WASHINGTON — The debate over whether the states or the federal government will have more clout in a proposed health insurance marketplace is escalating, and the outcome has big implications for consumers.
This issue is one of the key disputes in negotiations between leaders of the House of Representatives and the Senate as they meld their health care bills. The House, which would establish a national exchange run by the federal government, argues that setting a uniform program would help protect consumers. The Senate, which wants each state to create and run its own exchange, says that the states have more experience overseeing insurance plans and know their residents' needs better.
Health care analysts say the final decision is crucial to the choice of insurance plans that workers would receive, how much consumers would pay for coverage and how much clout regulators would have over policing insurers who behaved badly.
Backers of a national approach say that the cash-strapped states don't have the staff or structure to operate an insurance marketplace — called an exchange in the bills — that would cover millions of Americans. They also fear that the powerful lobbying efforts of insurers and drug interests seeking to weaken consumer protections could overwhelm state legislatures.
"The House approach to establishing a federal exchange where we can sort of build it right the first time ... is very important, as opposed to throwing up a jump ball and letting 50 states figure out all different ways how to make it work," said Karen Pollitz, a research professor at Georgetown University's Health Policy Institute.
Those who favor the Senate approach say that consumers would get better results calling their state regulators than trying to navigate a federal structure.
"State insurance regulators have a proven track record of swift and appropriate action to protect insurance consumers, while there is no evidence that a federal regulator could or would perform comparably," officials of the National Association of Insurance Commissioners wrote recently to House and Senate Democratic leaders.
For example, the commissioners say, weak federal oversight of the Medicare Advantage program has left consumers vulnerable to widespread marketing abuses.
The exchanges would offer individuals who don't have employer-sponsored health insurance and some small businesses a choice of health care plans, providing standardized information on areas such as benefits and cost, making it easier to shop for coverage.
The federal-state debate also has powerful political overtones. Liberal Democrats, angry that a government-run insurance plan, known as the public option, is all but certain to be omitted from the final bill, want the federal government to have as much power as possible over insurers.
"The liberals in the House are grasping for something that looks like a progressive victory," said Jonathan Oberlander, an associate professor of health policy at the University of North Carolina at Chapel Hill. "And the definition of what constitutes a progressive victory keeps narrowing from a strong public plan to a weak public plan to a Medicare buy-in to a national exchange."
The House health overhaul bill would establish a new federal agency, the Health Choices Administration, to oversee the exchange and to regulate the insurers who participate in it.
The House bill doesn't eliminate state oversight, however. It still would allow state governments to regulate many of the same areas, such as making sure that health plans meet coverage standards outlined in the bill, following appeals processes on coverage denials and taking enforcement actions against insurers that break the rules. Over time, states that met the federal requirements could establish their own exchanges.
Proponents say that the states, even those that do well at protecting consumers from insurance abuses, need all the help they can get. Budget troubles mean that there are too few state regulators trying to monitor insurers. If states have weak records on regulating insurers, the federal government will fill the gap, they say.
"You start with a strong federal regulatory environment, one that has the rules clearly written and one that has a mechanism to enforce those rules," said Rep. John Garamendi, D-Calif., a former state insurance commissioner.
The Blue Cross and Blue Shield Association, which favors the state option, said regulatory duplication in the House bill would confuse consumers and create regulatory problems between the federal government and state insurance regulators.
"Where does the consumer go and which one of those mechanisms controls?" said Kris Haltmeyer, the deputy executive director of legislative and regulatory policy for the Blue Cross and Blue Shield Association.
Some analysts see benefits for consumers in the Senate's proposal because states might experiment with different approaches.
"I think a system that allows different ways of organization and fine-tuning is critically important," said Stuart M. Butler, the vice president of domestic and economic policy studies at the Heritage Foundation, a conservative research center. "Therefore I favor, very much, a state-based system generally as opposed to a national exchange, which I think can easily become a highly restrictive institution that actually frustrates the kind of continuous experimentation and learning that you get in a competing state system."
How the exchanges are designed and regulated will be crucial to their success, Pollitz said. Billions of dollars in federal subsidies and tax credits will flow there, and if the design is flawed it could cost taxpayers even more.
"If the regulation isn't good and the bad risks disproportionately land in the exchange, that's going to drive up the cost of coverage in the exchange, which is going to drive up the subsidies, so it's all kind of interrelated," she said. "This has to be done well."
(Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization that isn't affiliated with Kaiser Permanente.)
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