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[House Report 112-65]
[From the U.S. Government Publishing Office]

112th Congress  }                                           {    Report
  1st Session   }        HOUSE OF REPRESENTATIVES           {    112-65


 April 27, 2011.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed


         Mr. Upton, from the Committee on Energy and Commerce, 
                        submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 1213]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Energy and Commerce, to whom was referred 
the bill (H.R. 1213) to repeal mandatory funding provided to 
States in the Patient Protection and Affordable Care Act to 
establish American Health Benefit Exchanges, having considered 
the same, report favorably thereon without amendment and 
recommend that the bill do pass.


Purpose and Summary..............................................     2
Background and Need for Legislation..............................     2
Hearings.........................................................     3
Committee Consideration..........................................     3
Committee Votes..................................................     3
Committee Oversight Findings.....................................     9
Statement of General Performance Goals and Objectives............     9
New Budget Authority, Entitlement Authority, and Tax Expenditures     9
Earmark..........................................................     9
Committee Cost Estimate..........................................     9
Congressional Budget Office Estimate.............................     9
Federal Mandates Statement.......................................    14
Advisory Committee Statement.....................................    14
Applicability to Legislative Branch..............................    14
Section-by-Section Analysis of the Legislation...................    14
Changes in Existing Law Made by the Bill, as Reported............    14
Dissenting Views.................................................    16

                          Purpose and Summary

    H.R. 1213, a bill to repeal the mandatory funding provided 
to States to establish American Health Benefits Exchanges in 
the Prevention and Public Health Fund in the Patient Protection 
and Affordable Care Act (PPACA)(Public Law No. 111-148), was 
introduced on March 29, 2011, by Rep. Fred Upton (R-MI), and 
was referred to the Committee on Energy and Commerce.
    The goal of H.R. 1213 is to reduce federal spending, 
deficits, and debt by repealing mandatory programs with limited 
Congressional oversight.

                  Background and Need for Legislation

    Section 1311(a) of PPACA provides the Secretary of Health 
and Human Services (HHS) a direct appropriation of such sums as 
necessary for grants to states to establish exchanges and 
facilitate the purchase of qualified health plans. The size of 
the direct appropriation is solely determined by the Secretary. 
The Secretary can determine the amount of spending and spend 
the funds without further Congressional action. The proposed 
legislation would strike the unlimited direct appropriation and 
rescind any unobligated funds.
    The Congressional Research Service's (CRS) American Law 
Division confirmed these facts in a February 7, 2011 memo, 
stating that, ``the total amount of money the Secretary may 
expend for grants to the states under this section is 
indefinite.'' CRS further stated that, ``This section thus 
comprises both an authorization and an appropriation of federal 
funds and as such, it does not require any further 
congressional action to constitute an effective 
    Section 1311(a) funds could be used by states for 
activities related to developing state insurance exchanges 
which could include hiring and retaining hundreds of employees 
to establish their state Exchanges, such as brokers, 
advertisers, and customer service agents. Grants under this 
language can be used to ``facilitate enrollment'' into exchange 
plans. However, this term is undefined in the statute and could 
allow the funds to go towards any activity the Secretary 
determines could ``facilitate'' enrollment. The vague 
definition of ``facilitate'' is especially troubling in light 
of the unlimited appropriation provided to the Secretary.
    The unlimited appropriation made available under Section 
1311(a) also comes at a time when the growth in federal 
spending, particularly health care spending, has fueled 
mounting deficits and debt. The President's Budget calls for 
$3.8 trillion in federal spending for FY 2011. These spending 
levels represent 25.3 percent of GDP and are well above the 
historical average of 20.3 percent.
    Consequently, this record spending has lead to a FY 2011 
deficit of $1.6 trillion (10.9 percent of GDP). Deficits for FY 
2011 represent an all-time record both in nominal terms and as 
a share of the economy post-World War II.
    Record deficits have also induced record borrowing. The 
federal government is now borrowing 42 cents for every dollar 
it spends. By the end of the decade, the federal debt will 
nearly double from $14 trillion to $26 trillion. Interest alone 
will increase to $841 billion annually by 2021.
    In light of these sobering facts, reigning in government 
spending, especially programs with an unlimited appropriations, 
is the only responsible course if we are to avoid a debt 
crisis. H.R. 1213 helps achieve this goal by eliminating the 
unlimited appropriation made available to the Secretary under 
Section 1311(a) of PPACA.


