The federal government and not Arizona will run the insurance exchange required by the Affordable Care Act.
In a letter Wednesday to Health and Human Services Secretary Kathleen Sebelius, Gov. Jan Brewer said her administration had made "significant progress'' in planning and designing the exchange. It would provide a marketplace for those who make too much to qualify for Medicaid but still meet certain income standards to buy subsidized health insurance.
But Brewer said the federal government has not provided detailed regulations on a timely basis for Arizona and other states to make informed decisions on whether to provide their own state-based exchanges. She also said there have been delays in telling states when required services will be made available.
Brewer is not alone in deciding to opt out and let the feds run the program: More than a dozen other governors already have made such a choice.
The governor's decision essentially means it will be the federal government which will set up an exchange in the state. That includes which insurers will be able to sell plans to Arizona residents.
The question of who runs the insurance exchange may have little impact on the average Arizonan. There is only limited flexibility for states to affect major issues like what medical conditions are and are not covered.
But it could be an early indication of her leanings on the other big decision she needs to make within the next two months about another key provision of the federal Affordable Care Act: whether to expand eligibility of the state's Medicaid program.
Thursday's decision not to have a state-run exchange came despite lobbying by hospitals and some health insurers in favor.
Pete Wertheim, vice president of the Arizona Hospital and Healthcare Association said while the question of who operates the exchange can make a big difference to health care providers. That's because Brewer's move means that the rules for the exchange will be decided by the federal Centers for Medicare and Medicaid Services in Washington rather than locally.
"There are some unknowns still left with what a federally operated or administered exchange in a state will look like, areas like rules of participation, what types of insurance plans can join the exchange, offer products, pricing, governance,'' Wertheim said. "There are a lot of issues that if you sort of forego those at a state level, you're sort of at the mercy of CMS to see what kind of rules they're going to dictate that states will play by.''
Gubernatorial press aide Matthew Benson said his boss normally prefers to have states in charge of programs, with the feds providing the money and only general guidance. But he said Brewer concluded that was not going to be the case here.
"There is no true local control under the Affordable Care Act,'' Benson said. "Whether we leave the exchange to the federal government or run it as a state, the reality is most of the decision making and authority would be left to the federal government.''
Benson said the governor, who already spent about $10 million in federal funds working to design a state-run exchange, did listen to the concerns of hospitals, insurance companies and patient advocacy groups. In the end, though, he said none of that alleviated her concerns.
One is that "lack of true authority'' Arizona would have in setting up and operating the exchange. But Benson said Brewer also was worried that it would fall to the state to construct and operate the exchange. Opting out means the financial burden falls on Washington.
And equally important, Benson said, was the fact that the federal government continues to issue and alter the rules and guidelines for how states would operate their own exchanges.
"The Obama administration appears to be in a mad dash to put this thing together as they go,'' Benson said.
"It's like they're building an airplane that's halfway down the runway,'' he continued. "The governor's not interested in playing along with that.''
Brewer's decision may actually have been foretold.
The governor previously acknowledged she would need legislative approval to set up a state-run exchange. And key Republican lawmakers said they would fight such a move, saying the state should not cooperate in any way with the Obama administration to implement the program.
That opposition was underlined in a statement applauding the governor's decision from Andy Biggs of Gilbert who is in line to be the next president of the state Senate.
"Any exchange run by Arizona would still include an inappropriate imposition by the federal government on our state,'' he said in a prepared statement. "While the Affordable Care Act is the mandate of the federal government, I remain unalterably opposed to the act.''
But Sen. Linda Lopez, D-Tucson, criticized the GOP opposition to a state-run exchange because they do not like what has been referred to as "Obama-care.''
"It is certainly disheartening that Republicans in the Legislature put partisanship first and vowed to derail any attempt to create a state-run exchange,'' she said in her own statement.
But Clint Bolick of the Goldwater Institute, which opposes not only state-run exchanges but the entire federal law, said the issues are not just partisan.
He said in states that run their own exchanges, the Affordable Care Act says companies which do not purchase insurance for their workers are subject to fines of up to $2,000 per worker. Bolick said there is no authority for such fines in states where the federal government runs exchanges, though he conceded that may have been a drafting oversight.
Brewer's decision does not take the state out of the picture entirely.
"We are working with (the federal agency) to determine what exactly that role is and what our responsibilities are and how those costs will be paid for,'' Benson said. In fact, Arizona still has access to about another $20 million from its $31 million federal grant to plan and implement exchanges.
Benson said Wednesday's action should not be seen as a precursor of another -- and more sweeping -- decision Brewer has to make within the next two months: expansion of the state's Medicaid program.
As originally approved, the federal law said anyone earning up to 133 percent of the federal poverty level would be eligible. That currently computes out to about $25,450 a year for a family of three.
Arizona law provides coverage for those up to the poverty level for all but single adults.
More to the point, the law said states had to comply or lose all of their federal Medicaid funds.
The U.S. Supreme Court upheld key elements of the law, including a mandate on individuals to buy health insurance or pay a penalty. But the justices struck down as illegal the provision forcing states to enroll more people.
That leaves it up to individual states to decide whether to go along voluntarily, with the promise of additional federal funds, at least up front, to cover the expanded enrollment.
One big concern is how long those extra federal dollars will be available as Washington seeks to trim its own deficits. That could leave Arizona with a much larger program, putting lawmakers into the politically tricky position of either absorbing the additional costs or having to tell people they are no longer eligible for care.