States received an extra month from the Obama administration to decide whether to build online marketplaces for medical insurance after Republican governors pressed their resistance to the president’s health-care law.
Extending a deadline set for Friday, U.S. Secretary of Health and Human Services Kathleen Sebelius said states can wait until Dec. 14 to declare whether they’ll build their own insurance exchanges. States that opt out can join a partnership with the federal government or let the U.S. run the markets.
About 9 million Americans are expected to enroll in exchange plans in 2014, rising to 26 million by 2018, according to the Congressional Budget Office. Restrictions in the new markets are expected to crimp profits for insurers like UnitedHealth Group Inc. and WellPoint Inc., so a delay may help the industry, said Ana Gupte, a Sanford C. Bernstein & Co. analyst in New York. Ultimately, insurers would prefer state-run exchanges, she said.
UnitedHealth, the biggest U.S. health insurer, is based in Minnetonka, Minn., and WellPoint, the No. 2 plan, in Indianapolis.
“The industry would prefer the more decentralized approach,” Gupte said. “The more states that rely on the federal fall-back, the less easy it is for the industry to secure any changes through lobbying. They’re much better at lobbying at the state level.”
Exchange regulators will decide which health plans are allowed to sell in the new marketplaces, whether they have to meet standards for coverage already set by the 2010 Affordable Care Act and other issues likely to have a direct impact on profitability for companies, Gupte said. Some states that have gone ahead with their own systems, such as California, plan to negotiate premiums on behalf of consumers, while others will take a “more laissez-fair approach,” she said.
The marketplaces are required under the 2010 overhaul to help people who don’t get insurance from their employer comply with the law’s requirement that they have coverage. Exchanges must open for business by Oct. 1 next year. Thirteen states and the District of Columbia so far have said they will build their own exchanges.
Sebelius, in a letter Thursday to Republican Governors Robert McDonnell of Virginia and Bobby Jindal of Louisiana, said her department has “worked closely with governors from across the country to gather their input.”
Nonetheless, she said states would have an extra month to file a letter of intent. Even beyond that, states have until Feb. 15 to join a hybrid state-federal exchange and will have opportunities in future years to start their own markets, Sebelius said.
“States have and will continue to be partners in implementing the health care law, and we are committed to providing states with the flexibility, resources and time they need,” she wrote.
Republican governors have revolted against the law since President Barack Obama’s re-election, with McDonnell, Indiana's Mike Pence, Kansas’ Sam Brownback and Alabama’s Robert Bentley declaring their states wouldn’t create exchanges. Governors in Texas and South Carolina said Thursday they’ll opt out as well.
“It is clear that putting in place the new programs you championed will be an enormous strain on state governments and budgets, as well as the federal government,” Jindal and McDonnell, the chairman of the Republican Governors Association, said in a Nov. 14 letter to Obama requesting a delay in the notification deadline.