Lawmakers may move on setting up health insurance exchanges

By Jamey Dunn

As lawmakers return to the Statehouse next week to consider several headline grabbing issues, they also may take up legislation that would affect the lives of the millions of Illinoisans living without health insurance.

Under the federal health care reform law, states can either join the federal health insurance exchange — a competitive marketplace for insurance that is intended to drive down costs — or they can create their own exchanges. Lawmakers in Illinois have opted for the latter, but some say they must make a move during the  veto session to ensure that the state fulfills the timeline set out by the feds.

Illinois must submit its plan for an online health insurance exchange to the federal government for approval by December 2012. If the state misses that deadline, it also loses the opportunity to tailor its own exchange. “It is our feeling that an Illinois-run exchange will offer the state more local control,” said Michael Gelder, senior health policy adviser for Gov. Pat Quinn. Gelder said a local exchange would allow decisions about enrollment, eligibility and other issues to remain at the state level.

About 1.7 million of the 11.2 million Illinoisans under 65 are uninsured — or about 15 percent of that age group. Quinn’s office estimates that about 900,000 of those people would purchase insurance through the exchange by 2015. The federal government plans to help cover the costs of those buying on the exchange who cannot afford insurance on their own. An estimated 1.4 million would be insured through the exchange by 2020. “A million people who will who get health insurance coverage in the state of Illinois. That is a terrific thing,if we get it all done right,” Gelder said during a recent hearing on the exchange.

But to get to that goal, he said there is still much to be done. “Many people …think of the exchange as, ‘Well, it’s just getting an Internet site up so that people can sign up.’ … But the fact is, it’s a whole series of tasks, each one of which has a certain degree of complexity associated with it. All of these have to be done in a very short time.”

The first two tasks some lawmakers are looking to tackle during the veto session are deciding how the board that oversees the exchange is chosen and how the exchange will be funded after federal money to administer it dries up in 2015.

The state must demonstrate progress on the plan by March to get in on the first round of so-called phase two federal grants. Illinois already received about $5 million in phase one funds for research. “Most other states who have received their phase one establishment funding have legislation passed,” Gelder said.

Jim Duffett, executive director of the Campaign for Better Health Care, estimated that the next level of grants could bring up to $30 million to cover technology costs and pay new staff to work on the exchange. “It could be a lot of money to really begin to put in the infrastructure that needs to happen,” he said. “I see level one money as really digging the basement and beginning to put up the foundation. … The level two money is really [needed to begin] building the house.”

But the issues of governance and funding are not without controversy. Health care advocates and the Quinn administration oppose allowing members of the insurance industry to sit on the governing board because they stand to profit from the exchange. They also oppose legislators serving on the board because they say every effort should be made to keep politics out of the exchange. “This new marketplace is going to be very beneficial to the insurance companies. They want to be the fox that guards the chicken coop,” Duffett said. He said the board should be similar to the Illinois Commerce Commission, which oversees utility companies and decides whether they can increase rates for consumers. “We wanted to make sure on the board that nobody serving would have a vested financial interest in the outcome of their votes,” Gelder said.

However, industry representatives say the board needs their professional expertise. “To suggest that insurance expertise should be prohibited on the board, as some have…we believe is analogous to suggesting that an aeronautical engineer should be prohibited form serving on the board of Boeing Aircraft,” said Phil Lackman, Illinois vice president of government relations for the National Association of Insurance and Financial Advisors “Everyone has a potential conflict. The key is not having a lopsided board because all interests are relevant and they’re all very valuable.” Lackman suggested to a legislative committee that has been holding hearings on the issue in recent months that a nine- to 13-member board should have two members from the industry, one agent and one representative of an insurance company. That way, they could provide institutional knowledge but not band together to create a majority.

Gelder and some legislators support the idea of allowing the board to create advisory committees so that members could draw on other sources, such as industry insiders, consumer groups and lawmakers, for information.

Duffet said insurance companies should foot the bill when the federal government stops paying to administer the exchange. He said of the price tag, which is estimated at up to $89 million, “This is a spit in the bucket for them.” Gelder said everyone who buys insurance in the state should pay a small fee to subsidize the exchange.

Brian Imus, director of the Illinois Public Interest Research Group, agrees that all insurance buyers chipping in would be a fair deal because he said the exchange will make the market better for everyone, even those who purchase policies through more traditional means. “Everyone is going to benefit from the exchange program. There are going to be more choices in Illinois.”

Another issue that must be resolved is how the exchange will work. It can be an open marketplace where sellers compete for customers, or the board could be given the power to negotiate with insurers to try to get lower rates for customers. While Duffett, Imus and several good-government organizations favor allowing the board to negotiate, Quinn’s administration is undecided on the issue.

Duffett said there is still time to sort that out, and he hopes that lawmakers do not vote in the coming weeks to close the door on the potential for the board to negotiate. “Definitely the insurance industry wants nothing to do with that at all, and many legislators don’t either,” he said. “That should not be on the table during the veto session, but you know it might get snuck in there.”

Some lawmakers disagree that there is an urgent need to pass legislation. “There’s a lot more information that needs to be gained before we can even think about making recommendation or before the legislature can consider any action,” said Sen. Bill Brady, who served on the committee that took up the issue during the legislature’s summer break. “There are a number of things that the federal government has to define for us to really know what we are in for.”

The United States Supreme Court is slated to decide on the constitutionality of the new federal health care law — specifically the requirement that all individuals have health insurance — and Brady said he would like to wait and see how it rules. “There’s a court case that may challenge the whole nature of this, and it may be determined before the end of next legislative session.”

Imus said Brady and other Republicans calling for more time are simply stalling to put off the implementation of policy they do not support. “Regardless of what happens at the national level, creating a health exchange is the right thing to do in Illinois,” he said.

Gelder said the state has to get moving because insurance companies need time to develop the plans they will offer in the exchange. “The insurance companies asked for 18 months of lead time so they can have a product ready to sell on the exchange.” Open enrollment for such plans is scheduled to begin in October 2013. He said passing a bill that sets out the guidelines for the board and funding would only create the bare bones of the plan, and there will be plenty of flexibility to tweak things down the road. Gelder said the board itself would make the final decisions on many of the details of the exchange. “We need the money as soon as possible so we can plan the exchange so that it is functional in order to be approved by the federal government.”

He added, “December 2012 is like tomorrow.”