contraception rule opponents feel ‘momentum’ after VP debate, POLITICO (Oct. 13, 2012, 4:19 PM), http://www.politico.com/news/stories/1012/82367.html. 65. WAKELY CONSULTING GRP., WASHINGTON HEALTH BENEFIT EXCHANGE ADMINISTRATIVE BUDGET PROJECTIONS AND SELF-SUSTAINABILITY ANALYSIS 2 (2012), http://wahbexchange.org/wp-content/uploads/HBE_EB_120516_Financial_Report.pdf. 66. Washington once spent $20 million on a new welfare computer system that was abandoned. Jim Simon, Computerizing Welfare Data May Cost State $67.5 Million, SEATTLE TIMES (Dec. 12, 1992), http://community.seattletimes.nwsource.com/archive/?date=199 21212&slug=1529696. More recently, it committed to $643 million over the life of bonds to pay off an unnecessary state data center that did not account for “cloud” computing and virtualization. See Queenie Wong, Data center may be too big for state needs, SEATTLE TIMES (Feb. 14, 2011), http://seattletimes.com/html/localnews/2014226748_statebuilding 15m.html. 67. See E-mail from Michael Arnis, Senior Health Policy Analyst, Wash. Health Benefit Exch., to Plan Mgmt. Workgroup (Oct. 30, 2012, 18:47 PDT) (on file with author). As of December 2012, the quality assurance assessment for the Exchange, also conducted by a vendor, noted that the vendor assigned to the development of a filing interface had notified the Exchange that it was “unable to meet the Go-Live date of October 1, 2013”—blaming delay on the federal government. BLUECRANE, INC., QUALITY ASSURANCE SPOTLIGHT REPORT FOR THE WASHINGTON HEALTH BENEFITS EXCHANGE: DECEMBER 2012 ASSESSMENT, 16 (2013) (on file with author). Conversely, four days after this Washington report was issued, Oregon’s exchange, Cover Oregon, which is using SERFF, announced it had sixteen health insurance carriers lined up to do business. See Press Release, Cover Oregon, WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

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Exchanges, particularly if wholly separated from state insurance departments, will not possess insurance regulators’ expertise concerning commercial insurance.68 As they develop their processes, they will face unaccustomed pressure from consumers and carriers alike. In Washington, for example, a September 2012 letter to the Exchange, the governor, the insurance commissioner, and two other state agency heads—signed by 103 groups ranging from labor unions to the Washington State Hospital Association— complained, “there are no opportunities for stakeholder involvement or information-sharing in a joint and coordinated setting,” and opined that the Exchange’s “siloed approach raises serious concerns about our state’s success in health care reform implementation, and particularly the ability of consumers to succeed in using the new system.”69 Such external concerns, and the need to be responsive to them, will bear upon the Exchange’s ability to secure state-appropriated funding necessary to be self-sufficient beyond January 1, 2015 as the ACA requires.70 In a December 2012 report to the Washington Legislature, the Exchange calculated state-borne expenses of $51 million in 2015—an average of $573,910 for each of the 89 projected full-time employees—with expenses projected to increase.71

Oregonians Will Have Variety of Plan Choices Through Cover Oregon (Jan. 14, 2013), http://coveroregon.com/PR_1_14_13.php. In Washington, by February 2013, the quality assurance assessment for the Exchange noted with alarm, “1.5 person years of effort must be delivered in a matter of weeks” due to a change order for the private vendor’s filing interface development. BLUECRANE, INC., QUALITY ASSURANCE ASSESSMENT FOR THE WASHINGTON HEALTH BENEFITS EXCHANGE: JANUARY 2013 ASSESSMENT 23 (2013) (on file with author). Arguably, this could have been avoided by using SERFF. 68. The same argument is true of the federal government, entirely unaccustomed as it is to the state function of commercial insurance regulation. After two successive former state insurance regulators used their federal health care reform roles to launch lucrative private sector careers, the federal Center for Consumer Information and Insurance Oversight hired Oregon’s insurance commissioner. See Sam Baker, Oregon insurance commissioner to advise HHS on exchanges, THE HILL (Nov. 15, 2011, 2:31 PM), http://thehill.com/ blogs/healthwatch/health-reform-implementation/193735-oregon-insurance-commissioner- to-advise-hhs-on-exchanges. 69. Letter from 103 health care stakeholders, to Christine Gregoire, Governor, Mary Anne Lindeblad, Dir., Wash. State Health Care Auth., Richard Onizuka, CEO, Wash. Health Benefits Exch., Mike Kriedler, Comm’r, Office of the Ins. Comm’r, Robin Arnold-Williams, Sec’y, Dep’t of Soc. & Health Servs. (Sept. 26, 2012) (on file with author). 70. See 45 C.F.R. § 155.160(b) (2012). 71. See Washington Healthplanfinder, Report to the Washington State Legislature, Financing the Washington Health Benefit Exchange (Dec. 1, 2012). In contrast, with 230 employees, the self-funded Office of the Insurance Commissioner had a biennial budget for 2011-13 of $ 53.1 million. See Washington State House Office of Program Research, 2012 Supplemental Operating Budget, Agency Detail 3ESHB 2127, 78, available at http://leap.leg.wa.gov/leap/Budget/Detail/2012/hoagencydetail0411.pdf. WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

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Because it is not wholly a public entity, the Exchange can avoid civil service laws by outsourcing its call center, for example.72 The Exchange would require initial and annual drug-testing of all call center employees including customer service representatives, something unlikely to be acceded to by any union—and of questionable necessity.73 Inauspiciously, that meant that the staffing for a critical function of the Exchange had no defense from the union for state employees, who were irate over the outsourcing.74 As if external politics were not complicating enough, in any state, like Washington, approving the rates and forms of participating health plans—given changes to such plans necessary under health care reform—will be cumbersome in advance of enrollment that begins October 1, 2013.75 A separate complication stems from the provision under the ACA for so- called multi-state plans contracted with the federal government and offered on a nationwide basis through state exchanges.76 The National Association of Insurance Commissioners (“NAIC”) is apprehensive about the federal government usurping state regulatory oversight and approval of any health insurance offering—which would have consumer protection implications. In an October 24, 2012 comment letter, the NAIC advised the federal government, “[i]t is . . . critically important that the MSP Program is operated in a way that

72. See Washington Health Benefit Exchange, Request for Proposal No. HBE-028 for Washington Health Benefit Exchange Call Center, § 5.2.2 & 5.2.3 (Oct. 26, 2012) (On file with author). Because the OIC will be perceived by many as the arbiter of all insurance- related matters, it is indeterminate how many duplicative complaints may be made to the OIC through its existing consumer interfaces – including complaints only the Exchange can resolve. 73. See id. at §§ 5.4.9.2 & 5.4.9.3. Arguably, given the presence of state action, this creates a problem. The strong right to privacy under Article I, Section 7 of the Washington Constitution has been read to invalidate even drug testing for high school athletes despite acknowledgement that students have a lower expectation of privacy. See Jonathan F. Duncan & Kristina V. Giddings, Which Washington: Constitutions in Conflict?, 19 MARQ. SPORTS L. REV. 231, 241 (2008) (discussing York v. Wahkiakum Sch. Dist. No. 200, 178 P.3d 995 (Wash. 2008)). Whether this invasion of privacy would be allowed by having a state- funded, and state-directed, vendor act as the employer is questionable. 74. See Erik Smith, Big Battle Brewing Over State Health-Insurance Call Center, WASH. STATE WIRE (Oct. 29, 2012), http://washingtonstatewire.com/blog/big-battle- brewing-over-state-health-insurance-call-center-federation-stews-about-plan-to-take-it- private/. Were the staff unionized the union would defend against future efforts to cut staffing. 75. See Blueprint, supra note 16. 76. See The Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 1334, 124 Stat. 119, 902-03 (2010) (codified as amended at 42 U.S.C. § 18054(a)(1)). WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

