With high court set to rule on health reform, Illinois’ insurance exchange hangs in the balance

Crain’s reports:

“If the U.S. Supreme Court strikes down President Barack Obama’s overhaul of health care, Illinois Gov. Pat Quinn will face a stiff challenge holding on to the state’s health insurance exchange, a key component of the landmark law.

Advocates say the state should set up its own health insurance exchange, even without the legal framework — and crucial funding — provided by the federal Patient Protection and Affordable Care Act.

While Mr. Quinn generally has praised the federal law, his administration said it isn’t making a contingency plan should the high court toss it out. Any attempt to follow Massachusetts, the only state with an active health insurance exchange, would have to overcome a long list of political obstacles in Illinois. But the practical concerns would likely be almost as daunting.

There is no predicting how the Supreme Court may rule when it issues its decision, which is expected in June. Yet last month’s oral argument has sparked speculation on what becomes of reform efforts if the high court invalidates some or all of the massive statute.

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Passed by Congress with the rest of the health reform package in 2010, the state-level exchanges are intended to satisfy two key requirements of the federal law. They would be markets where individuals and small employers could satisfy the mandate to buy insurance, but the law would also guarantee that insurance companies would sell policies to most people who apply.

But an Illinois-only exchange could be hobbled if both of those two features, the individual mandate and the guarantee, aren’t incorporated.

“The government is building the walls of the mall and the insurance companies build the stores,” said David Stumm Jr., an executive vice president of Stumm Insurance LLC, a North Side insurance broker. “But if (carriers) have to sell product that’s guaranteed and not mandated, then no one’s going to open a store in the mall.”

The purpose of the Illinois exchange would be undermined without the mandate, which is aimed at ensuring enough buyers such that it makes economic sense for insurers to offer products on the market, some insurance experts say.

“The fundamental underpinning of having the exchanges is having risk mix,” said Steve Riedl, a Chicago-based senior consulting actuary for Towers Watson. “Without the individual mandate, you lose the incentive to play in the exchanges.”

Advocates say that even without the mandate, an Illinois exchange could still increase competition in the markets for individual and small-group coverage, reduce premiums and increase access to insurance.

“Creating the insurance exchange is something Illinois lawmakers should do regardless of what decisions are made in Washington,” said Brian Imus, who as director of public interest group Illinois PIRG has been involved in setting up the Illinois exchange. “Bringing more competition in the health insurance market is in the interest of everyone.”

Without the mandate, Illinois legislators can implement their own provisions to ensure broader participation by healthy people in the exchange. For example, Illinois could implement its own individual mandate, as Massachusetts did, Mr. Imus suggested.

“The state has always had the power to regulate insurance, and if the federal government doesn’t want to do it may be the state will,” said John Bouman, president of the Chicago-based Sargent Shriver National Center on Poverty Law. He also is involved in setting up the Illinois exchange.

Insurers also could lobby to impose limits on when individuals or groups can enroll for coverage, or add premium surcharges for late enrollment, said Nancy Daas, a partner at Chicago-based benefits consultant CMC Advisory Group.

As of March, 13 states and the District of Columbia already had passed legislation establishing state-level exchanges, according to Menlo Park, Calif.-based Henry J. Kaiser Family Foundation.

Three other states, including Illinois, had firm plans to set one up, according to the foundation.

Lawmakers and interest groups in Springfield still are trying to hammer out legislation that would determine the exchange’s funding source and governance, among other issues.

“We are proceeding with implementation of the Affordable Care Act, which is the law,” Illinois Department of Insurance Director Andrew Boron said in a statement.

With funding from the federal government, the Illinois exchange previously has been estimated to cost more than $90 million to set up.

Under the Affordable Care Act, Illinois and other states must demonstrate to the U.S. Department of Health and Human Services that its exchange will be operational by Jan. 1, 2013. If not, the federal government will take over responsibility for setting up and running the state’s exchange.”