    The Subcommittee on Health held a hearing on a discussion 
draft identical to H.R. 1213 on March 9, 2011. The following 
witnesses testified at the hearing:
           The Honorable Ernest J. Istook, The Heritage 
           Dr. John Goodman, President and CEO, 
        National Center for Policy Analysis
           The Honorable Joseph F. Vitale, New Jersey 
        State Senate
    The Secretary of HHS also testified before the Health 
Subcommittee at a March 3, 2011 hearing regarding the 
President's FY 2012 Budget and implementation of PPACA.

                        Committee Consideration

    H.R. 1213 was introduced by Chairman Fred Upton on March 
29, 2011, and was referred to the Committee on Energy and 
    On March 31, 2011, the Subcommittee on Health met in open 
markup session to consider H.R. 1213. Subsequently, the 
Subcommittee ordered H.R. 1213 favorably reported by a recorded 
vote of 14-11.
    On April 5, 2011, the Energy and Commerce Committee met in 
open markup session to consider H.R. 1213. Subsequently, the 
Committee ordered H.R. 1213 favorably reported by a vote of 31-

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto.


                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the oversight findings and 
recommendations of the Committee are reflected in the 
descriptive portions of this report, including the finding that 
reining in mandatory spending is necessary to avoid a debt 

         Statement of General Performance Goals and Objectives

    In accordance with clause 3(c)(4) of rule XIII of the Rules 
of the House of Representatives, the performance goals and 
objectives of the Committee are reflected in the descriptive 
portions of this report, including the goal of avoiding a debt 
crisis by reining in mandatory spending.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee finds that H.R. 
1213 would result in no new or increased budget authority, 
entitlement authority, or tax expenditures or revenues.


    In compliance with clause 9(e), 9(f), and 9(g) of rule XXI, 
the Committee finds that H.R. 1213 contains no earmarks, 
limited tax benefits, or limited tariff benefits.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

H.R. 1213--A bill to repeal mandatory funding provided to states in the 
        Patient Protection and Affordable Care Act to establish 
        American Health Benefit Exchanges

    Summary: H.R. 1213 would repeal mandatory funding 
established by the Patient Protection and Affordable Care Act 
(PPACA) to provide grants to states to establish health 
insurance exchanges.
    CBO and the staff of the Joint Committee on Taxation (JCT) 
estimate that enacting the legislation would reduce deficits by 
almost $13 billion over the 2012-2016 period and by about $14 
billion over the 2012-2021 period. Pay-as-you-go procedures 
apply because enacting the legislation would affect direct 
spending and revenues.
    Enacting H.R. 1213 could also lead to changes in spending 
subject to appropriation. While CBO has not yet completed an 
estimate of those potential effects on discretionary spending, 
we expect that the Department of Health and Human Services 
(HHS) would need additional resources because of increased 
responsibility for establishing health insurance exchanges.
    The bill contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 1213 is shown in the following table. 
The costs of this legislation fall within budget function 550 

                                                                                    By fiscal year, in billions of dollars--
                                                         2012    2013    2014    2015    2016    2017    2018   2019   2020   2021  2012-2016  2012-2021
                                                               CHANGES IN DIRECT SPENDING

