State health officials met with federal regulators at the Department of Health and Human Services today to discuss new regulations that would provide states with additional flexibility for establishing the exchanges that are part of the Affordable Care Act — new marketplaces for uninsured Americans to compare and purchase comprehensive health insurance coverage beginning in 2014. Under the law, states have significant leeway in shaping exchanges that meet the unique needs of their marketplaces, but face federal intervention if they ultimately fail to enact reform.

Since only 10 states have passed exchange legislation, the federal government today issued new rules that it hopes would encourage more states to act. The draft regulations build on the federal-state partnerships HHS announced this summer and aim “to give the states another option as they establish exchanges that are well-suited to their local market conditions and also help them transition into operating those healthcare insurance marketplaces.”

And so under these rules, a state that is reluctant to build an exchange on its own could choose to share responsibilities with the federal government. For instance, states could be responsible for “managing the participation of health plans, helping consumers navigate the system, or both” with the federal government. Alternatively, “states would take charge of in-person assistance and manage people who will help consumers navigate the new system” while HHS would handle “eligibility and enrollment, with the goal of achieving a seamless experience, where people can move between Medicaid and private insurance coverage on an exchange as their income situations change.”

HHS hopes that the new regulations will encourage more states to build their own exchanges — the structural foundation of the entire Affordable Care Act — and undercut conservatives’ claims that the law does not offer states enough flexibility. After all, if too many states fail to comply, it will be very difficult for HHS to move forward with implementation, particularly since it has limited resources with which to run exchanges in the states.

Prior to the Affordable Care Act, there existed no expedited pathway for approving generic versions of brand name biologic drugs — a new class of “wonder drugs” that contain living organisms and could one day help treat everything from cancer to Parkinson’s disease. The ACA sought to strike a compromise that could lower costs through generics while giving brand-name manufacturers the patent protection to continue researching and developing new medicines, ultimately granting generics the opportunity to enter the market “after a brand-name biologic enjoys exclusivity for 12 years.” Today’s deficit plan proposed by President Obama changes all that. It modifies the law by accelerating access to generic biologics and shrinks the exclusivity window from 12 to 7 years, yielding savings of 3.5 billion over 10 years, the administration predicts:

The Administration’s proposal accelerates access to affordable generic biologics by modifying the length of exclusivity on brand name biologics to encourage faster development of generic biologics while retaining appropriate incentives for research and development for the innovation of breakthrough products. Beginning in 2012, this proposal would award brand biologic manufacturers seven years of exclusivity rather than 12 years under current law and prohibit additional periods of exclusivity for brand biologics due minor changes in product formulations, a practice often referred to as “evergreening.”

Reducing the exclusivity period increases the availability of generic biologics to encourage faster development of generic biologics while retaining appropriate incentives for research and development for the innovation of breakthrough products. The Administration’s proposal strikes a balance between promoting affordable access to medications and encouraging innovation to develop needed therapies. The proposal will result in $3.5 billion in savings over 10 years to Federal health programs including Medicare and Medicaid.

During House Energy and Commerce Committee’s mark-up of the health care bill, Rep. Henry Waxman (D-CA) “had pushed to shield biologics for no more than five years — the same amount of time that traditional pharmaceuticals” receive, and Obama himself had originally suggested a 7-year exclusivity provision as a possible compromise. Lobbyists for the pharmaceutical industry ultimately prevailed, however, and a 12-year period was included in the final law. The industry even began lobbying the Food and Drug Administration (FDA) for “an additional 12 years of exclusivity if manufacturers alter an existing product to improve safety or potency.”

All along, the government argued that the 12-year period was too long and the additional time unnecessary. A Federal Trade Commission report released last year, for instance, found that “the 12- to 14-year regulatory exclusivity period is too long to promote innovation by these firms, particularly since they likely will retain substantial market share after FOB [generic drugs'] entry” and recommended against establishing an exclusivity period. Brand name drugs are “expected to respond and offer competitive discounts to maintain market share and are likely to retain 70 to 90 percent of their market share and will continue to reap substantial profits, even after FOB entry,” the report concluded.

