Thursday, October 7, 2010


Two big steps were taken this week towards creating the insurance exchanges called for by PPACA. The State of California enacted legislation establishing a state health exchange, followed just a couple of days later by the National Association of Insurance Commissioners issuing its draft of a model state statute for insurance exchanges.

California’s new statute was signed into law by Republican Governor Arnold Schwarzenegger in the face of fierce opposition from the Chamber of Commerce, NFIB, and Anthem Blue Cross—but apparently after a nudge from President Obama. The law creates an independent statewide exchange authority, effective January 1, 2011 (but not providing exchange services until 2014), with responsibilities for determining eligibility and enrollment requirements under qualified carriers. The new entity will be headed by a five-member commission.

Opposition to the exchange legislation centered around two issues: funding and authority. Taxpayer and business groups argued against the use of premium levies to fund the exchange, while major insurers (but not Blue Shield or Kaiser) vehemently opposed giving the exchange the power to negotiate benefits and rates and to require that the coverage offered to exchange enrollees also be offered in the general individual market. Other insurers expressed concern that small plans could be effectively shut out of the exchange.

The NAIC draft issued just after the California signing is intended to be a template for state exchange legislation and, accordingly, is far less specific about funding, responsibilities, and authority. It is, however, a useful starting point, especially for states still confused about how to approach PPACA’s exchange provisions. The draft includes clauses covering all essential exchange functions, reflecting the PPACA requirements, together with discussions of how to put various state options into statutory language. States are not required to utilize the NAIC language (like California, they can choose to develop their own statutes), but the NAIC draft clearly is a valuable source.

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