2012/13] A BETTER “EXCHANGE”: HEALTH CARE CONTROL 609 preserves a level playing field and respects the regulatory responsibilities of the states.”77 The stakes are high for Exchange success. Through 2011, there were over one million uninsured Washingtonians receiving over $1 billion in uncompensated care.78 One study estimated a 2014 participation in Washington’s Exchange of between 140,000 and 410,000 enrollees in the individual and small group markets.79 Yet simply making consumers aware of their options will be a formidable undertaking, requiring outreach into minority and rural communities, for example. Not every state, like Massachusetts, can use the Boston Red Sox to promote their Exchange.80 Washington is also unique in that it has had a large population—as many as 500,000 residents—served by unregulated association health plans offered through business groups. Rather than being community-rated, these plans are medically-underwritten and prone to excluding bad risk.81 In fact, as of 2008, fewer than 6% of enrollees in such plans had coverage that used neither health factors nor claims experience as a means of rating coverage.82 Changes under the ACA will bring community rating for many of these covered lives, making

77. Letter from Nat’l Ass’n. of Ins. Commissioners, supra note 59. The response from the federal government appeared deferential to states’ concerns. See Patient Protection and Affordable Care Act; Establishment of the Multi-State Plan Program for the Affordable Insurance Exchanges, 77 Fed. Reg. 72581 (Dec. 5, 2012) (“This proposed regulation recognizes that the MSPP is an important tool for implementing the Affordable Care Act by fostering competition in Exchanges on the basis of price, quality, and benefit delivery, while ensuring that MSPs operate on a level playing field with other issuers operating in the Exchanges.”). 78. See OFFICE OF THE INS. COMMISSIONER, STATE OF THE UNINSURED; HEALTH COVERAGE IN WASHINGTON STATE (Dec. 13, 2011), http://www.insurance.wa.gov/about- oic/commissioner-reports/documents/2011-uninsured-report.pdf. 79. Milliman, Planning Washington’s Health Benefit Exchange (2011), available at http://wahbexchange.org/wp-content/uploads/HBE_Milliman_Market_Analysis. pdf. 80. See Paige Winfield Cunningham, States Struggle with How to Sell Their Exchanges (Jan. 10, 2013), http://www.politico.com/story/2013/01/states-struggle-with-how- to-sell-their-exchanges-85982.html; see also Sabrina Corlette & Joan Alker, et al., The Massachusetts and Utah Health Insurance Exchanges: Lessons Learned, Geo. U. Health Pol’y Inst., Mar. 2011, at 11 (“The Connector’s partnership with the Boston Red Sox was also particularly helpful in reaching younger uninsured residents, particularly young men[.]”), http://ihcrp.georgetown.edu/pdfs/Mass%20Utah%20Exchanges%20Lessons% 20Learned.pdf. 81. See Mathematica Policy Research, Association Health Plans and Community- Rated Small Group Health Insurance in Washington State (Sept. 30, 2011), http://www.insurance.wa.gov/about-oic/commissioner-reports/documents/association-health- plans.pdf. 82. See id. at 15. WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

610 GONZAGA LAW REVIEW [Vol. 48:3 the earlier risk avoidance practices impermissible, and some plans may be deemed not bona fide employer groups under federal Department of Labor standards.83

III. STATE RESISTANCE TO EXCHANGES

While the individual mandate under the health care reform law has been the subject of litigation,84 one might think the requirement of Exchanges would uncontroversial. After all, what could be more consumer-friendly than a one- stop-shopping site where one can compare and price health insurance coverage? Exchanges are even required to have toll-free numbers, quality ratings, and electronic calculators for consumer assistance.85 As conservatives were the original proponents of exchanges,86 one might think this aspect of health care reform was free from opposition. Wrong.

83. See Gary Cohen, Application of Individual and Group Market Requirements under Title XXVII of the Public Health Service Act when Insurance Coverage Is Sold to, or Through, Associations, Ctr. for Consumer Info. & Ins. Oversight (Sept. 1, 2011), http://cciio.cms.gov/resources/files/association_coverage_9_1_2011.pdf.pdf. 84. See Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566 (2012). 85. See The Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 1311(d)(4), 124 Stat. 119, 176-77 (codified as amended at 42 U.S.C. § 18031(d)(4)) (prescribing minimum standards for Exchanges); see also U.S. Department of Health & Human Services, Initial Guidance to States on Exchanges (Feb. 29, 2013, 7:03 PM), http://www.healthcare.gov/law/resources/regulations/guidance-to-states-on-exchanges.html. 86. See, e.g., Health Equity and Access Reform Today Act of 1993, S. 1770 103rd Cong. § 5000(A)(a) (1993) (“There is hereby imposed a tax on the failure of any individual to comply with the requirements of section 1501 of the Health Equity and Access Reform Today Act of 1993.” This act was the U.S. Senate Republican alternative to President Bill Clinton’s health care reform plan, with sponsors including Senate Republican Leader Bob Dole—the 1996 Republican presidential nominee. Of the conservative Heritage Foundation, one newspaper account noted, “there’s little doubt that Heritage has been a consistent and eager promoter of the exchange idea, especially during the effort to design a new health care system for Massachusetts.” PolitFact.com, Obama says Heritage Foundation is source of health exchange idea, (Mar. 30, 2010), http://www.politifact.com/truth-o-meter/ statements/2010/apr/01/barack-obama/obama-says-heritage-foundation-source-health-excha/ (rating the President’s claim “Mostly True”); see also John R. Graham, Rick Perry: No Obamacare exchange for Texas, NAT’L. REV. (Mar. 31, 2011), http://www.national review.com/content/rick-perry-no-obamacare-exchange-texas (“Our friends at the Heritage Foundation . . . are most closely associated with exchanges[.]”). And far from being pleased with the ACA, many liberal thinkers remain appalled. See e.g., Thomas Frank, Pity The Billionaire 173 (2012) (“[A] populist outburst from the Right caused the inarticulate Democrats to abandon the most populist elements of their own plan and choose instead what we might call the elitist option, a crony-capitalist solution in which public choices would be diminished but corporate profits guaranteed.”). WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

