By John Reichard, CQ HealthBeat Editor
April 25, 2014 – Oregon has become the first state to decide to shutter its own online insurance marketplace under the health law when a state board voted unanimously to turn over IT operations to the federal government.
The board of the website, Cover Oregon, accepted a working group's conclusion that "using the federal website technology was the most reliable, least costly option to provide a working website by November 2014," when an open enrollment period begins for 2015.
It's unclear whether all of the 15 insurers under contract to sell health plans in the state marketplace will participate next year in the federal exchange, healthcare.gov. Most are already working with the federal exchange in other states.
Also unclear is whether the 70,000 enrolled in Cover Oregon will have to reapply for coverage through the federal exchange for 2015.
The 1,200 insurance agents now selling coverage through Cover Oregon will have to go through a new certification process with the federal exchange.
Oregon officials plan to travel to Washington, D.C., and meet with federal officials to clarify details of the changeover.
A state official said an undetermined number of Cover Oregon employees would be laid off because of the switch.
The changeover means the Cover Oregon web portal will no longer be available for enrollment in Medicaid and that residents applying for the program will have to go to a state agency to enroll. The marketplace had been designed to handle sign-ups in both Medicaid and private health plans.
The transfer also means that federal officials will have to resolve how much control Oregon will retain over a variety of insurance functions it gained by operating its own marketplace under the health law.
Jennifer Tolbert, director of state health reform with the Kaiser Family Foundation, said there's a distinction to be drawn between whether a state is viewed as fully defaulting to the federal exchange or only relying on the healthcare.gov IT infrastructure to handle enrollment. A state can continue to handle outreach and advertising, contract with navigators who help people enroll and establish rules governing health plan participation.
"Oregon will still have a state-based marketplace" although it won't have it's own web enrollment portal, she said. But it's unclear how much power the state will have over plans sold to its residents through healthcare.gov.
Oregon is one of a number of Democratic states whose insurance exchanges have floundered. In Maryland, officials aspired to be national leaders in exchange design almost since Congress enacted the health law in September 2010. But earlier this month, the board of Maryland Health Benefit Exchange voted to follow the lead of Connecticut by adopting its simpler website design and hiring its IT vendor, Deloitte LLP.
The board ruled out dropping the state marketplace altogether. But it's not clear whether the Department of Health and Human Services will give Maryland more money to make the changes needed to continue its own marketplace.
Oregon never was able to launch the website enrollment process it designed and had to rely heavily on outside brokers and paper applications.
State officials in late 2010 vowed to build a "high value" exchange offering consumers apples-to-apples comparisons of plans, easy shopping and choice, smooth enrollment processing and easy payment processing, along with customer service, and "clear value for the premium dollar." The site was also supposed to give insurers access to easy enrollment, billing and payment processing.
But news reports and an independent audit chronicled what turned out to be an overly ambitious project hampered by feuding state agencies, lax contracting and a lack of authority and accountability in project oversight.
"Though it has spent more than $200 million on its exchange, Oregon's is the only exchange in the country where the public can not self-enroll in a single sitting," the news website Oregonlive reported last month.
A March 19 independent analysis of the state's website fiasco noted that it was a "complex, multi-agency project."
"There was no single point of authority," said the report prepared for Oregon Gov. John Kitzhaber (D) by FirstData. That "slowed decision making and contributed to inconsistent communication."
The project relied on a commercial, off-the-shelf product from Oracle, rather than a more customized approach. To save money, Oregon decided it would serve as its own systems integrator.
The decision not to hire an outside integrator "departs from best practices," according to the independent report and caused a lack of accountability on the project. That, in turn, contributed to a delay in requirements definition, and unrealistic delivery expectations. The report noted that one state official described Oregon as having "the most robust scope of any exchange."
The report also found poor communication with Kitzhaber's office about problems. Kitzhaber was told on July 31, 2013 that a "staged launch" may be needed on Oct. 1 but that the project remained on track. But on Sept. 30 Kitzhaber's office was told the website would not be up and running on Oct. 1.
The health law originally envisioned all of the states running their own marketplaces. Until now, Oregon and 13 other states plus the District of Columbia have done so.
Joel Ario of the Manatt consulting firm says that once states become convinced the health law is truly here to stay, more will establish their own marketplaces. "The dynamics I think at some point will shift," he said. But whether the number will rise or fall over the next year or two is unclear.
While Oregon is handing off IT duties to the federal government, Idaho and New Mexico may join the list of states running their own exchanges. The two intend to establish their own IT infrastructure and have until June to get federal approval to have marketplaces in 2015.
Three other states—Arkansas, Illinois, and Iowa—also have talked about fully running their own marketplaces within the next few years.
Some of the 14 states with their own marketplaces have performed poorly. They include not only Maryland but Hawaii, Massachusetts and Minnesota. It's possible that some or all will follow Oregon's example and end up relying on healthcare.gov, Tolbert said.
There's another factor to consider in weighing the future of state-based marketplaces. A Cato Institute inspired challenge of the health law, if successful, would only permit residents of states with their own marketplaces to qualify for federal premium subsidies to enroll in exchange plans. Those in states served by healthcare.gov would be shut out.
During the public comment period of Oregon's board meeting, an audience member warned that switching to healthcare.gov could end the availability of those subsidies to state residents.