Repeal Grant Authority:a
    Estimated Budget Authority........................    -0.6    -0.8    -0.4    -0.2       0       0      0      0      0      0      -1.9       -1.9
    Estimated Outlays.................................    -0.6    -0.8    -0.4    -0.2       0       0      0      0      0      0      -1.9       -1.9
Other Effects:
    Estimated Budget Authority........................       0       0    -2.1    -4.5    -4.7    -1.4      0      0      0      0     -11.3      -12.6
    Estimated Outlays.................................       0       0    -2.1    -4.5    -4.7    -1.4      0      0      0      0     -11.3      -12.6
    Estimated Budget Authority........................    -0.6    -0.8    -2.5    -4.7    -4.7    -1.4      0      0      0      0     -13.2      -14.6
    Estimated Outlays.................................    -0.6    -0.8    -2.5    -4.7    -4.7    -1.4      0      0      0      0     -13.2      -14.6

                                                                   CHANGES IN REVENUES

Estimated Revenues....................................       0       0       *    -0.4       *     0.2      0      0      0      0      -0.4       -0.2
    On-Budget.........................................       0       0     0.2     0.1     0.4     0.3      0      0      0      0       0.7        0.9
    Off-Budget........................................       0       0    -0.2    -0.5    -0.4    -0.1      0      0      0      0      -1.1       -1.2

                                                               NET CHANGES IN THE DEFICIT

Net Increase or Decrease (-) in the Budget Deficit....    -0.6    -0.8    -2.5    -4.3    -4.7    -1.5      0      0      0      0     -12.8      -14.4
    On-Budget.........................................    -0.6    -0.8    -2.7    -4.8    -5.1    -1.6      0      0      0      0     -13.9      -15.5
    Off-Budget........................................       0       0     0.2     0.5     0.4     0.1      0      0      0      0       1.1        1.2
Notes: Numbers may not sum to totals because of rounding.
*=increase or decrease in revenues of less than $50 million.
aRepealing mandatory funding for states to establish insurance exchanges would increase the workload for the Department of Health and Human Services for
  establishing such exchanges. As a result, there could be an increase in discretionary spending under H.R. 1213. CBO has not completed an estimate of
  those potential increases in spending subject to appropriation.
bAll off-budget effects would come from changes in revenues. (The payroll taxes for Social Security are classified as ``off-budget.'')

    Basis of estimate: H.R. 1213 would repeal section 1311 of 
PPACA. Section 1311 appropriates funds to the Secretary of HHS 
to make grants to states for planning and establishing health 
insurance exchanges. The Secretary has the discretion to 
determine the amounts awarded to states to establish exchanges 
until January 1, 2015, when that authority to provide grants 
expires. CBO estimates that under current law, spending for 
state grants to establish health insurance exchanges will be 
$1.9 billion between 2012 and 2015. By repealing section 1311, 
H.R. 1213 would eliminate that spending; in addition, the 
repeal would probably lead to some delay in the establishment 
of insurance exchanges and consequent changes in insurance 
coverage and federal spending.

The Role of States and the Federal Government in Establishing Exchanges

    States operating health insurance exchanges are responsible 
for certifying health plans as qualified plans under PPACA, 
providing consumer assistance and information for comparing 
plans, enrolling individuals and families into plans, 
determining eligibility for premium assistance credits and 
cost-sharing subsidies, and referring eligible applicants to 
Medicaid programs, among other activities. Health insurance 
exchanges will have the authority to charge assessments or user 
fees to participating health insurance issuers and after 
January 1, 2015, all health insurance exchanges must generate 
sufficient funds to meet their operating costs. Under PPACA, 
the Secretary of HHS will determine, by January 2013, whether a 
state will have an operational exchange by January 2014, and, 
if not, the federal government is required to set one up.
    CBO's and JCT's estimate of the number of people receiving 
subsidies through exchanges under current law is based in part 
on the assumption that most states would set up their own 
exchanges and that nearly all exchanges would be operational by 
January 2014. Under current law, however, exchanges are not 
expected to reach full enrollment until 2016. That expectation 
reflects the likelihood that some states will encounter delays 
in achieving fully operational exchanges in the first few 
years. In addition, participation rates among potential 
enrollees are expected to be lower in the first few years 
(beginning in 2014) as employers and individuals adjust to the 
features of PPACA.