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When a Republican anesthesiologist, Representative John Zerwas, introduced a bill establishing an Exchange in Texas,87 Governor Rick Perry promised a veto.88 Zerwas’s intentions were benign and imminently conservative—he wanted to avoid a federal takeover of health care. While Zerwas opposes federal health care reform, he was quoted stating, “the goal of this bill is to keep the cost of coverage down by promoting competition and ensuring Texas families and Texas employers have the right to choose their own coverage.”89 Yet, following Perry’s threat, Zerwas’s bill was scuttled.90 The Dallas Morning News opined, “[i]t isn’t like health care exchanges are a socialistic plot to take over health care. They instead create marketplaces where consumers and small businesses can compare health insurance plans. Republicans as well as Democrats have favored this competitive approach.”91 With a legislature that only meets in odd-numbered years, Texas was among states where, by 2011, resistance to federal health care reform had the ironic effect of making a federal intervention in state health care markets inevitable.92 Similarly, in Georgia, Governor Nathan Deal rescinded his push for legislation to create a commission to simply recommend establishing an exchange, after Tea Party protest.93 In a contrite statement, his office explained, “[t]he governor understands Georgians’ suspicions about any legislation associated with Obamacare.”94 Some states, including Georgia, have passed legislation asserting their right—under the Federal Constitution—to compact with other states on health care. Critics have referred to this as modern-day secessionism, with one state

87. See Mark Lisheron, Texas state Rep. John Zerwas says his plan for health insurance exchange would promote competition, keep costs down, TEXAS WATCHDOG (Jan. 13, 2011), http://www.texaswatchdog.org/2011/01/state-rep-john-zerwas-says-his-plan-for- texas-insurance-exchange/1294958898.column. 88. See generally Graham, supra note 86. 89. Lisheron, supra note 87. 90. See Graham, supra note 86. 91. Editorial: Health exchange would benefit Texans, Dallas Morning News (July 20, 2012), http://www.dallasnews.com/opinion/editorials/20120720-editorial-health-exchange- would-benefit-texans.ece 92. The other such states are Montana, Nevada, and North Dakota. See National Conference of State Legislatures, Annual Versus Biennial Legislative Sessions (Feb. 26, 2013), http://www.ncsl.org/legislatures-elections/legislatures/annual-versus-biennial- legislative-sessions.aspx. 93. See April Hunt & Carrie Teegardin, Governor pulls health exchange bill after tea party objects, ATLANTA J.-CONST., (March 16, 2011, 2:20 pm), http://www.ajc.com/ news/news/local-govt-politics/governor-pulls-health-exchange-bill-after-tea-part/nQrf8/ 94. Id. WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

612 GONZAGA LAW REVIEW [Vol. 48:3 representative from Atlanta, Scott Holcomb, quoted as saying, “it basically says nullify, and if we don’t get what we want, we’re going to secede.”95 After the Republican-controlled Montana Legislature killed legislation that would begin creating an Exchange, the disappointed Democratic insurance commissioner, Monica Lindeen, stated, “[t]hey’ve basically handed off the health exchange to the federal government.”96 Lindeen wasn’t alone in her disappointment. As the government relations director for the Montana Chamber of Commerce wrote, “[h]aving a Montana-based exchange is certainly preferable to a one-size-fits-all approach that Washington, D.C. would hand down to us.”97 Yet many states are choosing that default rule due to their legislatures’ empty political gestures. Beginning in 2010, voters began expressing their view of the ACA via legislatively-referred measures. Each purported to exempt states and their citizens from the ACA’s individual mandate and penalties. In Arizona, voters approved Proposition 106, the Arizona Health Insurance Reform Amendment, a legislatively-referred constitutional amendment.98 Oklahoma voters approved the Oklahoma Health Care Freedom Amendment, Question 756, a legislatively- referred constitutional amendment.99 Additionally, Missouri voters approved Proposition C, a legislatively-referred state statute,100 by a 3-1 margin despite

95. Walter C. Jones, Georgia House Supports Partnering with Other States to Federal Health Reform, FLA. TIMES-UNION, Mar. 17, 2011, http://jacksonville.com/ news/georgia/2011-03-18/story/georgia-house-supports-partnering-other-states-federal- health-reform. 96. Sarah Kliff, Tea Party Finds Success Blocking Reform, POLITICO Mar. 30, 2011, http://www.politico.com/news/stories/0311/52231.html; see also Mike Dennison, Federal Officials Left to Set Up Montana Health Insurance Exchange, Lindeen Says, MISSOULIAN, July 14, 2011, http://missoulian.com/news/state-and-regional/federal-officials-left-to-set-up- montana-health-insurance-exchange/article_5527e210-ae6e-11e0-a447-001cc4c002e0.html. 97. Michael Noyes, Insurance Exchange on the Agenda for Legislative Interim Committee, MONT. WATCHDOG, June 2, 1011, http://watchdog.org/49186/montana- insurance-exchange-on-the-agenda-for-interim-committee/; see also Abby Goodnough, Liking It or Not, States Prepare for Health Law, N.Y. TIMES, Sept. 23, 2012, http://www.nytimes.com/2012/09/24/us/like-it-or-not-states-prepare-for-health-law.html?_r =1& (noting that a number of conservative states, including Arizona, were quietly working on health exchanges – but with active Tea Party opposition dogging their work). However, Arizona ultimately decided to let the federal government run its exchange. Brewer Rejects State-Run Health Exchange for Arizona, INS. J. (Nov. 30, 2012), http://www.insurancejournal.com/news/west/2012/11/30/272365.htm. 98. See ARIZ. CONST. art. XXVII, § 2. 99. State Question Results, THE OKLA. DAILY, Nov. 3, 2010, http://www.oudaily. com/news/2010/nov/03/state-question-results/; see OKLA. CONST. art. 2, § 37. 100. Tony Messenger, Prop C Passes Overwhelmingly, ST. LOUIS POST-DISPATCH, Aug. 4, 2010, http://www.stltoday.com/news/local/govt-and-politics/prop-c-passes- WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

2012/13] A BETTER “EXCHANGE”: HEALTH CARE CONTROL 613 the fact that the Missouri Hospital Association spent over $300,000 trying to defeat it.101 In 2011, Ohio voters overwhelmingly approved a state constitutional amendment, Issue 3,102 which declared “[n]o . . . law or rule shall compel, directly or indirectly, any person, employer, or health care provider to participate in a health care system.”103 In 2012, Alabama voters narrowly-approved the Alabama Health Care Amendment, Amendment 6, a legislatively-referred constitutional amend- ment,104 while Wyoming voters approved their own legislatively-referred constitutional amendment, Amendment A.105 Further, Missouri voters revisited the issue and took a different approach in amending their constitution through Missouri Health Care Exchange Question, Proposition E, which “prohibits the establishment, creation, or operation of a state-based health insurance exchange unless the exchange is created by a legislative act, an initiative petition, or referendum.”106 Specifically the measure forbids the governor from unilaterally establishing an Exchange.107 In 2011, Montana had adopted a statute that ostensibly prohibits “[t]he state or federal government” from requiring the purchase of health insurance or imposing penalties for not purchasing insurance.108 In language obviously aimed at the elected ACA-supporting insurance commissioner, the law also prohibits even “participation by a state official” in efforts to implement the

overwhelmingly/article_c847dc7c-564c-5c70-8d90-dfd25ae6de56.html; see MO. REV. STAT. § 1.330 (2000 & Supp. 2010). 101. Messenger, supra note 100. 102. Michael Scott, Issue 3 Passes by Larger Margin than Issues 1 and 2 Failed; 66 Percent of 1.8 Million Votes Counted Favor Issue, THE PLAIN DEALER (Nov. 8, 2011), http://www.cleveland.com/politics/index.ssf/2011/11/early_results_in_on_ohio_issue.html. 103. OHIO CONST. art. 1, § 21. 104. Ty West, Alabama Amendment Results: What Do They Mean for Business?, BIRMINGHAM BUS. J. (Nov. 19, 2012), http://www.bizjournals.com/birmingham/blog /2012/11/alabama-amendment-results-what-do.html?page=all (noting that voters also refused to remove school segregation language from the constitution). 105. Wyoming Amendment A: Limit Obamacare in State, CNN (Nov. 8, 2012), http://www.cnn.com/election/2012/results/state/WY/ballot/01; see WYO. CONST. art. 1, § 38. 106. S.B. 464, 96th Gen. Asemb., 2d Reg. Sess. (Mo. 2012) (to be codified at MO. REV. STAT. § 376.1186), http://www.senate.mo.gov/12info/BTS_Web/Bill.aspx?Session Type=R&BillID=43. This seems like a rather administrative detail to be enshrined in a constitution. 107. Id. 108. MONT. CODE ANN. § 50-4-902 (2011). WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

