The Obama Administration is preparing for the federal government’s impending role as the primary sponsor of two new multistate health insurance plans that will be available for individuals and small businesses to purchase under Obamacare’s statewide insurance exchanges in 2014.

Although they are not exactly the same, the nationwide plans do somewhat resemble the government-run “public option” that some congressional Democrats advocated during the Obamacare debate. As the New York Times reports, the plans represent an opportunity for the federal government to contract with large-scale providers and inject marketplace competition into Obamacare’s insurance exchanges:

The national plans will compete directly with other private insurers and may have some significant advantages, including a federal seal of approval. Premiums and benefits for the multistate insurance plans will be negotiated by the United States Office of Personnel Management, the agency that arranges health benefits for federal employees. [...]

The federal standards will pre-empt state rules in at least one respect: the national health plans will automatically be eligible to compete against other private insurers in the new exchanges, regardless of whether they have been certified as meeting the standards of those exchanges.

The administration has promised to “work cooperatively with states.” But it is unclear whether the government-sponsored plans will have to comply with all state laws and consumer protection standards; whether they will have to comply with state benefit mandates; and whether they will have to pay state fees and taxes levied on other insurers to finance exchange operations. [...]

“Multistate plans have real potential benefits for consumers,” said Ronald F. Pollack, the executive director of Families USA, a liberal-leaning consumer group. “But there is also potential trouble if the multistate plans are exempted from some consumer protection standards.”

State health commissions, private insurers, and consumer protection advocates alike want to see the nationwide plans compete on a level playing field so that benefits standards and competitive pressures are both fair and consistent throughout state exchanges. If implemented properly, however, the new multistate health plans could drive down health costs while offering consumers coverage approved directly by the federal government.

As employers continue to find ways of cutting their health spending, an increasing number of firms have stopped offering supplemental health benefit plans to retirees on Medicare. Instead, companies are contracting with external insurance marketplaces — exchanges similar to the state-wide models mandated by Obamacare in 2014 — to provide Medicare-eligible retirees with a choice of supplemental plans to cover benefits such as hospital visits and prescription drugs, Kaiser Health News reports.

Companies have been shifting away from providing former workers with supplemental coverage directly, but most still give retirees a monthly contribution through health reimbursement arrangements (HRAs) with which they can buy a plan on the participating exchange. Counselors with the exchanges help Medicare-eligible retirees sift through their coverage options, helping seniors decide whether a Medicare Advantage plan or some other form supplemental coverage would best suit their health needs. According to KHN, this exchange model has the potential to save employers money while also opening up an array of choices for consumers:

In 1993, 40 percent of employers with 500 or more workers offered medical insurance to their Medicare-eligible retirees, according to human resources consultant Mercer’s annual survey of employer health benefits. By 2011, that figure had fallen to 16 percent.

Many employers that contract with exchanges such as Extend Health, which offers 4,000 plans from 80 carriers, fund at least part of the coverage by making deposits for their retirees into accounts called health reimbursement arrangements, or HRAs.

The exchanges can benefit both employers and retirees, experts say.

Employers’ costs are capped and predictable, with fewer administrative hassles, says Bruce Richards, chief actuary and quality leader for Mercer’s health-care business. Meanwhile, because retirees can pick among different plans and rates, “usually most people are better off,” he says.

While the retiree exchanges theoretically hold promise for consumers and employers alike, funding and subsidies for such programs will be a critical issue for retirees seeking to enhance their Medicare coverage. As the KHN article highlights, while a full third of employers currently offering direct retiree benefits may drop this coverage in the next fiver years, “42 percent said they’d do so without providing subsidies to help retirees buy coverage.” That would be disastrous for American seniors who would be forced to finance prescription drug and other supplemental coverage out-of-pocket.

Obamacare is a good deal for consumers because in addition to setting up these types of exchanges and requiring people to have insurance, the health reform law also gives Americans defined federal subsidies based on their financial needs to make sure they can afford their coverage. If employers do not incorporate the same funding into their insurance exchange contracts for Medicare-eligible retirees, they will still be offering seniors an array of coverage options — but not the money to afford any of them.

Under President Obama’s health reform law, each state must either set up its own health insurance exchange or have the federal government create one for it by 2014. Obamacare requires plans on the exchanges to include “essential benefits” that clear benchmarks across 10 categories, including mental health and prescription drug coverage.

