Opinion: The New Jersey Health Benefit Exchange, What’s Next?

Joel C. Cantor | May 23, 2012 | Health Care
The governor's veto may be a key step toward meeting NJ's responsibilities under the Affordable Care Act.

Last week Governor Christie vetoed the New Jersey Health Benefit Exchange Act (A2171/S1319), arguing that it is premature to move ahead with authorizing the exchange until the Supreme Court rules on the constitutionality of the federal health reform law. Even if the Affordable Care Act is upheld in its entirety, this veto is unlikely to interfere with New Jersey’s ability to effectively meet its obligations under the health reform law.

To date, only 18 states and the District of Columbia have authorized their exchanges, most by enacting new legislation and a few through executive orders. About a dozen more states have action on exchanges pending. An important milestone in building exchanges is the deadline for states to apply for federal funding, so-called level 2 establishment grants to build their exchanges. States that miss that deadline risk having the federal government step in to create their exchanges, a move that seemingly nobody wants.

Signaling their desire for states to take the lead on exchanges, the U.S. Department of Health and Human Services has already pushed back the level 2 grant deadline from June to November this year. (Technically, states have until January 2013 to have their exchanges certified by the federal government, but without level 2 funding states have little hope of achieving certification.) Judging by where New Jersey stands among peer states and the time available to apply for federal funding, New Jersey is still in a favorable position to react quickly once the U.S. Supreme Court renders its opinion in late June.

In fact, one might argue, that the governor’s veto was an important step toward the goal of successfully meeting New Jersey’s responsibilities under the Affordable Care Act. Governor Christie’s veto message is clear and detailed; a must-read for health policy wonks. While highlighting three specific concerns about the exchange bill, Gov. Christie’s veto message closes with his commitment to implement the law should the Supreme Court uphold its constitutionality. For its part, legislative leadership has signaled a willingness to negotiate the shape of this law. Sometimes the political process actually works, and this appears to be one of those instances.

The first issue raised by the governor is whether New Jersey should create a Basic Health Program (BHP), a coverage option for people whose incomes are too high for Medicaid but still below 200 percent of the federal poverty level; about $46,000 for a family of four. Incomes of individuals and families near this threshold tend to fluctuate as they take second jobs or lose seasonal employment, for instance. One aim of the BHP is to allow continuity of relationships between patients and providers by eliminating the need for patients to jump between Medicaid and commercial managed care networks. If the BHP offered Medicaid health plans, it also has the potential to save money because Medicaid plans pay hospitals and doctors less than commercial plans. While attractive in principle, the BHP could also have downsides. For example, low reimbursement rates limit providers willing to serve Medicaid patients. By adding as many as 75,000 new individuals to these networks, the BHP could further stress this provider capacity. State-commissioned analysis by my colleagues at Rutgers Center for State Health Policy describes the potential benefits and risks of a BHP for New Jersey. One issue singled out in the governor’s veto message is whether the complex federal funding formula for the BHP will cover its costs? The Center is working with Oliver Wyman Actuarial Consulting to address this question with support from the Robert Wood Johnson Foundation. We will have findings later this summer.

The governor also questioned the composition of the exchange board of directors as envisioned by the legislature, specifically whether it should include health insurance stakeholders or pay salaries to attract outside experts. He also signaled his preference for an exchange board that does not have authority to exclude plans based on its judgment about value for consumers, often called the “active purchaser” model. Colleagues at the Seton Hall University School of Law’s Center for Health & Pharmaceutical Law & Policy have conducted extensive analysis of exchange governance issues and are completing additional work on the pros and cons of alternative exchange purchasing strategies. These analyses will help policymakers work through these tough issues.

With the Supreme Court expected to rule next month, the governor and New Jersey legislators are well positioned to formulate the state’s response to the Affordable Care Act, whatever form it takes.