Arizona Health Insurance Exchange

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ASU Professor Marjorie Baldwin, who teaches in the Economics Department for the W.P. Carey School of Business, explains the ramifications of Arizona’s decision not to create a State-run health insurance exchange under the Nation’s health reform law.

Ted Simons: The Governor's recent decision not to set up a state run health insurance exchange for Arizona means that the Federal Government will provide one for us, instead. Here to explain what that means for individuals and businesses wanting to purchase health insurance is professor Marjorie Baldwin, a health policy expert who teaches in the economics department at ASU's, WP Carey School of Business. Thank you for joining us.

Marjorie Baldwin: Glad to be here.

Ted Simons: There particular decision, what does it mean to businesses, and individuals? I get the impression a lot of folks don't know what the exchange is.

Marjorie Baldwin: The exchanges are going to be web-based marketplaces for health insurance. That can pick up the gaps in coverage for people who are not able to get their insurance through private insurance, their employer. Or a Federal program such as Medicaid or Medicare. And the fact that the state did not set up its own exchange means the Federal Government, as you said, will come in and set it up. It's unclear if the Federal Government will have the authority to penalize businesses, who don't opt in to providing insurance. For their employers. Any business with more than 50 employers is mandated by the law to provide insurance, or they face fines and penalties. If the state can't levy those, or if the Federal Government can't levy those fines and penalties, as the state would have been mandated to do, the employer mandate is weakened.

Ted Simons: I was going to say it, sounds like the mandate is weakened to the point not being effective.

Marjorie Baldwin: It could very well be, except that you can imagine that there are employers who have, have 50 to 100 employees who would like to provide health insurance as a benefit to their employees, have not been able to find it at an affordable rate because of the size, and they may still be able to do so in the exchange.

Ted Simons: Now, as far as what Arizona gains from not running the exchange, one could argue that small businesses could avoid that particular penalty. That sounds like litigation wait to get happen there. But, what else? Just the cost of running a state run exchange. Is the state saved from that, or not necessarily?

Marjorie Baldwin: Well, it's unclear. The law says that the Federal Government will cover the planning costs for the exchange. The establishment costs for the exchange. And operating costs for the first year. Through January 1st, 2015. After January 1st, 2015, the exchanges are supposed to be self-sustaining. That means they will take in enough in premiums to cover their costs. Probably the only safe bet in what's going to happen is it is going to cost more than expected because that's always what happened in health care. Presumably, if the state ran the exchange, and there were cost overruns it would be the state budget that had to pick it up. Presumably, it the Federal Government is running it, they will pick up the cost overruns.

Ted Simons: And this may be a dumb question here, but it sounds as though national program, a national risk pool, if you will, would be better certainly, bring lower costs and lower costs for citizens, than maybe a state-run. Isn't a bigger risk pool better?

Marjorie Baldwin: That's the whole idea of the exchanges, to pool individuals and small businesses who don't have a large enough base to get the, the discounts, and the, the lower premiums, that large employers can have. But, it's unclear if the Federal exchange is going to be a, Federal exchange, or if it's going it be state-based Federal exchanges for the various states that haven't signed on. In the regulations that have been put out, it says that the Federal Government will work with the state to tailor that state's exchange to the needs of the people in the state. But the extent to which that happens remains to be seen.

Ted Simons: As far as what Arizona loses with this particular decision, some would say no state regulation, no real control to create the exchange, but how much control would the state have had anyway.

Marjorie Baldwin: The big criticism of the Governor's decision has been that we lose control. But, it's, again, because the regulations haven't been finalized, it's unclear how much control we would have had. The law already specifies specific types of plans that and cannot be in exchanged. Specifies what must be covered in the benefits package. Specifies that there must be subsidized, subsidies for low income families. So, and this is just the law. As the regulations come out it will be further rules and regulations. So, I think that this was the big, the big point in Governor Brewer's letter, led the declining to create the exchange. But it's too unclear how much the state could control.

Ted Simons: And you had hospitals, business groups, and insurance companies, and they all wanted the state run choice. Why?

Marjorie Baldwin: Mostly for this reason that the state would have control.

Ted Simons: Ok.

Ted Simons:: So control.

Marjorie Baldwin: Assuming that --

Ted Simons: Even though no one knows how much they would have.

Marjorie Baldwon: Exactly.

Marjorie Baldwin: But, in the, the responses that I have read, from, from the Arizona hospital and health care association, although they favored a faith-based exchange, it said we understand why the Governor didn't go at it that way because of the uncertainty.

Ted Simons: Do we know what this decision means to funding for access for Medicaid?

Marjorie Baldwin: The funding for, for access, or Medicaid has to stay the same for, for the currently covered population. That was what that, that Supreme Court case decided. Originally, the, the legislation said that states had to expand their Medicaid coverage up to 133% of the poverty line. And that if they did not, they would lose the Federal cost-sharing, not only for those additional people, but for everybody covered now. The Supreme Court said that that was two onerous burden on the state. So, the state is not at risk of losing its current Medicaid funding and still may opt to expand coverage to 133% and get the Federal cost-sharing for that. So no, it does not affect that.

Ted Simons: Ok.

Ted Simons:: And that's a good point. The Governor said no, and it's no right now, may not be no year or two from now.

Marjorie Baldwin: And you know, this is a 2000-page law that we're just, as Nancy Pelosi said, we're just finding out what's in it when it's enacted. So how the exchanges are going to work or what Federal-state partnerships going to evolve or whether it may be turned over to the state, we don't know.

Ted Simons: Last question, could all -- this is a wild question -- but could all of this event lead to single payer system? Could this turn around and come back the other direction and become something that everyone says, forget about it? We want national health care?

Marjorie Baldwin: I suppose that that is a possibility. I think, though, that, that the Americans, while they might think we want national health care, I don't think that they would be particularly happy with that. If we had national health care, we're turning over a lot of decisions to the Federal Government. And Americans are not real comfortable with that. We like to be in control of our lives, and we are used to this Federal system of Government where much of the control over our lives comes not from a centralized authority, but from the state. If health care decisions about, about, you know, what kinds of services are going to be covered by insurance and available, to people, were made at the Federal Government level, I think that Americans might be unhappy with that.

Ted Simons: And thus the idea of the Feds running an exchange more palatable than the Feds running the whole shebang.

Marjorie Baldwin: Right because the insurance will still come from private insurance companies.

Ted Simons: All right. Very good. Good to have you here and thanks for joining us.

Marjorie Baldwin: Thanks for asking me.

Marjorie Baldwin:Professor of Economics, ASU W.P. Carey School of Business;

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