Sean Riley Testimony on Exchanges and Health Reform

On March 7, 2014, Health and Humans Services Task Force Director Sean Riley was asked to testify in front of the Maryland Health and Government Operations Committee regarding HB 169 and HB 1229. His full written testimony can be found below,

Mister Chair, members of the committee, thank you for allowing me the opportunity to testify before you today on House Bill 169 and House Bill 1229. My name is Sean Riley and I am the Director of the Health and Human Services Task Force at the American Legislative Exchange Council, the nation’s largest, non-partisan, individual membership organization of state legislators that share a common commitment to the principles of limited government, free markets, and federalism.

HB 169

The Affordable Care Act neither requires states to adopt nor enforce conforming provisions prescribed by federal law related to health insurance requirements. Nonetheless, 11 states, including Maryland, have taken legislative or regulatory action on all early market reforms and all 2014 market reforms under the ACA.

A threshold question is the purpose of implementing conforming provisions given (1) the precedent for federal preemption of laws preventing application of federal standards, and (2) a pattern of significant and ongoing changes to the ACA at the federal level [1].

While federal rules maintain that states remain the primary regulators of health insurance coverage, the Secretary of the U.S. Department of Health and Human Services holds enforcement authority with respect to health insurance in the states “insofar as they relate to the issuance, sale, renewal, and offering” of coverage regulated by the ACA [2]. Accordingly, the final HHS rule on the health insurance market and rate review notes that “if any state law or requirement prevents the application of a federal standard, then that particular state law or requirement would be preempted” [3].

State action is not required for federal health insurance regulations under the ACA to take effect. Indeed Maryland’s Department of Legislative Services acknowledges that, absent conforming provisions, the Maryland Insurance Administration would continue to review contracts and rates as required under the ACA, “but it would cite the federal requirements rather than the state requirements” [4]. According to the Commonwealth Fund, even in cases where “state regulators lack enforcement authority or fail to substantially enforce all of parts of federal law,” federal regulators would review contracts and rates, taking enforcement actions as necessary [5].

If states are inclined to take legislative or regulatory action to implement ACA provisions, notwithstanding that such actions may be unnecessary, a question then becomes the extent to which conforming provisions track ongoing changes in federal law and implementation.

As of September 2013, the non-partisan Congressional Research Service had identified 14 changes to the ACA by way of amendment or retraction, and five delays [6]. Since September, several additional delays have been announced, notably, a one year delay of SHOP exchanges, and a two year delay of the employer mandate [7]. In November, the National Association of Insurance Commissioners issued a statement expressing that they were “concerned by the President’s announcement [] that the federal government would use its ‘enforcement discretion’ to delay enforcement of the ACA’s market reforms in 2014 for plans that are currently in effect” [8]. On Wednesday of this week, HHS announced it would extend the existing one year delay of enforcement against non-compliant plans for an additional two years, until 2017 [9].

Given that conforming provisions are neither required nor necessary for the ACA’s market regulations to take effect, that the Maryland Insurance Administration would continue to enforce ACA provisions absent conforming provisions, and that the ACA’s regulations themselves are subject to ongoing changes and delays at the federal level, the utility of codifying conforming provisions is questionable.

HB 1229

Establishing a state exchange under the ACA is not required. Nonetheless, 16 states, including Maryland, elected to establish a state-based marketplace for plan year 2014, utilizing significant federal funding [10]. Maryland received approximately $171 million, according to the Kaiser Family Foundation, including an exchange planning grant, an establishment grant, and an early innovator grant [11]. According to the Washington Post, due to structural design defects, the Maryland Health Benefit Exchange “crashed in a calamitous debut that was supposed to be a crowning moment for Maryland officials” [12].

Last month, the MHBE terminated its $193 million contract with Noridian Healthcare Solutions, the contractor tasked with building Maryland’s online marketplace, after having paid $67.9 million for one of the “worst-performing” systems in the country [13].

Given the restrictions outlined in the ACA as to flexibility in exchange establishment, the function of an exchange varies little regardless of whether it is established by a state or the federal government. Both serve to facilitate insurance market regulations under the ACA and the distribution of subsidies to purchase health insurance. States are permitted limited flexibility in determining contractual relationships with health plans—states can either contract with all qualified plans under the ACA, or with selected plans—but because the federal default is to contract with all qualified plans, there would be little distinction between the MHBE and the federal exchange from a plan standpoint [14].

Given the range of options, and the ability of Maryland to partner with the federal government, or default to a completely federally operated exchange, there appears to be little incentive to redouble efforts and commit additional state and federal funding to a state-established exchange. State establishment of an exchange is both unnecessary under the language of the ACA, and unnecessary given significant improvements in operability of the federal exchange.

While Maryland’s previous attempts were laudable in perhaps offering an innovative alternative to the federal exchange, that opportunity appears to have passed for the time being. If Maryland reverts to a federal exchange, they will still maintain the authority to switch back to a state exchange at a later point if and when such a path appears prudent.

Thank you for the opportunity to provide testimony. I look forward to your questions.




[2]  42 U.S.C. 300gg-22











[13] contractor/2014/02/24/50df0490-9ce6-11e3-ad71-e03637a299c0_story.html


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