Changes in Establishing Exchanges and Insurance Coverage Under the 

    Under H.R. 1213, CBO assumes that some states will move 
forward without federal funding to establish exchanges, but 
that the federal government will be required to take 
responsibility for setting up exchanges in more states than is 
expected under current law. While there may be some increased 
efficiency in the federal government implementing similar 
mechanisms across additional states, there are also reasons to 
believe that the federal government would face added 
challenges. In particular, coordinating with states' Medicaid 
agencies to establish enrollment rules as required under PPACA 
and communicating and coordinating with local health insurers 
and managed care organizations would probably slow the federal 
government's pace of implementation.
    Because of the reduced availability of funds to set up 
exchanges under H.R. 1213, states that establish exchanges 
without federal funding also may face greater challenges in 
becoming fully operational. We assume that such challenges for 
states and the federal government would temporarily limit the 
desirability of exchanges as an alternative to other sources of 
coverage, reduce the capacity of some exchanges to process 
enrollment and ultimately lower enrollment by an estimated 5 
percent to 10 percent below the levels expected under current 
law between 2014 and 2016. In 2015, we estimate that there 
would be almost 2 million fewer people enrolled in state 
exchanges. By January 2017, we assume that all exchanges will 
be fully operational whether set up by states or the federal 
government and that enrollment will be the same as projected 
under current law.
    The slowdown in establishing exchanges caused by H.R. 1213 
would also lead to other changes in health insurance coverage 
for the 2014-2016 period. The number of people offered 
insurance through an employer is expected to increase in 
response to the reduced availability and desirability of 
exchanges; CBO and JCT estimate that roughly half of the people 
who will not enroll in exchanges under H.R. 1213 will be 
covered by employer-sponsored insurance. Small reductions in 
Medicaid enrollment compared with current law are also expected 
because some exchanges will also have reduced ability to 
provide an alternative entry point to the Medicaid program. The 
number of people without health insurance is expected to 
increase by about half a million in 2015. We estimate that 
insurance coverage by January 2017 would be the same under H.R. 
1213 as under current law.

Impact on Federal Spending

    Enacting H.R. 1213 would reduce direct spending by an 
estimated $14.6 billion over the next 10 years, and would 
reduce revenues by a net amount of $0.2 billion over that same 
period. For this estimate, CBO assumes that the legislation 
will be enacted by the end of September 2011.
    Outlays for state grants would be reduced by $1.9 billion--
the entire amount that CBO has assumed will be spent under 
current law on such grants between 2012 and 2015.
    CBO and JCT estimate that most of the budgetary effect of 
eliminating grants for states under H.R. 1213 would come from 
reductions in subsidies for health insurance purchased through 
exchanges. Payments for premium and cost-sharing subsidies 
(which affect both revenues and direct spending) would be 
reduced over the 2012-2021 period.\1\ The net reduction would 
reflect savings from the reduction in exchange subsidies 
stemming from the reduction in exchange enrollment and the 
increase in subsidies that would occur in states that offset 
the loss of grant funds for establishing their exchanges by 
adding an additional surcharge for participating health 
insurance issuers. That surcharge would have the effect of 
raising premiums slightly for health insurance offered through 
those exchanges with an increase in estimated subsidies.
    \1\Subsidies for health insurance premiums are structured as 
refundable tax credits; the portions of such credits that exceed 
taxpayers' liabilities are classified as outlays, while the portions 
that reduce tax payments are reflected in the budget as reductions in 
    Other smaller effects include savings to the Medicaid 
program because of the reductions in enrollment discussed above 
and a small reduction in revenues because of changes in the 
amount of taxable compensation from an increase in the number 
of people with employer-sponsored health insurance.
    Pay-as-you-go-considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in on-budget deficits that are 
subject to those pay-as-you-go procedures are shown in the 
following table.