But in an attempt to give states flexibility in constructing their exchanges, the Obama Administration sketched out relatively lax prescription drug benchmarks, requiring insurers to provide just one drug per drug class to individual and small-group plans — i.e., one cholesterol drug, one anxiety drug, etc. According to Kaiser Health News, this means that under Obamacare mandates, consumers with more extensive prescription drug needs would be forced to pay for medication out-of-pocket. States, sensitive to the potential coverage hole and consumer needs, are choosing exchange benchmark plans that exceed Obamacare requirements:

So far, the benchmark plans cover about 62 percent of the drugs available in different drug classes, Avalere Health found in analyzing eight plans. Coverage of drugs in the classes studied ranges from a low of 26 percent in California’s benchmark plan to a high of 93 percent in Mississippi’s likely benchmark.

“The eight state benchmark plans display a wide range of coverage of brand and generic drugs in the classes we examined,” said Bonnie Washington, senior vice president of Avalere Health.

The one-drug-per-class minimum was one way the Obama administration gave flexibility to insurers trying to hold down costs, said Caroline Pearson, a director at Avalere. “They set the bar so low that most commercial health plans will exceed the one drug per class to be attractive to consumers,” she said.

State efforts to improve the quality of prescription drug coverage under insurance exchange plans highlights the potential consumer benefits of allowing states to experiment with their health models under Obamacare — but the wide discrepancies in coverage serve as a reminder that not every state is equally invested in doing right by its consumers.

Monday was the deadline for states to report what their “essential health benefits” packages will look like under Obamacare’s newly-created insurance exchanges, which go into effect in 2014. But dozens of states are either unprepared or are refusing to set up their own exchanges, leaving it up to the federal government to set up the exchanges there.

Some Republican governors are refusing to make a decision about the programs in their states until after the election in case Mitt Romney, who has promised to repeal Obamacare on his first day in office, is elected. If it becomes clear that the health care reform law will not be repealed, those states will have to work quickly after the November election to meet the deadlines:

Some experts believe a larger number of states will eventually set up their own exchanges if President Obama is reelected. Their timetable is short, however, because the exchanges must be operating in time for open enrollment in October 2013.

States must declare their plans to the Department of Health and Human Services by Nov. 16. In addition to the 13 states that have expressed their intent to set up marketplaces, three states have decided to partner with the federal government in forming the exchanges. Eight have opted to leave the task exclusively to federal authorities.

Alabama Gov. Robert Bentley (R) wrote a letter to HHS Secretary Kathleen Sebelius to say that his state will not set up the minimum benefits because Bentley claims “that the law does not make health insurance affordable and negatively affects consumer choice.” For Alabama and the other states that do not set up the required minimum benefits, Kaiser Health News reports that the federal government will step in to set the benchmark at “the largest small group plan in the state.”

In a major shift within the employer-sponsored health benefit model, Sears Holdings Corp. and Darden Restaurants Inc. will begin offering employees a choice of health plans on “corporate exchanges” beginning in 2013.

Although spokesmen for both companies have been quick to point out that, at this point, the firms will still be providing their employees with health benefits and not just a pile of cash with which to buy insurance, the move is largely seen as the first step towards a benefits system in which employers play a less direct role in employees’ coverage, and could influence thousands of other firms to follow suit if succesful. As the Wall Street Journal reports, the basic idea is that by offering employees more flexibility in choosing plans, both workers and employers can save on health costs:

“It puts the choice in the employee’s hands to buy up or buy down,” said Danielle Kirgan, a senior vice president at Darden. The owner of chains including Olive Garden and Red Lobster will let its approximately 45,000 full-time employees choose the new coverage in November, to kick in Jan. 1. Darden says that employees with families to cover will be given more money to buy insurance than employees covering just themselves.

The hope is that insurers will compete more vigorously to get workers to sign up, which will lower overall health-care costs. Darden and Sears are both currently self-insured, meaning that the cost of claims each year comes out of company coffers. [...]

“Within the next two or three years, it’s going to be mainstream,” said Ken Goulet, executive vice president at WellPoint Inc. The insurer will roll out a product next year called Anthem Health Marketplace that lets employers offer a variety of its plans to workers, paired with a fixed contribution. Mr. Goulet said it is close to signing up more than 30 midsize and large employers for early next year, including one with more than 50,000 workers.

This method has innate risks to it, the biggest being the possibility that employer contributions won’t keep up with medical inflation, thus shifting costs onto consumers. But if the corporate exchange model pans out as advocates hope, then it could be a sign of good things to come for similar exchange-driven models, including Obamacare.

