Governor asks feds for more state control of health insurance exchange

Gov. Asa Hutchinson has asked the federal Department of Health and Human Services to let the state take responsibility for the federally operated health insurance exchange after Hutchinson last year paused the development of the state’s own technology.

In a letter to HHS Secretary Sylvia Burwell dated May 24, Hutchinson said he had determined that the state should pursue a state-based exchange on the federal platform – a designation known as SBE-FP – effective for 2017. Arkansas would not be creating its own exchange. However, the move would give the state more flexibility in using the federal system.

The exchange allows Arkansas individuals and small businesses with 2-50 employees to purchase health insurance and qualify for tax subsidies. It was established by Act 1500 of 2013. That law created the Arkansas Health Insurance Marketplace, or AHIM, a nonprofit corporation, to develop the system. The building of the exchange is being funded by a $99.9 million federal grant.

Hutchinson had informed Burwell in a letter dated Sep. 24, 2015, that he had asked AHIM’s board of directors to pause their efforts on developing the technology for a state-based exchange. Arkansas moved forward on its Small Business Health Options Program, or SHOP, for small businesses and now covers 248 people through 46 employers.

Under the governor’s proposed arrangement, the AHIM board would take responsibility for certifying plans for individual consumers while the state continues to use the federal system that is accessed at healthcare.gov.

Under that arrangement, insurers would no longer pay fees to the federal government equaling 3.5% of the premiums they collect. Arkansas would pay the equivalent of 1.5% of the premiums.

Meanwhile, AHIM’s board of directors will charge insurers an undetermined fee that will be set later this year, said Cheryl Smith Gardner, AHIM’s executive director.

“I can’t imagine a scenario in which it’s more than what the federal government has been charging,” she said. “In fact, both times when the board has made the recommendation for what the fee should be, it was lower by half a percent.”

Hutchinson’s spokesman, J.R. Davis, said the move will put the state in a better position as a new presidential administration comes into office and perhaps offers more flexibility – or, on the flip side, is less flexible.

Gardner said the change became possible because Arkansas was already legally designated as a state-based marketplace for more than a year. The federal Centers for Medicare & Medicaid Services had allowed states that had launched their own exchanges, which then failed, to pay a rate of only 1.5%.

During a pubic comment period, Arkansas officials said such a move created a perverse incentive for states to fail at creating an exchange. On Feb. 29, a new federal directive made the 1.5% rate a possibility, so Arkansas made the move.

Gardner said the change will allow Arkansas regulators to certify which insurance plans are sold in the state, rather than the federal government. However, it will not add any new duties that hadn’t already been planned. AHIM will be able to use the federal government’s technology with less regulations. And the lower taxes charged to insurance companies could draw new insurers to Arkansas, creating more competition.

“This was kind of a no-brainer. This was low-hanging fruit,” Gardner said.