                                                                           By fiscal year, in millions of dollars--
                                      2011    2012      2013      2014      2015      2016      2017     2018   2019   2020   2021  2011-2016  2011-2021
                                                  NET INCREASE OR DECREASE (-) IN THE ON-BUDGET DEFICIT

Statutory Pay-As-You-Go Impact.....      0      -550      -750    -2,650    -4,800    -5,100    -1,600      0      0      0      0    -13,850    -15,450
    Changes in Outlays.............      0      -550      -750    -2,500    -4,700    -4,700    -1,350      0      0      0      0    -13,200    -14,550
    Changes in Revenues............      0         0         0       150       100       400       250      0      0      0      0        650        900

    Intergovernmental and private-sector impact: H.R. 1213 
contains no intergovernmental or private-sector mandates as 
defined in UMRA. By eliminating funding made available by 
PPACA, the bill would decrease the amount of resources that 
state, local, and tribal governments receive to establish 
health exchanges.
    Estimate prepared by: Federal Costs: Jean Hearne, Paul 
Jacobs, and Sarah Anders; Impact on State Local, and Tribal 
Governments: Lisa Ramirez-Branum; Impact on the Private Sector: 
Sarah Axeen.
    Estimate approved by: Holly Harvey, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation

Section 1. Repealing Mandatory Funding to States to Establish American 
        Health Benefit Exchanges

    Section 1 repeals Section 1311(a) of PPACA and rescinds 
unobligated funds made available by such Section 1311(a).

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets and 
existing law in which no change is proposed is shown in roman):


           *       *       *       *       *       *       *
Title I--Quality, Affordable Health Care for all Americans

           *       *       *       *       *       *       *

Subtitle D--Available Coverage Choices for All Americans

           *       *       *       *       *       *       *

                           BENEFIT EXCHANGES


  [(a) Assistance to States to Establish American Health 
Benefit Exchanges.--
          [(1) Planning and establishment grants.--There shall 
        be appropriated to the Secretary, out of any moneys in 
        the Treasury not otherwise appropriated, an amount 
        necessary to enable the Secretary to make awards, not 
        later than 1 year after the date of enactment of this 
        Act, to States in the amount specified in paragraph (2) 
        for the uses described in paragraph (3).
          [(2) Amount specified.--For each fiscal year, the 
        Secretary shall determine the total amount that the 
        Secretary will make available to each State for grants 
        under this subsection.
          [(3) Use of funds.--A State shall use amounts awarded 
        under this subsection for activities (including 
        planning activities) related to establishing an 
        American Health Benefit Exchange, as described in 
        subsection (b).
          [(4) Renewability of grant.--
                  [(A) In general.--Subject to subsection 
                (d)(4), the Secretary may renew a grant awarded 
                under paragraph (1) if the State recipient of 
                such grant--
                          [(i) is making progress, as 
                        determined by the Secretary, toward--
                                  [(I) establishing an 
                                Exchange; and
                                  [(II) implementing the 
                                reforms described in subtitles 
                                A and C (and the amendments 
                                made by such subtitles); and
                          [(ii) is meeting such other 
                        benchmarks as the Secretary may 
                  [(B) Limitation.--No grant shall be awarded 
                under this subsection after January 1, 2015.
          [(5) Technical assistance to facilitate participation 
        in SHOP exchanges.--The Secretary shall provide 
        technical assistance to States to facilitate the 
        participation of qualified small businesses in such 
        States in SHOP Exchanges.]