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ACA.109 This made a legislative-referred 2012 statutory ballot measure against the individual mandate and penalties redundant, although it also passed.110 These measures are only meaningful as expressions of discontent. Any state statute or constitutional provision purporting to exempt a state’s citizens from the operation of a federal law upheld by the U.S. Supreme Court would be federally preempted.111 However, the fact that voters have “spoken” on the issue could rob federal progress of legitimacy in such states. Many recalcitrant states counting on the U.S. Supreme Court to strike down the ACA appear to have thereafter counted upon the defeat of President Obama in the 2012 election to spell the end of the ACA—despite the certainty of the Senate having sufficient Democrats to filibuster its repeal. That high- stakes gamble failed to pay off when President Obama was re-elected on November 6, 2012, having campaigned by defending his signature accomplish- ment, leaving states scrambling for options.112 Perhaps a sign that the threshold question of the ACA’s very existence is no longer as contentious in some places,113 Florida voters in the 2012 election rejected the symbolic Florida Health Care Amendment, Amendment 1, a legislatively-referred constitutional amendment designed to exempt Floridians from the ACA’s individual mandate.114

109. §2-1-501 (2011). 110. S.B. 418, 62d Leg. (Mont. 2011), http://data.opi.mt.gov/bills/2011/billpdf/ SB0418.pdf. The measure passed as Legislative Referendum 122. 2012 Election Center, MONT. SEC’Y OF STATE (Nov. 6, 2012), http://electionresults.sos.mt.gov/resultsSW.aspx ?type=BQ&map=CTY. 111. See U.S. CONST. art. 6, cl. 2 (“This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”) (emphasis added). 112. See Abby Goodnough & Robert Pear, With Obama Re-elected, States Scramble over Health Care Law, N.Y. TIMES, Nov. 8, 2012, http://www.nytimes.com/ 2012/11/09/health/states-face-tight-health-care-deadlines.html?pagewanted=all. 113. Exit polls showed a plurality of Americans, 49-44%, voting in the 2012 election favored the ACA’s repeal, while re-electing its architect. See Emily Schultheis, Exit Polls 2012: Split on Obamacare, POLITICO (Nov. 6, 2012), http://www.politico.com/ news/stories/1112/83427.html. 114. See Aaron Deslatte, Most of Florida’s Constitutional Amendments Fail, ORLANDO SENTINEL, Nov. 7, 2012, http://articles.orlandosentinel.com/2012-11-07/news/os- amendments-florida-consittution-20121107_1_amendment-merit-retention-ban-on-public- funds. The amendment was pushed by Governor Rick Scott, the former head of the nation’s the largest private for-profit health care company who left that role amidst a criminal investigation over Medicare billing practices. Kurt Eichenwald, 2 Leaders Are Out at Health Insurance Giant as Inquiry Goes On, N.Y. TIMES, July 26, 1997, WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

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Yet, even following an election where President Obama won 58% of his Democratic state’s vote, New Jersey Governor Chris Christie vetoed, for the second time, legislation to set up a state-run Exchange.115 His justification in vetoing a bill in May 2012 had been uncertainty over the Supreme Court case and presidential election outcome,116 and his continued inflexibility suggests that Republicans will continue to fight over the ACA, even in quarters where the President is popular.

IV. STATES MOVING AHEAD ON EXCHANGES

While the District of Columbia and thirty-four states accepted “level one” federal grants to begin planning for establishing Exchanges,117 only seventeen states and the District of Columbia appeared to have any chance to establish self-administered post-ACA Exchanges and avoid federal intervention in their health care marketplaces as 2012 drew to a close.118 Two states also have Exchanges that predate the ACA.119 They are as different as can be imagined. Massachusetts was first in health care reform and has had an operational exchange since 2006.120 By going through the online Health Connector, consumers can compare choices and prices through what is called the Commonwealth Choice program.121 With commercial entities supporting administrative functions, the Connector is a hybrid public-private entity. As of February 2013, its board of seven voting members included

http://www.nytimes.com/1997/07/26/business/2-leaders-are-out-at-health-giant-as-inquiry- goes-on.html?pagewanted=all&src-pm. 115. Jason Millman, Chris Christie Nixes State-Run Insurance Exchange, POLITICO (Dec. 7, 2012), http://www.politico.com/story/2012/12/christie-nixes-state-run-insurance- exchange-84718.html. 116. Id. 117. Status of State Health Insurance Exchange Implementation, CTR. ON BUDGET & POLICY PRIORITIES, 4, http://www.cbpp.org/files/CBPP-Analysis-on-the-Status-of-State- Exchange-Implementation.pdf (last updated Feb. 20, 2013). 118. See id. at 1. 119. See e.g., State Actions to Address Health Insurance Exchanges, NAT’L CONF. OF STATE LEG., http://www.ncsl.org/issues-research/health/state-actions-to-implement-the- health-benefit-exch.aspx (last visited Feb. 22, 2013). 120. MASS. GEN. LAWS ch. 118H § 2 (2012). 121. See HEALTH CONNECTOR – HEALTH INSURANCE FOR THE RESIDENTS OF MASSACHUSETTS, https://www.mahealthconnector.org/portal/site/connector (last visited Feb. 21, 2013). WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

616 GONZAGA LAW REVIEW [Vol. 48:3 faculty from Harvard and the Massachusetts Institute of Technology, as well as two business consultants, an insurance firm’s CEO, and two labor leaders.122 Utah was also well ahead of the curve, with a health care reform effort up and running prior to the ACA’s passage.123 Utah began serving the individual and family product market in 2009, and began fully serving the small group market in 2010.124 A nonprofit entity within the Utah Insurance Department— the Utah Defined Contribution Risk Adjuster—was created with a governance structure stacked toward insurers.125 Under this plan, the governor appoints up to nine voting members, with at least three, and up to five, to have actuarial experience and represent insurance carriers.126 The only consumer representative works for the governor.127 Separately, a governing board for the Utah Exchange is co-chaired by the lieutenant governor and a representative of Intermountain Healthcare, Utah’s largest health care provider.128 Of the twelve other members named initially, insurers dominated with no official consumer voice.129 The Utah Health Exchange transformed into what is called “Avenue H”—which is most obviously aimed at connecting small businesses with health insurers.130 However, the new portal is also a substitute for the former Exchange for those shopping for insurance in the individual market. While Massachusetts inspired the ACA, it is hard to reconcile the Utah Exchange with federal health care reform.131 However, federal regulation