As Matt Yglesias points out, the big health care news in President Obma’s deficit plan is his willingness to put a line in the sand against cutting Medicare benefits without raising new revenue. But just as important is Obama’s commitment to reduce federal health care spending by modernizing the health care system — changing the way health care is paid for rather than simply reducing payments to providers. As he put it, “we’ll change the way we pay for health care. Instead of just paying for procedures, providers will be paid more when they improve results.” Watch it:

Many of these proposals build on the savings in the Affordable Care Act and most have already been introduced by the administration in the President’s April deficit reduction proposal. He’s offering $248 billion in Medicare savings and $72 billion in savings from Medicaid and other health care programs. Raising the Medicare eligibility age — which the administration had flirted with in the past — is off the table and instead the President is focusing on finding savings on the provider end, while also asking wealthier beneficiaries to pay more for coverage. Below are some of the savings:

– Extend Medicaid drug rebates: Allow Medicare to benefit from the lower drug rebates that Medicaid receives for brand name and generic drugs beginning in 2013. This option is estimated to save $135 billion over 10 years.

– Increase means testing in Medicare Parts B and D premiums for higher-income beneficiaries: Under Medicare Parts B and D, certain higher-income beneficiaries must pay higher premiums. “Beginning in 2017, the Administration proposes to increase income-related premiums under Medicare Parts B and D. It also extends the freeze in the income thresholds until 25 percent of beneficiaries pay the higher premium.”

– Expand the Independent Payment Advisory Board (IPAB): The administration is reiterating its proposal to reduce the target at which the IPAB begins looking for savings from GDP per capita plus 1 percent to plus 0.5 percent. The board would also have additional powers to “consider value-based benefit design and enforcement mechanisms.”

– Greater state flexibility to opt-out of Affordable Care Act: The ACA already encourages governors to develop their own strategies for expanding access and reducing costs by allowing states to opt out of certain requirements in 2017. The administration wants to bump up that date to 2014.

– Encourage new Medicare beneficiaries to use high-value services: Apply a $25 increase to the Part B deductible in 2017, 2019, and 2021 for new beneficiaries, create a home health copayment of $100 per home health episode, applicable for episodes with five or more visits

– Blended rate for Medicaid: Beginning in 2017, the administration would replace “the currently complicated formulas with a single matching rate specific to each State based on enrollment starting in 2014 that automatically increases if a recession forces enrollment and State costs to rise.” Many progressive groups believe that this would have the effect of shifting more program costs to the states.

You can read the full fact sheet here. Bottom line is — if what’s driving health care costs at the federal level is national health expenditures, modernization that addresses costs and pays for more efficient care is really the only way of producing long-term savings. Proposals like expanding IPAB and changing payment rates to promote greater efficiency and reduce hospital readmissions are initiatives that will begin to move us in that direction.

Cigna — one of the nation’s largest health insurers — is kicking off a $25 million ad campaign today designed to appeal to individual consumers. The new ad campaign signals that the industry is working to expand into a market that will grow with the implementation of the Affordable Care Act — a law that it believes will go into effect regardless of the political threats to repeal it and the industry’s own opposition against it:

About 14 million people currently are covered through individual insurance, according to the Kaiser Family Foundation, a nonpartisan nonprofit organization. The Congressional Budget Office has projected that the number of people buying their own insurance will more than double by 2016 under the new health law. Some workers also tart getting a lump sum from employers to select coverage. “The insurance industry is one that has traditionally been oriented around services to an employer or a government entity,” said Cigna Chief Executive David M. Cordani. “We want to orient around the individual.” He said that focus includes consumers who get insurance through their jobs, as well as those who will purchase coverage their own. [...]

Other companies also are laying the groundwork for expanding sales to individuals. Seventy-three percent of insurers are planning to increase their marketing and sales capabilities in the near term, with a focus on the direct-to-consumer segment, according to a survey of industry executives this spring by Boston Consulting Group.

“Most insurers have not built enough brand equity with consumers,” said Raj Bal, a former WellPoint executive who is now an industry consultant. Also, employer sales often come through brokers, whose role will likely be less important in starting in 2014, he said.

Last week, the industry also bet that the health care overhaul will withstand a GOP repeal drive and joined the “Enroll America” campaign with health care and consumer groups. The effort is designed to “encourage states to make it easy for people to sign up for coverage, by providing model regulations” and “get the word out among the uninsured, through advertising and community outreach.”