           *       *       *       *       *       *       *

                            DISSENTING VIEWS

    We, the undersigned Members of the Committee on Energy and 
Commerce, oppose the passage of H.R. 1213, to repeal mandatory 
funding provided to states in the Patient Protection and 
Affordable Care Act (ACA) to establish American Health Benefit 
Exchanges, and accordingly, submit the following comments to 
express our concerns about this deeply flawed and deeply 
divisive legislation.
Private Insurance Marketplace Prior to Health Reform Exchanges
    Private health coverage is provided primarily through 
employers. In 2010, about 157 million nonelderly people were 
insured through employer sponsored health insurance.\1\ While 
99% of large firms offer health insurance coverage, just 59% of 
firms with fewer than 10 workers offered insurance in 2010; 
this was a jump from 49% in 2008 and 2009.\2\ In 2010, 76% of 
firms with 10 to 24 workers and 92% of firms with 25 to 49 
workers offered insurance.\3\
    \1\Kaiser Family Foundation, The Uninsured: A Primer (Oct. 2009) 
(online at /documents/KFF-UninsuredPrimer.pdf).
    \2\G. Claxton et al., Employer Health Benefits, 2010 Annual Survey, 
The Kaiser Family Foundation and Health Research and Education Trust 
(Sept. 2010) (online at
    For the smallest firms, those with less than 10 workers, 
premiums were 18% higher than those paid by firms with 100 or 
more workers and still may not have included broker fees.\4\ 
According to the Congressional Budget Office, administrative 
costs make up 27% of premiums for the very small firms compared 
with 9% for firms with at least 100 employees.\5\ Increasing 
costs of health insurance have led some small employers to drop 
coverage, with the share of small business employees enrolled 
in employer-sponsored coverage decreasing from 43 to 36% from 
1999 to 2009.\6\
    \4\S. Collins et al., Realizing Health Reform's Potential: Small 
Businesses and the Affordable Care Act of 2010 (Sept. 2010) (online at /media/Files/Publications/
    \5\Letter from Douglas W. Eldmendorf, Director, Congressional 
Budget Office, to Senator Evan Bayh (Nov. 30, 2009) (online at http://
    \6\, Health Insurance Premiums: Past High Costs Will 
Become the Present and Future Without Health Reform (Jan. 28, 2011) 
(online at
    People without access to employer-sponsored insurance may 
obtain health insurance on their own, usually through the 
individual health insurance market. Only 14 million nonelderly 
people bought health insurance in the individual or non-group 
market while 50 million people were uninsured.\7\ About half 
the uninsured were self-employed or worked for a small 
    \7\Kaiser Family Foundation, Survey Report: Survey of People Who 
Purchase Their Own Insurance (June 2010) (online at
kaiserpolls/upload/8077-R.pdf); and C. DeNavas et al., Income, Poverty, 
and Health Insurance Coverage in the United States: 2009, U.S. Census 
Bureau (Sept. 2010) (online at
    \8\Small Business Majority, Healthcare: Statistics, Small Business 
and the Healthcare Crisis (online at http:// 
(accessed Apr. 25, 2011).
    Unlike employer-sponsored group coverage, in which 
eligibility in a group is guaranteed by federal and state laws 
and premiums are generally based on the risks associated with a 
group of beneficiaries, eligibility and initial premiums in the 
individual markets of many states are based largely on an 
individual's health status and risk characteristics.
    The Commonwealth Biennial Health Insurance Survey found 43% 
of adults who shopped for coverage in the individual market 
found it very difficult or impossible to find a plan that fit 
their needs.\9\ More than one-third of applicants were turned 
down by an insurance carrier or were charged a higher premium 
due to a health problem or were offered insurance that did not 
cover that health problem.\10\
    \9\S. Collins, et al., Help on the Horizon, Findings from the 
Commonwealth Biennial Health Insurance Survey of 2010 (Mar. 2011) 
(online at /media/Files/Surveys/2011/
    \10\ Id.
    Practices of denying sick people insurance, charging them 