122. See About Us, HEALTH CONNECTOR – HEALTH INSURANCE FOR THE RESIDENTS OF MASSACHUSETTS, https://www.mahealthconnector.org/portal/site/connector/menuitem.1f234 617384794635734db47e6468a0c/ (last visited Feb. 21, 2013). 123. See UTAH CODE ANN. § 63M-2505 (2011 Replacement) (noting an effective date of May 5, 2008); see also Press Release, Ave. H, ‘Ave. H’ Provides Health Care Access, Choice to Small Buss. (last visited Feb. 22, 2013) (on file with author). 124. See Avenue H, The Utah Health Exchange – A Brief Overview, AVENUE H, http://www.avenueh.com/images/PDFs/health%20reform%20history/The_Utah_Health_Exc hange_-_A_Brief_Overview.pdf. (last visited Feb. 22, 2013). 125. See UTAH CODE ANN. § 31A-42-201 (West 2012). 126. See id. 127. See id. 128. State Exchange Profiles: Utah, THE HENRY J. KAISER FOUND. HEALTH REFORM SOURCE (FEB. 11, 2013), http://healthreform.kff.org/State-Exchange-Profiles/utah, (last visited Feb. 26, 2013); Intermountain Healthcare, WIKIPEDIA, en.wikipedia.org/wiki/ Intermountain_Healthcare, (last visited Feb. 28, 2013). 129. See State Exchange Profiles: Utah, supra note 128. The business community appeared to like this fact. See Kirsten Stewart, Utah’s Avenue H better than federal exchange plan, health leaders say;, SALT LAKE CITY TRIB., Jan. 24, 2013, m.sltrib.com/sltrib/mobile2/55691666-218/health-utah-exchange-avenue.html.csp. 130. See AVENUE H, http://www.avenueh.com (last visited Feb. 21, 2013). 131. Under the ACA if an exchange is formed through an independent state agency or state-established nonprofit, the governance structure must be “clearly-defined governing WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

2012/13] A BETTER “EXCHANGE”: HEALTH CARE CONTROL 617 presumes that Exchanges established prior to January 1, 2010 (i.e., Massachusetts and Utah) are compliant if they have covered a percentage of their citizens not less than that projected by 2016 under the ACA by the Congressional Budget Office.132 California was the first state to establish an Exchange in response to federal health care reform, with former Governor Arnold Schwarzenegger signing the law in 2010.133 A public entity, it consists of five voting members—two appointed by the governor, and one apiece by the House and Senate, along with the state’s Secretary of Health and Human Services or a designee who is “a voting, ex officio member of the board.”134 Strict conflict-of-interest provisions bar board membership by those affiliated with insurers or health care providers.135 By the beginning of 2013, the other nine states that had legislatively established Exchanges, including Washington and the District of Columbia, had followed similar paths, with some interesting features worth noting:

 Like Utah, Connecticut has a governing board chaired by the lieutenant governor.136

 Colorado,137 Connecticut138 and Nevada139 allow for direct appointments to their Exchange boards by legislative leaders.

board” that cannot be “made up of a majority of voting representatives with a conflict of interest, including representatives of health insurance issuers or agents or brokers, or any other individual licensed to sell health insurance[.]” 45 C.F.R. § 155.110(c)(3) (2012). It must allow for regular public meetings announced in advance and consist of at least one consumer representative. See id. A congressional report cited Utah as “[a]n example of a minimalist health insurance exchange[.]” Bernadette Fernandez & Annie L. Mach, CONG. RESEARCH SERV., R42663, HEALTH INSURANCE EXCHANGES UNDER THE PATIENT PROTECTION AND AFFORDABLE CARE ACT (ACA) (Jan. 31, 2013). 132. 45 C.F.R. § 155.150(a) (2013). Indeed, Utah’s Avenue H has been conditionally-approved. See Letter from Kathleen Sebelius, Secr’y, U.S. Dep’t of Health & Hum. Services, to Gary R. Herbert, Governor of Utah (Jan. 3, 2013), http://cciio.cms.gov/resources/files/ut-blueprint-exchange-letter-01-03-2013.pdf. 133. See Health Insurance—Patient Protection and Affordable Care Act, ch. 655, Cal. Sess. Laws (2009-10); Health Insurance—California Health Benefit Exchange— Requirements, ch. 659, Cal. Sess. Laws (2009-10). 134. Id. 135. See id. 136. See Press Release, Office of Conn. Lieutenant Governor Nancy Wyman, Members of Conn. Health Ins. Exchange Announced (Aug. 25, 2011), available at http://www.ltgovernor.ct.gov/wyman/cwp/view.asp?A=4029&Q=485090. 137. See COLO. REV. STAT. § 10-22-105(1)(a) (2012). 138. See CONN. GEN. STAT. § 38a-1081 (2012). WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

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 Colorado allows removal of Exchange board members for “cause” by the person appointing that member—with cause undefined.140

 Three states have state agency heads answerable to governors serving on their Exchange boards as voting members: Connecticut (three),141 Hawaii (four),142 and Maryland (three).143

 While small in geographical size, Hawaii has what is easily the largest governing board of any state Exchange, with fifteen members to “reflect geographic diversity and the diverse interests of stakeholders[.]”144

 Progressive Oregon’s law is perhaps surprising for allowing as many members (two) who work in the health care industry, or work for insurers, to serve on its Exchange board as those representing consumers.145

 Connecticut,146 the District of Columbia, and Maryland147 bar anyone tied to the insurance industry from membership on their boards, with both Connecticut148 and D.C.149 barring members from taking jobs with insurers for a year after

139. See NEV. REV. STAT. § 695I.300 (2011). 140. See COLO. REV. STAT. § 10-22-105(1)(a) (2012). 141. CONN. GEN. STAT. § 38a-1081(b)(1)(H) (2012). 142. See HAW. REV. STAT. § 435H-4(b) (2005, Supp. 2011). 143. See MD. CODE. ANN. § 31-104(b)(1)-(3) (LexisNexis 2011). 144. See HAW. REV. STAT. § 435H-4(a)-(b) (2005, Supp. 2011). 145. See OR. REV. STAT. § 741.025(5) (2012). No member could vote upon an issue producing a private financial gain or loss. See OR. REV. STAT. § 741.027(4) (2012). However, Oregon consumer groups were very critical of the fact that insurers could serve on the Exchange’s board, with one column by AARP-Oregon and the Oregon Public Interest Research Group stating: It lets the foxes into the henhouse by allowing insurance companies on the exchange board . . . . The exchange is a purchasing strategy. The idea is to pool buying power and improve choices for those with little or no leverage on their own. Putting the seller on the purchasing board is ludicrous. Laura Etherton & Rick Bennett, Consumers deserve a better health insurance exchange, BLUEOREGON (April 25, 2011), http://www.blueoregon.com/2011/04/consumers-deserve- better-health-insurance-exchange/. 146. See CONN. GEN. STAT. § 38a-1081(b)(2)(A)-(C) (2012). 147. See MD. CODE ANN. § 31-104(d)(2)(i)-(iii) (West 2012). 148. See CONN. GEN. STAT. § 38a-1081(c)(9) (2012). 149. See D.C. CODE § 31-3171.10(b) (2012). WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

