The back-end labor involved in building the necessary IT infrastructure has proven to be tremendous and full of unexpected complexity, say officials in the states that have been working most diligently to create their own exchanges. The exchanges must be able to communicate with a yet-to-be-built federal eligibility database; state-based, often antique, Medicaid computer systems; and the many insurance plans that wish to sell in the market. The vendors building the systems are starting from scratch, and regulations spelling out the precise specifications for data connections are still pending.
Connecticut's exchange plan was conditionally approved by HHS this week, putting it near the head of the pack. Still, Kevin Counihan, CEO of the Connecticut Health Insurance Exchange, said that getting to the finish line in time will be a scramble. "Do I think it's going to be ugly getting there? You bet," he said. "If everything works perfectly, we're fine. But things don't work perfectly in life, and they certainly don't work perfectly in IT development."
In the states that don't want to help, additional challenges are coming. Some parts of the federal apparatus can be identical in every state where it's operating. But the federal exchange will need to be tailored to meet the regulatory and eligibility standards in each state, an effort that could be complicated by recalcitrant state officials. Medicaid systems that cooperate only minimally could undermine the "no wrong door" approach behind the exchange design. Instead of a few clicks separating consumers and health insurance, Medicaid-eligible populations in some states may instead be forwarded to a separate eligibility and enrollment system managed by state officials.
Aside from Massachusetts, no state has built the kind of regulated online insurance marketplace outlined in the health care law.
Gary Cohen, the head of insurance oversight at HHS, said this week that the federal government will be ready to do its part in time. It's hard to know, however, because the final regulations and technical specifications for the federal exchange are still outstanding.
The skeptics are worried. Michael Cannon, the director of health policy studies at the libertarian Cato Institute, who has been advising state officials to fight the law through noncompliance, says he thinks HHS is behind schedule. "They have very little time to do this, and they really need the manpower," he said. "An indication of how difficult this is for the federal government is that they aren't telling anyone what kind of progress they've made."
Oklahoma has sued the federal government, arguing that the health care law's statutory language means that federal tax credits can't be offered in a federally run exchange. Maine has argued that the Supreme Court ruling about the law's Medicaid expansion throws other Medicaid provisions into question. Both suits are considered long shots, but they are evidence of the strong opposition that some states continue to express, even as the exchanges' effective date draws near.
Of course, there are politicians and there are bureaucrats. Officials in even the reddest of red-states have been quietly preparing for implementation. Michael Koetting, the deputy director for planning and reform implementation for the Healthcare and Family Services Department in Illinois, which will be sharing exchange-management responsibilities with the federal government, said he frequently talks to his counterparts in other states at meetings called by federal officials. "They want to make all of this work out somehow," he said. "The difference between that meeting, and, say, a meeting of the governors' association on exchanges that I went to is palpable."
The law creates these marketplaces for the minority of people who buy their own health coverage, but it also creates a raft of new rules for employers, still the dominant providers of insurance in the country. Any employer with the equivalent of more than 50 full-time workers is required to offer affordable coverage that meets minimum benefit standards for all of its employees who work more than 30 hours a week.
It will be a big change for nearly every company. For the largest corporations, which already offer comprehensive coverage to their salaried workers, these changes are significant but not too disruptive. But industries that have traditionally relied on hourly workforces or operate on tight margins are struggling to fit the rules into the law's employment model. If they fail to offer coverage, they will pay a per-employee penalty. If they offer coverage, but employees still buy on the exchanges, they will pay a penalty, too.
"No matter how many employees you have -- whether you're a smaller company or a larger company, I think you're going to have an issue," said Christine Pollack, the vice president of government affairs at the Retail Industry Leaders Association, a trade group for the big-box stores. "This is the single largest change to the employer-sponsored insurance system since its creation."
A recent survey conducted by the benefits consulting firm Mercer found that nearly a third of its clients expected the changes to raise their costs by more than 3 percent. Many employers told Mercer they were considering shifting more workers to part-time schedules or reducing the size of their workforces to avoid the requirements. "They're trying to figure out what are the alternate strategies," said Tracy Watts, a partner at Mercer.
How many businesses will end up shifting their workforces is yet to be seen. The restaurant group Darden, which owns the Olive Garden and Red Lobster chains, had said earlier this year that it would move more employees to part-time schedules to avoid the law's strictures. Last week, it changed course, saying it had determined that keeping full-time employees was a better business strategy. In Massachusetts, the retail and restaurant industries howled about similar requirements, but research from the Urban Institute found that several years after implementation of the state's health law, the state saw no disproportionate erosion in its share of full- or part-time jobs in those industries, despite the complaints.
However, it does seem clear that some businesses will struggle to absorb the additional cost of insurance -- which averages about $15,000 a year for a family plan, according to the Kaiser Family Foundation. Rebecca Lloyd, the vice president of Arnan Development Corp. and Otsego Ready Mix, in Oneonta, N.Y., said that her company has been offering health coverage to its low-wage workforce for years but is likely to drop it come 2014. Her business can't afford to offer family plans, making it eligible for penalties every time an employee's child enrolls in a public program. She's weighing the various options -- giving employees cash to spend in the exchange, trimming the size of her workforce, splitting up the company.
"How am I going to abide by the new rules and still provide for the employees?" Lloyd wondered. "Because the last thing I want to do is hurt our employees."
Lara Seligman contributed
This article appeared in the Saturday, December 15, 2012 edition of National Journal.