U.S. gives states flexibility on insurance exchanges

Beds in the emergency room of Tulane University Hospital in New Orleans February 14, 2006.

WASHINGTON (Reuters) - The Obama administration proposed a framework for health insurance exchanges that gives states great flexibility in how and when they set up these open marketplaces designed to boost competition.

The U.S. Health and Human Services Department revealed on Monday a sliding deadline for states to set up the exchanges, allowing them to receive conditional approval if they are in advanced preparation by 2013. Also, states that are not ready by the final 2014 deadline can delay operation of exchanges until 2015 or later.

States deciding whether to set up health insurance exchanges, as well as insurers and other key players, have been seeking clarity on how these insurance marketplaces will work. The federal government had previously given few details on this key part of President Obama's healthcare overhaul legislation that became law last year.

The idea behind the exchanges is to create easy access to an open marketplace of insurance plans and to allow uninsured people and small businesses to band together to negotiate cheaper rates.

States had faced a deadline of January 1, 2013, to decide whether they would participate in the program. Those choosing to participate were also expected to create governance and information technology structures virtually from scratch to have the exchanges in full operation by 2014.

The states can create their own exchanges, get together and share infrastructure, or entirely opt out of participation, in which case HHS would come in and do it all itself.

"If we don't have significant progress made by the end of the year, the IT experts tell us it's going to be really hard to meet the deadline," Kansas Insurance Commissioner Sandy Praeger told Reuters in an interview last week. She is working to set up an exchange in her state despite a lack of legislation in her state to move ahead with it, and a conservative governor strongly opposed to the health law.

"The health insurance market is often broken, especially for small businesses like Frager's," said HHS Secretary Kathleen Sebelius when unveiling the proposals at Frager's Hardware store, located on Capitol Hill.

The proposal calls for the exchanges to operate special small business insurance programs starting in 2014. For the first two years, states would be allowed to limit the insurance program to small businesses with 50 or fewer employees.

(Reporting by Alina Selyukh, Anna Yukhananov and Andrew Seaman; Editing by Tim Dobbyn)