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Indiana officials blast feds for 'over-regulation' on reform

November 1, 2011

In a prickly Halloween response to proposed federal rules on health-insurance exchanges, Indiana officials said the regulations are more trick than treat.

Michael Gargano, secretary of the Indiana Family and Social Services Administration, blasted the rules for containing “glaring omissions” as well as creating new and unfunded “mandates” not included in the 2010 health reform law that called for the creation of the online marketplaces.

“In many respects, the breadth of the proposed regulations appears to be HHS' attempt to enforce an unfunded mandate,” wrote Gargano, referring to the U.S. Department of Health and Human Services, which is writing the new rules. “The extent of the regulation is unwarranted, unnecessary and potentially damaging to any effort to develop an efficient and cost-effective Exchange.”

Gargano’s letter, addressed to HHS Secretary Kathleen Sebelius, is the latest example of Gov. Mitch Daniels and his administration criticizing the health reform law, which is called the Patient Protection and Affordable Care Act. Daniels himself has loudly and repeatedly criticized the law and its implementation, including through op-ed columns in the Wall Street Journal.

“Our federal overlords have ruled,” Daniels wrote in the newspaper three days after President Obama signed the law. “We better start adjusting to our new status as good Europeans.”

In January 2011, Daniels issued an executive order to study whether Indiana should operate a health insurance exchange or whether it should simply join a federal exchange that HHS will establish. The Affordable Care Act provides federal funding to help states operate exchanges for two years—in 2014 and 2015—but the funding stops after that.

Gargano, who oversees the state agency spearheading Indiana’s response to the law, especially bristled at proposed rules that would extend beyond federal funding of the exchanges.

“Indiana questions what enforcement authority HHS maintains over state-based Exchanges after 2015 when there will be no continued federal funds to support Exchange operations,” Gargano wrote in response to an HHS proposed rule that significant changes to the exchanges after 2015 first receive HHS approval. “If HHS intends to retain approval rights after 2015, then this legislative mandate must be funded.”

In 32 pages of examples, Gargano repeatedly points to provisions in the proposed rules that he finds overly prescriptive and that he says will drive up costs for Indiana and other states.

He ticks off 18 separate provisions that, he says, are regulations not called for in the Affordable Care Act.

“The purpose of regulations are to clarify and carry out existing statutes, as opposed to creating additional, undefined requirements,” Gargano lectured Sebelius. He added, “Every additional requirement imposed on state-based Exchanges will increase costs to operate the Exchanges and, ultimately, the costs for consumers and for publicly funded insurance affordability programs.”

One of his loudest objections is to a provision that would require states to use state employees to determine the eligibility of applicants to the Indiana Medicaid program. Instead, Indiana wants to use contractors, who would be cheaper because they are not paid benefits and also could be signed on for the burst of activity that would come during a proposed annual enrollment period.

Gargano estimates that the state would save as much as $1.6 million a year by using contract workers instead of adding employees to the state payroll.

Determining Medicaid eligibility is a key part of the Affordable Care Act—and a key point of Daniels’ criticisms. The law requires all states to expand Medicaid eligibility up to 133 percent of the federal poverty limit—or about $30,000 per year—for a family of four.

Currently, Indiana’s eligibility levels are at or above that level for children. But for adults, only those with incomes up to 25 percent of the federal poverty limit—or about $5,800 for a family of four—qualify for Medicaid.

The local office of Seattle-based actuarial firm Milliman Inc. has estimated the Medicaid expansion would add 500,000 Hoosiers to the program, on top of the 1 million currently enrolled, and cost the state an extra $135 million to $185 million per year—after the expansion is funded the first two years by the federal government.

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