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leaving their boards.150 The D.C. conflict-of-interest law is the strictest, as it bars both board members and Exchange staff from affiliation with health professional or health care facilities or clinics, and applies the prohibition on accepting employment with an insurance carrier within one year after leaving service to Exchange staff as well.151 Vermont stands out for having enacted a law providing for universal single- payer “Green Mountain Care,” with the Vermont Health Benefit Exchange to serve as its foundation.152 This is predicated upon the granting of a federal waiver.153 The board is appointed by the governor, and is unique among Exchange governing bodies in that its members are fully-salaried.154

Three states, Kentucky, New York and Rhode Island, have governors who sidestepped recalcitrant legislatures through Exchange-creating executive orders,155 while Mississippi’s elected insurance commissioner tried to create his state’s Exchange.156 Kentucky’s Democratic Governor Steve Beshear, in a state where Senate Republican Leader Mitch McConnell and Tea Party champion Rand Paul are

150. However, Connecticut’s exchange board drew criticism for boasting three former health insurer executives. See Ariel Levin Becker, Advocates ask HHS to intervene in exchange board composition, CT MIRROR (Nov. 30, 2011), available at www.ctmirror.org/node/14654. 151. See D.C. CODE § 31-3171.10(a)-(b) (2012). In contrast, federal regulatory oversight of this program has featured a revolving door with industry. The initial federal head of exchange oversight was Joel Ario, now a managing director of Manatt Health Solutions’ lobbying practice. See Manatt Adds Former Federal HHS Director to National Healthcare Practice, REUTERS (Nov. 29, 2011), http://www.reuters.com/article/ 2011/11/29/idUS156022+29-Nov-2011+BW20111129. The second head was Steve Larsen, who left to become a UnitedHealth vice president. See J. Lester Fedder, HHS official’s exit stirs speculation, POLITICO (June 17, 2012), www.politico.com/news/stories/0612/ 77511.html 152. See VT. STAT. ANN. tit. 33, § 1801(a) (LexisNexis Supp. 2012); id. at § 1821. 153. See id. at § 1822(a)(1). 154. See VT. STAT. ANN. tit. 18, § 9374 (2012). 155. Exec. Order No. 2012-587, Office of Ky. Governor Steven L. Beshear (July 17, 2012), available at http://apps.sos.ky.gov/Executive/Journal/execjournalimages/2012-MISC- 2012-0587-222943.pdf; Press Release, Office of N.Y. Governor Andrew Cuomo, Governor Cuomo Issues Executive Order Establishing Statewide Health Exch. (Apr. 12, 2012) (contains text of order), available at http://www.governor.ny.gov/press/04122012-EO-42; Exec. Order No. 11-09, Office of R.I. Governor Lincoln D. Chafee (Sept. 19, 2011), available at http://www.governor.ri.gov/documents/executiveorders/2011/Executive_ Order_11-09.pdf. 156. See Miss. Ins. Dept., Bulletin 2011-9, Oct. 18, 2011 (as amended Jan. 25, 2012), http://www.mid.ms.gov/bulletins/20119bul.pdf. WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

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U.S. senators, established his state’s Exchange squarely within his Cabinet for Health and Family Services, with an executive director chosen by the governor. 157 It is one of two state Exchanges (the other is New York’s) with no governing board, but rather an advisory board chosen by the governor.158 Mississippi hedged its bets. After commissioning a report by Leavitt Partners,159 it created an Exchange Advisory Board by a late-2011 order of its elected insurance commissioner, Mike Chaney.160 Chaney’s office worked to develop an Exchange to be implemented only following the 2012 election (if President Obama won), even as Mississippi sued to try to overturn the ACA.161 Yet the Obama Administration disallowed the Exchange because of a dispute between the insurance commissioner and the governor, both Republicans, on moving ahead—with the governor refusing to cooperate.162 With a Democratic governor and a liberal reputation, New York was conspicuous among states with legislatures that had not acted. Governor Andrew Cuomo created an Exchange by executive order in April 2012.163 However, Governor Cuomo’s order lacked organizational specifics—including

157. Exec. Order No. 2012-587, Office of Ky. Governor Steven L. Beshear (July 17, 2012), available at http://apps.sos.ky.gov/Executive/Journal/execjournalimages/2012-MISC- 2012-0587-222943.pdf 158. See id. 159. See LEAVITT PARTNERS, PREPARING FOR THE MISSISSIPPI HEALTH BENEFIT EXCHANGE: FINAL REPORT, 563 (Sept. 27, 2011), available at http://www.mid.ms.gov/ pdf/Health_Benefit_Exchange_Final_Report.pdf. Leavitt Partners is run by Mike Leavitt, former Republican governor of Utah and secretary of Health & Human Services under President George Bush, Jr. 160. See Miss. Ins. Dept., Bulletin 2011-9, Oct. 18, 2011 (as amended Jan. 25, 2012), http://www.mid.ms.gov/bulletins/20119bul.pdf. 161. See Nat’l Fed’n of Indep. Bus. vs. Sebelius, 132 S. Ct. 2566, 2580 (2012); see also Anna Yukhananov, U.S. state officials in stealth mode on health exchanges, REUTERS (Sept. 16, 2012), available at http://www.reuters.com/article/2012/09/16/us-usa-health- states-exchanges-idUSBRE88F07G20120916 (of the conservative blowback against his efforts Mississippi Insurance Commissioner Mike Chaney states, “If you’d ever been to a picnic, and found out you were the main course, that’s what happened”). 162. Abby Goodnaugh, Mississippi: State Health Exchange is Disallowed, N.Y. TIMES, Feb. 9, 2013, at A12. 163. See Press Release, Office of N.Y. Governor Andrew Cuomo, Governor Cuomo Issues Executive Order Establishing Statewide Health Exch. (Apr. 12, 2012) (contains text of order), available at http://www.governor.ny.gov/press/04122012-EO-42; see also Thomas Kaplan, Cuomo Acts to Advance Health Law in New York, N.Y. TIMES, Apr. 12, 2012, http://www.nytimes.com/2012/04/13/nyregion/cuomo-orders-health-insurance-exchange-in- new-york.html?_r=0 WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

2012/13] A BETTER “EXCHANGE”: HEALTH CARE CONTROL 621 a board—making it clear that the order, on its face, was an initially perfunctory effort to comply with the federal deadline.164 After the Rhode Island General Assembly failed to act on Exchange legislation, Governor Lincoln Chafee unilaterally established an Exchange through a September 2011 executive order, appointing nine members to serve alongside four members of his administration (including the nation’s only health insurance commissioner).165 As 2013 began, states on the bubble included Idaho, Minnesota and New Mexico. After public agonizing, and despite a Legislature that had already rejected federal exchange planning money,166 Republican Governor “Butch” Otter of Idaho narrowly beat (by three days) the December 2012 deadline by announcing his state would run its own exchange.167 A rally against it was immediately scheduled the next day, and legislative action still required.168 Minnesota, with a Democratic governor, was stymied by Republican legislative majorities in moving forward on an Exchange. With progressive majorities