more, or offering them coverage that does not cover the 
illnesses they had when they sought insurance protect insurer 
risk pools and help lower premiums. But they are detrimental to 
a vibrant, healthy, and financially secure marketplace. These 
practices limit meaningful access to coverage for people that 
have developed health problems and results in uncertainty in 
coverage for those that receive insurance. They also hamper 
movement from jobs where insurance is offered to self-
employment or employment in a small business, resulting in job 
American Health Benefit Exchanges
    The enactment of the ACA in March 2010 started to put the 
American people back in charge of their health care by 
requiring insurance companies to be more transparent and 
accountable for their costs and actions. Within 6 months of 
enactment, this law ended many of the worst insurance industry 
abuses, including arbitrary recessions of coverage when a 
person gets sick and denials of insurance for children with 
pre-existing conditions.\11\ In 2014, additional insurance 
reforms will bring Americans new rights and benefits, and 
increase the quality of their health care and lower their 
costs. These reforms include no discrimination in premiums 
based on gender, no denials for pre-existing conditions for 
anyone, coverage of basic set of benefits and services, and no 
annual and lifetime limits on coverage for essential health 
    \11\The ACA is comprised of two public laws, P.L. 111-148 and P.L. 
    The successes of these reforms rely on the new health 
insurance exchange marketplaces that will be established in 
2014 as required by the ACA. An exchange is a mechanism for 
organizing the health insurance marketplace to help consumers 
and small businesses shop for coverage in a way that permits 
easy comparison of available plan options based on price, 
benefits and services, and quality. Exchanges will provide a 
transparent, competitive marketplace for individuals and small 
businesses to buy coverage.
    The new marketplace will provide families and businesses 
advantages of pooling risk that were previously only available 
to the largest employers by creating a single risk pool within 
the individual and small business exchanges.\13\ By pooling 
people together, reducing transaction costs, and increasing 
transparency, exchanges create more efficient and competitive 
markets for individuals and small employers. The new 
marketplace keeps intact America's employer based system while 
expanding access to tens of millions of people. Tax credits 
will make coverage more affordable for low and middle-income 
families and eligible small businesses.
    \13\ACA Section 1312(c).
    Beginning with an open enrollment period in 2013, exchanges 
will help individuals and small employers shop for, select, and 
enroll in high-quality, affordable private health plans that 
fit their needs at competitive prices. Exchanges will assist 
eligible individuals to receive premium tax credits or coverage 
through other federal or state health care programs.\14\ By 
providing one-stop shopping, exchanges will make purchasing 
health insurance easier and more transparent. Health plans 
offered in exchanges shall be required to be transparent and 
make disclosure of claims payment policies, enrollment and 
disenrollment data, data on denied claims, information on cost 
sharing and coverage, and more.\15\
    \14\ACA Sections 1311(b) and 1311(d)(4).
    \15\ACA Section 1311(e)(3).
    When fully implemented, health plans offered through 
exchanges will compete based on price and quality rather than 
market segmentation and risk selection. This directly relates 
with prohibition on medical underwriting and rate reforms that 
would also take effect in 2014.\16\ The non-partisan 
Congressional Budget Office (CBO) estimated that by 2021, 
approximately 24 million people will purchase their health 
insurance through exchanges.\17\
    \16\The Kaiser Family Foundation, Focus on Health Reform (Apr. 
2010) (online at
    \17\House Committee on Energy and Commerce, Subcommittee on Health, 
Testimony of CBO Director Douglas Elmendorf, Hearing on the Cost of the 
ACA, 112th Cong. (2011).

