New Jersey Senate passes bill to establish state-based ACA exchange: What was the holdup about?

Updated in 7/10/19 post: the question was how much Medicaid integration to seek, and when.

After an alarming delay,  the New Jersey Senate passed a bill late yesterday afternoon to create a state-based exchange. State Senate President/boss Stephen Sweeney had held the bill (S3807/A5499) up, and if it had not passed by the end of this month, when the legislative session ends, it would likely not have been possible to get the exchange up and running in time for Open Enrollment 2021, i.e. by November 1, 2020 (which may prove difficult in any case).

The state exchange is Gov. Murphy's initiative, and Sweeney may just have been holding it as a pawn in their death match over the state budget. But Sweeney claimed to have a substantive point that he needed fixed, and he appears to have got what he said he wanted -- though why anyone would object, I don't know.  Here is a statement he put out yesterday:

“We are in the process of amending the legislation creating the state health care exchange to include Medicaid eligibility. This is a significant improvement that will provide a single front door access point for enrollees and a single eligibility process for health insurance coverage.

“This will streamline the entire process for consumers, eliminate delays and duplication, help ensure that everyone gets the coverage they need and it will generate federal funds to help offset the operational costs.

“An integrated exchange enables the state to meet the needs of multiple programs with one system that ensures people get the coverage they qualify for. It will also protect against the ill effects of ‘churning,’ where enrollees are bounced back and forth between Medicaid and private insurance, leaving them at risk of gaps in their coverage.

“We are fully committed to establishing a state exchange and we are prepared to get it done as quickly as possible, but we have to make sure it is done right or we risk creating a flawed system that fails to serve the needs of New Jersey’s residents. It should not be rushed. We should take a lesson from the problems experienced by the federal exchange with the Affordable Care Act.

“This bill will establish an effective health insurance exchange that protects consumers and helps to ensure access to quality health care for everyone in New Jersey.

As Raymond Castro of New Jersey Policy Perspectives pointed out yesterday in Susan Livio's Star-Ledger coverage, these demands appear to be superfluous, as state exchanges are required by statute to integrate with state Medicaid systems, and the bill stipulated that the exchange would do so. Be that as it may, Sweeney's amendment changed the language around Medicaid integration, directing the state to pursue federal funding for the integration. The text to be replaced is in brackets, and I've bolded what appears to be the nub of the change:

The Commissioner of 1[Banking and Insurance shall] Human Services1, in consultation with the Commissioner of 1[Human Services, examine whether federal financial participation is available for the exchange as a State administrative expenditure necessary for the proper and efficient administration of the State Medicaid plan. If the commissioner, in consultation with the Commissioner of Human Services, finds that federal financial participation is available and practicable, the commissioners shall, in consultation with one another, secure the maximum federal financial participation available] Banking and Insurance, shall submit a proposal for available federal financial participation funds to the Centers for Medicare & Medicaid Services of the U.S. Department of Health and Human Services pursuant to 42 C.F.R. 433.112 for the Medicaid eligibility platform and the exchange to be integrated.  Notwithstanding the foregoing, the Department of Banking and Insurance may proceed to implement the provisions of this act, including the operation of the State-based exchange.  

Whereas the original language directs the agencies to "examine" whether federal funding is "available" to enable the exchange to 'administer' the state Medicaid plan, Sweeney's amendment directs the agencies (with Human Services, which administers Medicaid, leading) to "submit" a proposal for federal funding to "integrate" the Medicaid eligibility platform and exchange. The feasibility of pursuit of federal funding is assumed, and that pursuit is mandated.

The referenced 42 C.F.R. 433.112 concerns federal financial participation (FFP) "for design, development, installation or enhancement of mechanized processing and information retrieval systems."  Here's the first paragraph (my emphasis):

(a) Subject to paragraph (c) of this section, FFP is available at the 90 percent rate in State expenditures for the design, development, installation, or enhancement of a mechanized claims processing and information retrieval system only if the APD is approved by CMS prior to the State's expenditure of funds for these purposes.

It would seem that development of the Medicaid integration functions in a state exchange* would fall under the description in paragraph (c), as off-the-shelf software for state exchanges has been developed:

(1) FFP is available at 90 percent of a State's expenditures for the design, development, installation or enhancement of an E&E [eligibility and enrollment] system that meets the requirements of this subpart and only for costs incurred for goods and services provided on or after April 19, 2011.

(2) Design, development, installation, or enhancement costs include costs for initial licensing of commercial off the shelf (COTS) software, and the minimum necessary costs to analyze the suitability of COTS software, install, configure and integrate the COTS software, and modify non-COTS software to ensure coordination of operations. The nature and extent of such costs must be expressly described in the approved APD.

The statute also lays out a host of requirements for interoperability and quality control. A checklist for a state pursuing the funding is available here.

Did this change matter?  Was pursuit of 90% federal funding for the "eligibility and enrollment" functions under 42 C.F.R. 433.112 implicit in the original bill language?  I'll be asking folks today and will update as I can.

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* Clarification added as update. Federal funding for overall development of a state exchange is no longer available; Rep. Andy Kim (NJ-3) introduced a bill, passed by the House (integrated into HR 987, a bill that combined ACA fixes and prescription drug cost control measures), that would restore it.  But apparently, federal funding for Medicaid integration specifically might be.