164. This fact is openly acknowledged in the order. See id. (“WHEREAS, a state that chooses to operate its own Exchange must demonstrate to the federal government, by January 1, 2013, that its Exchange will be able to begin accepting applications by October 1, 2013, and will be operational by January 1, 2014, and if the state does not demonstrate operational readiness of its own Exchange, its residents will be required to participate in a federal Exchange.”). 165. See Exec. Order No. 11-09, Office of R.I. Governor Lincoln D. Chafee (Sept. 19, 2011), available at http://www.governor.ri.gov/documents/executiveorders/2011/ Executive_Order_11-09.pdf. 166. See IDAHO HOUSE BILL 298 (2011) (vetoed by governor), available at http://legislature.idaho.gov/legislation/2011/H0298.htm; Dustin Hurst, House wants no part of health care reform grant money, IDAHO REPORTER.COM, Mar. 25, 2011, http://www.idahoreporter.com/2011/house-wants-no-part-of-health-care-reform-grant- money/. 167. Press Release, Office of Idaho Governor C.L. “Butch” Otter, Governor Opts for State-Based Exch.; Legislature Still Must Weigh in on Health Insurance Issue (Dec. 11, 2012), available at http://gov.idaho.gov/mediacenter/press/pr2012/12Dec/pr_64.html. 168. Dan Popkey, Foes of Otter-backed Idaho health exchange to protest on Capitol steps Thursday, IDAHO STATESMAN, Dec. 12, 2012, http://voices.idaho statesman.com/2012/12/12/idahopolitics/foes_otterbacked_idaho_health_exchange_protest_ capitol_steps_thu#storylink=cpy; see also Editorial: Idaho health care exchange foes must face reality, SPOKESMAN-REVIEW, Feb. 9, 2013, http://www.spokesman.com/stories/2013/feb /09/editorial-idaho-health-care-exchange-foes-must/ (Taking note of an 8-1 Idaho Senate committee vote in favor of setting up an Exchange, and stating: “The quixotic battle against the Affordable Care Act continues in the Idaho Legislature, but at least more legislators have stopped tilting at windmills. That counts for progress in a state that has shown a willingness to pluck dollars from taxpayers to replenish broken lances.”). WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

622 GONZAGA LAW REVIEW [Vol. 48:3 incoming in 2013,169 Minnesota was hoping to get its own Exchange operational with an initial federal blessing despite serious timing concerns that included the fact that $39 million in federal grant monies were not applied for until after the 2012 election.170 The Republican governor of New Mexico, Susan Martinez, waited until after the 2012 election to announce a state-based Exchange, having previously vetoed legislation to establish one, and announced it would be administered by an existing nonprofit public corporation—the New Mexico Health Insurance Alliance.171 This proposal was modified by Democratic legislative majorities.172

V. THE ROCKY ROAD AHEAD FOR EXCHANGES

It remains to be seen how many states will follow the example of Washington and other states in setting up their own Exchanges. Too many states appear inclined to play “chicken” with the federal government on the implementation of health care reform. Further, even those states that are compliant face formidable challenges in adjusting their insurance markets to new rules and developing information technology infrastructures.173

169. See News Release, Minn. Legislature, Rep. Atkins, Sen. Lourey Introduce Health Ins. Exch. Legislation (Jan. 9, 2013) (citing bipartisan support), available at http://mn.gov/hix/images/NEWS-2013-01-09-HIX-legislation.pdf. 170. See Letter from Kathleen Sebelius, Secr’y, U.S. Dep’t of Health & Hum. Services, to Mark Dayton, Governor of Minn. (Dec. 20, 2012), http://cciio.cms.gov/resources/files/mn-blueprint-exchange-letter-12-20-2012.pdf; see also James Nord, Minnesota’s health exchange process gets conditional approval from feds, MINN. POST, Dec. 20, 2012, http://www.minnpost.com/politics-policy/2012/12/minnesota-s- health-exchange-process-gets-conditional-approval-feds. 171. See Letter from Susana Martinez, Governor of N.M., to Kathleen Sebelius, Sec. of the U.S. Dep’t of Health & Hum. Servs. (Dec. 13, 2012), available at http://cciio.cms.gov/Archive/Technical-Implementation-Letters/nm-declaration-letter.pdf; see also Barry Massey, New Mexico moves ahead with health exchange, ASSOCIATED PRESS, Nov. 15, 2012, http://www.cbsnews.com/8301-505245_162-57550339/new-mexico-moves- ahead-with-health-exchange/. 172. See Logan Bayan, Health insurance exchange moves a step forward in New Mexico, INS. NEWS. REP. (March 15, 2013), http://www.liveinsurancenews.com/health- insurance-exchange-moves-a-step-forward-in-new-mexico/8521073/. 173. Consider California, which is beset by budget problems while also trying to keep its eye on the prize in developing an Exchange larger than any other. See Abby Goodnaugh, California Tries to Guide the Way on Health Law, N.Y. TIMES, Sept. 14, 2012 (Concerning Diana S. Dooley, the state’s Health and Human Services secretary, the Times writes, “Ms. Dooley said getting the enrollment system up and running in such a tight time frame was one of her biggest worries. The other, she said, was making sure the health plans sold through the exchange were affordable.”). WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

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Federal policy does not favor outliers. The ACA is that rare federal law where compliance is the exception not the norm, which shifts the federal government’s normative focus to accommodating the vast majority of the states where it will assist, or wholly manage, Exchange markets. The federal government lacks regulatory experience concerning health care beyond Medicare and Medicaid. It seems highly possible that the federal government’s preoccupation with its own role may, paradoxically, disadvantage those states working to implement the ACA by moving ahead with their own Exchanges. Given delays in federal guidance, quite apart from continuing state policy foment,174 a big question will be whether state-regulated Exchanges will even be able to approve plans in time for the October 2013 enrollment. By February 2013, the nonpartisan Congressional Budget Office had begun to express a new pessimism about the ACA, reducing by five million the number of Americans expected to gain insurance by 2017 and voicing concern about “the readiness of exchanges to provide a broad array of new insurance options[.]”175 In a move hardly reassuring to those concerned about the tenuousness of health care reform, the Obama Administration itself—without forewarning— negotiated away, in a January 2013 “fiscal cliff” deal with Congress, the funding of a program aimed at increasing competition, and fostering new nonprofit choices in health care, through what would be called Consumer Operated and Oriented Plans.176 Will the certain adversity that will accompany market changes in 2014 cause policymakers to blink?

174. The 2013 legislative agenda for Washington’s largest business group, the Association of Washington Business, berated state legislators for having taken actions to implement the ACA that “exceed Congressional intent” and called for rolling those actions back; legislative vetting of all consumer protection decisions of the OIC; effectively gutting the Exchange’s viability by allowing catastrophic plans to be offered outside it; and asked legislators to “facilitate the purchase of health coverage across state lines” (which would place Washington-regulated insurers at a disadvantage). See Ass’n of Wash. Bus. 2013-2014 Legislative Agenda: Health Care, http://www.awb.org/docs/2013LOs/2013_Leg_ObJect.pdf. (last accessed Feb. 7, 2013). 175. See The Budget & Economic Outlook: Fiscal Years 2013 to 2023, CONGRESSIONAL BUDGET OFFICE, at 59 (Feb. 2013), http://www.cbo.gov/sites/ default/files/cbofiles/attachments/43907-BudgetOutlook.pdf. 176. See American Taxpayer Relief Act of 2012, Pub. L. No. 112–240, § 644, 126 Stat. 2313 (codified as amended at 42 U.S.C. § 18042); see also Sarah Kliff, In ‘fiscal cliff’ deal, a blow to Obamacare, WASH. POST, Jan. 15, 2013, http://www. washingtonpost.com/blogs/wonkblog/wp/2013/01/15/co-ops-were-supposed-to-replace-the- public-option-now-they-are-dead/. Regrettably, in an aging society, the one provision of the ACA that spoke to long-term care funding was also repealed – the Community Living Assistance Services and Supports Act (CLASS). See American Taxpayer Relief Act of 2012, WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

