After health ruling, will U.S. be ready for the law?

WASHINGTON (Reuters) - Now that the Supreme Court has removed the main legal challenge to President Barack Obama's healthcare overhaul, policy experts question whether enough U.S. states will be ready to implement the law when it takes full effect in 2014.

Up to now, most states have avoided decisive action to build the private insurance exchanges that would extend health coverage to an additional 16 million Americans. Governors in largely Republican states who oppose the entire law may still refuse to act on the exchanges, requiring the federal government to step in to operate them.

"We will be ready to ensure that every American has access to affordable, high quality coverage on January 1, 2014," Mike Hash, an official overseeing the exchanges effort at the U.S. Department of Health and Human Services (HHS), said on Friday.

HHS says that 34 states have received $850 million in grants to help plan and build the exchanges. Accepting the funds alone does not signal significant progress, however.

According to the Kaiser Family Foundation, which tracks healthcare issues, 17 states have made no significant progress towards establishing an exchange or rejected the idea. Most of them voted for Republican candidates during the 2008 elections that brought Obama, a Democrat, to power.

Another 18 states are studying their options, leaving only 15 that have taken concrete steps to establish an exchange, Kaiser said.

Some health experts fear that many of the states holding off now will wait until the November elections in the hope Republicans will win control of the White House or Congress and repeal the law.

Wisconsin Governor Scott Walker announced on Thursday that he intended to do just that and other Republican governors, including Sam Brownback of Kansas, expressed similar views.

"If states really have the will to throw themselves into this, there is time to set up an exchange. But if states are going to wait for the election, then there isn't time," said health economist Jonathan Gruber of the Massachusetts Institute of Technology.

Former Obama administration officials acknowledge that two years of political battles since the healthcare law was passed in 2010 might hamper its full introduction.

"We have taken a two year diversion - which is one thing I'm worried about ... Everyone knows the law is going to be implemented and the question now really is how well," said Dr. Ezekiel Emanuel, a former Obama healthcare adviser.

The Supreme Court ruling on Thursday upheld the core of the law, but also allowed states to opt out of a planned expansion of the Medicaid health program for the poor. That could also jeopardize the law's aim of enrolling another 16 million of the most vulnerable Americans via Medicaid.

TIME OF THE ESSENCE

With the exchanges, timing is key. States must build information technology systems capable of quickly evaluating individual applicants to see if they are eligible for private insurance or Medicaid, based on household income and other factors. Only Massachusetts, which overhauled its health system in 2006, has built one to date.

Gruber estimates that any given state could require a year to build an exchange's infrastructure. Those that wait until after the November ballot could be ill-prepared by the autumn of 2013 when the federal government expects exchanges to offer open enrollment.

The administration set a November 16, 2012, deadline for states to confirm they are building an exchange and maintains that will leave the federal government enough time to step in and set one up where needed.

But health experts say federal exchanges could create service gaps by overlooking unique features in state health system, while posing political risks to local officials by providing benefits they denied to their citizens.

"Our objective is that every state will operate a state-based exchange," Hash said.

Joseph Antos, a health expert with the conservative American Enterprise Institute, believes the administration could have difficulty setting up federal exchanges because of the sheer complexity of the task.

"They won't be ready everywhere. And even the degree of readiness - the idea that everything's going to be smooth - smooth is not the word you attach to implementation," he added

(This story is corrected with the name of Wisconsin Governor)

(Additional reporting by Salimah Ebrahim; editing by Michele Gershberg and Andre Grenon)