Republican lawmakers are continuing to delay setting up the state-run health insurance exchanges required under Obamacare as an act of resistance against President Obama’s health reform law. Even though the federal government will be forced to step in to implement exchanges for the states that don’t turn in their exchange plans for approval by November, some Republican governors are refusing to work on exchanges until after the election in case Mitt Romney wins and repeals Obamacare. However, despite the political battle over health care reform, not all Republican officials are convinced that refusing to set up health exchanges is the best course of action.

Reuters points out that some GOP officials like Mike Chaney, Mississippi’s insurance commissioner, have quietly worked against their party to take steps toward creating state-level insurance exchanges. Although his state’s lawmakers are deeply opposed to Obamacare — Mississippi was one of the 26 states that sued the administration over the health reform law — Chaney explained that resisting Obamacare’s health care exchange will force state officials to scramble after the November election:

Insurance officials like Chaney, however, want a better contingency plan in case the Republicans lose, as the 10-day window between the election and the exchange deadline will not give them enough time to prepare an exchange.

“They can’t just leave this to the will of the wind,” Chaney said in an interview.

“This isn’t about politics. It’s about following the law,” he added. “And I think I’m better equipped to operate an exchange in my state than the federal government.”

Chaney is not the only Republican to take this stance. Reuters interviewed half a dozen other Republican state health officials who agreed they would prefer to plan for state-run exchanges now rather than accept a federally-run exchange when the clock runs out, and some are working to do so. However, the contentious political climates in their states don’t always make this possible. Although Chaney said he worked “under the radar” to prepare for an exchange in Mississippi, mounting pressure from conservatives in the state curbed his work in mid-July, and he has since released a statement promising to hold off on any further work toward establishing an exchange until after the election.

Former Senate Majority Leader Bill Frist (R-TN) has already urged Republican governors to embrace health care reform and take the necessary steps to set up exchanges in their states. As Frist and Chaney both point out, state-run exchanges are actually consistent with conservative federalist ideals. If Republican legislators continue to block them, they could help prove Chaney’s assertion that “this isn’t about politics” very wrong.

Although Paul Ryan touts a plan for Medicare that would expand the role of private insurers, studies show the private insurance industry isn’t necessarily friendly to the American consumers who seek quality and affordable health care. A Washington Post column points out that the health insurance market, which is already set up to allow insurers to build monopolies that limit consumer choice and drive up prices, may now use mergers to maintain their outsized influence before the health reform law fully takes effect:

Now, with the health insurance industry near the top of its profit cycles and Obamacare about to add tens of millions of new people to the insurance pool and another wave of consolidation hitting the industry, [Coventry Chairman Allen Wise] has decided it’s time to do what he meant to do all along: sell Coventry to an industry giant for a 20 percent premium over the market price.

Besides delivering a bonanza for Wise and his tight-knit crew of directors and executives, the $7.3 billion purchase makes lots of sense for Aetna. The Hartford-based insurer is one of the four dominant players in the market for managing health plans for large and medium-size businesses, but it has had trouble breaking into the markets where Coventry does business: the individual and small group market plus managed-care plans under Medicare and Medicaid — the very markets that are expected to grow rapidly in coming years.

But a deal that is a boon to Coventry and Aetna shareholders is bad news for the rest of us, reducing the potential for greater competition in the health-care sector at the very time that the country is looking to competition to improve the quality of care and bring runaway costs under control.

According to a Kaiser Family Foundation study, health insurance competition is already so limited that in 30 states, the largest insurer controls more than half of the individual and small-business market — the same market that the Medicare and Medicaid programs fit into. On a national scale, the average number of serious competitors in each state is just four different insurance providers. That means hospitals are often able to negotiate prices that are 50 to 100 percent higher than the costs under Medicare and Medicaid.

The health insurance exchanges set up by the Affordable Care Act seek to enhance competition between health care providers, ultimately aiming to provide better quality of care by facilitating more choice within the market. However, big health insurers like Coventry will undermine that goal if they merge before Obamacare’s provisions fully go into effect next year. The insurance industry’s power plays underscores the need for expanding access to programs like Medicaid and Medicare. Nevertheless, Republican governors across the country have already pledged to reject federal funds to set up health insurance exchanges, despite the potentially catastrophic effects for their state’s low-income residents who already struggle to afford quality care.