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Critical may be the success of Exchanges in reaching out to the vast majority of businesses that are small enough to not be affected by employer penalties but, instead, would benefit from ACA subsidies that are up to half of an employer’s contribution toward health care premiums.177 An inauspicious start to the 2014 reforms could create the specter of consumers beset with an unpopular mandate while being unable to fully enjoy the benefits promised through exchanges. Further, confusion or delays would only add to conservative criticism that government lacks the competence to play this new role in the health care market.178 If the private insurance market

Pub. L. 112–240, § 642, 126 Stat. at 2313 (codified as amended at 42 U.S.C. § 300(ll)). CLASS, creating a long-term care benefit through a voluntary payroll reduction, was deemed actuarially-unfeasible by the Obama Administration. See The Community Living Assistance Services and Supports Act (CLASS): Hearing Before the H. Comm. On Energy and Com., Subcomm. on Oversight and Investigation, Subcomm. on Health 112th Cong. (2011), http://www.hhs.gov/asl/testify/2011/10/t20111026a.html (statement of Sherry Glied, Assistant Secr’y for Planning and Evaluation, U.S. Dep’t of Health and Hum. Servs.) (Declaring Administration’s intent to not go forward with CLASS, but noting: “Few private mechanisms are available to help people plan ahead to pay for their future care. Long-term care insurance, by far the most popular private option available, can be costly and difficult to purchase, particularly for those with pre-existing health conditions or disabilities. Less than three percent of Americans currently have a long-term care policy.”). The failure to confront this issue will exacerbate state funding problems associated with Medicaid. Furthermore, long-term care facilities already underfunded on their Medicaid costs will either have to provide health insurance, for which the Medicaid share-of-cost may not be forthcoming, or face the employer penalty. In the State of Washington, for example, nursing home Medicaid cost reimbursement is based upon 2007 costs. See WASH. REV. CODE § 74.46.431 (2012). 177. See THE HENRY J. KAISER FAMILY FOUNDATION, EXPLAINING HEALTH CARE REFORM: HOW WILL THE AFFORDABLE CARE ACT AFFECT SMALL BUSINESSES AND THEIR EMPLOYEES (JAN. 2012), available at http://www.kff.org/healthreform/upload/8275.pdf. 178. Actually, government is a far more efficient deliverer of health care than the private sector–Medicare operates at a 2% overhead margin while privately-offered Medicare Advantage plans operate at 11%. See Barbara Boxer says Medicare overhead is far lower than private insurers’ overhead, Tampa Bay Times, May 31, 2011, http://www.politifact.com/truth-o-meter/statements/2011/may/30/barbara-boxer/barbara- boxer-says-medicare-overhead-far-lower-pri/. The ACA requires private insurance plans to operate at a medical loss ratio of 80-85% (i.e., as much as 20% of premiums may go toward costs other than medical care). See Medical Loss Ratio, The Center for Consumer Information and Insurance Oversight, http://cciio.cms.gov/programs/marketreforms/mlr/ index.html. Much of the complexity of health care reform could have been avoided by a “Medicare for all” single-payer model. As one progressive commentator notes: “Democrats threw themselves into the arms of their corporate allies. They jettisoned the simpler, more popular, but more government-centric idea under consideration and settled on the ‘individual mandate,’ which required that everyone in the land sign up with a private insurance company. This solution would be more intrusive than the other one, more complicated, more regulatory.” Frank, supra note 86, at 173 (2012). Conversely, by the close of 2012 some conservative voices had begun to fear that by rejecting Exchanges Republican states WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

2012/13] A BETTER “EXCHANGE”: HEALTH CARE CONTROL 625 is to be utilized, its excesses must be controlled in exchange for the government-facilitated bounty of newly-insured. Rather than be passive clearinghouses for insurance purchases, Exchanges should be active purchasers of insurance to use their leverage to drive better prices for consumers. Complicating any cost-control objectives, March 2013 brought with it the concession from the Obama Administration that Medicaid expansion dollars could be used by expansion-adverse states to instead subsidize private insurance purchases through Exchanges.179 It was possible to look at this further taxpayer gift to the private insurance industry as being almost a cruel parody of a public option—those ideologically objecting to government paying health care providers for care were apparently comfortable with government paying an intermediary, a private insurer, which, in turn, would pay health care providers for care after extracting its own costs. For accountability and administrative efficiency, as little should be outsourced as is practicable. Indeed, for those same reasons, responsibility for success or failure should rest with an elected official—not simply an unelected board. Establishing Exchanges as private entities serves little purpose other than avoiding civil service and procurement laws. Even if one views those ends as desirable, the downside is unaccountability. Although governing boards can serve a useful function in bringing different perspectives to decision-making, and could still be utilized, Exchanges should perhaps be gubernatorial cabinet agencies to ensure that one identifiable actor is held responsible for the success or failure of their important work. Moreover, strict ethical requirements comparable to the District of Columbia’s should be adopted to ensure there is no appearance of Exchange decisions being guided by considerations of future gain on the part of board members or staff.180 were playing right into the hands of those wanting federally-run health care. See N.C. Aizenman, GOP state leaders fumble by ceding control of health exchanges to federal officials, critics say, Wash. Post, Dec. 13, 2012, http://articles.washingtonpost.com/2012-12- 13/national/35812833_1_insurance-exchanges-state-control-federal-government. 179. Robert Pear, White House Urges States to Expand Medicaid by Subsidizing Private Insurance, N.Y. TIMES, March 21, 2013, http://www.nytimes.com/ 2013/03/22/us/politics/states-urged-to-expand-medicaid-with-private-insurance.html?page wanted=all&_r=0. In April 2013 – in what one publication called one of the insurance industry’s “greatest political victories in recent memory” – the Obama Administration rescinded planned ACA savings for 2014 by turning a planned 2.3% cut to Medicare Advantage insurers into a 3.3% increase worth billions of dollars. Brett Norman & Jennifer Haberkorn, CMS reverses course on cuts, POLITICO (April 3, 213, 4:49 AM), http://www.politico.com/story/2013/04/insurance-medicare-advantage-cuts-health-care- 89569.html. If the federal government is not willing to control insurers’ costs even when it is a direct payer, and need not go through the legislative process to do so, it suggests there is no courage to act upon the ACA’s cost-saving convictions. 180. See D.C. CODE § 31-3171.05 (2001, Supp. 2012). WILLIAMS (DO NOT DELETE) 6/3/2013 10:07 AM

626 GONZAGA LAW REVIEW [Vol. 48:3

VI. CONCLUSION

In conclusion, given the massive infrastructural changes incurred by health care providers and insurers as a result of the ACA, quite apart from the political capital expended, retreat seems unfeasible. At a minimum the ACA is a bridge to a changed health care world, if not a world that looks exactly as is envisioned by the ACA. Exchanges, whether state-run or federally-facilitated, will represent an unprecedented experiment, and investment, in reshaping a vital part of our economy. It remains to be seen whether all of this is too big to fail, to borrow a popular expression from the 2008 banking crisis. The well- being of millions of Americans, quite apart from the federal budget and the U.S. economy, hangs in the balance.