State versus Federal Exchanges

    The ACA requires that exchanges be developed and 
operational in every state for individual and small businesses 
by January 1, 2014.\18\ A state is first given the opportunity 
to set up a state exchange and can apply for grants for the 
establishment of this exchange. If the state does not elect to 
set up a state exchange, the Secretary of Health and Human 
Services (the Secretary) will set one up in the state for 
individuals and small businesses.
    \18\ACA Section 1311.
    The state has significant flexibility in the type of 
exchange it would operate if it elects to establish a state 
exchange. The state could determine which insurers are 
permitted to offer products in the exchange. It could determine 
the variety of plans that could be offered, for example whether 
consumer driven health plans and health savings accounts are 
offered. The state could determine the governance structure. 
The state could determine whether to merge the individual and 
small group markets. The state could determine whether 
employers with over 50 employees are permitted into the 
exchange to purchase insurance over time. The state could 
determine the financing mechanism that will be used to operate 
the exchange in the future. The state could determine whether 
the exchange will be an active purchaser in selecting health 
plans to get the best price and quality for its citizens. The 
state could determine how involved the exchange will be in 
enforcing health insurance market standards as a part of their 
certification in tandem with the state health insurance 
    An exchange may operate in multiple states if each state 
agrees to the operation of the exchange and if the Secretary 
approves.\19\ A state may have more than one exchange, called 
subsidiary exchanges if each serves a geographically distinct 
area and the area served is adequately large.\20\
    \19\ACA Section 1311(f).
    If the state does not elect to set up an exchange or the 
Secretary determines before 2013 that a state will not have an 
exchange operational by 2014 the Secretary is required to 
establish and operate an exchange in the state and to implement 
the standards.\21\ In the case the federal government 
establishes and operates the exchange, it will make these 
    \21\ACA Section 1321.

Oversight of Exchanges

    The Secretary, in coordination with the HHS Inspector 
General, will have authority to investigate exchanges. 
Exchanges will be subject to annual HHS audits.\22\ If the 
Secretary finds serious misconduct, payment otherwise due to 
the exchange may be rescinded, up to 1% of such payments, until 
corrective actions are taken that are deemed adequate by the 
Secretary.\23\ Payments made under the exchange provisions of 
the ACA are subject to the False Claims Act.\24\ The Government 
Accountability Office is required to review the operations and 
administration of the exchange.\25\ In addition, the committee 
on Energy and Commerce, and the Committee on Oversight and 
Government Reform, other congressional committees, and others 
can provide oversight of the implementation of the activities 
and expenditures under section 1311 of the Affordable Care 
    \22\ACA Section 1313.

Funding for Exchanges

    Section 1311 of the ACA requires the Secretary, within one 
year of enactment, to award grants to states to plan and 
establish exchanges.\27\ By January 1, 2014, each state must 
have an exchange to facilitate access to qualified health 
plans. The grants are provided to states making progress in 
establishing an exchange, implementing ACA's private health 
insurance market reforms, and meeting other benchmarks. 
However, no grant may be awarded after January 1, 2015, and 
after this date, operations of the exchange must be self-
sustaining using assessments on insurers or some other way to 
generate funds to support their operations.\28\ In addition, 
the grants must be used solely for the activities and functions 
listed in section 1311.\29\
    \27\ACA Section 1311.
    \28\See e.g., ACA Section 1311 (relating to assistance to States to 
establish Exchanges).
    \29\ACA Section 1311.
    Thus far, the Center for Consumer Information and Insurance 
Oversight (CCIIO) has awarded $54 million in exchange planning 
grants to 49 states and the District of Columbia along with 
four territories. States may use grants for a number of 
important planning activities including research of their 
insurance markets, efforts to obtain the legislative authority 
to create exchanges, and steps to establish the governing 
structures of exchanges.\30\
    \30\U.S. Department of Health and Human Services, News Release: HHS 
Announces New Resources to Help States Implement Affordable Care Act 
(Jan. 20, 2011) (online at
    In addition, 7 grantees across 12 states have received $241 
million to develop model Information Technology (IT) systems to 
operate the functions of the exchange.\31\ Whatever systems are 
developed and best practices learned can be used by other 
states for development of information technology systems that 
will help with eligibility and enrollment. Such systems can be 
combined with state Medicaid systems and others, but all monies 
for the development of combined technology must be allocated 
according to the different programs. According to November 3, 
2010, guidance from CMS, ``State Exchange grants will provide 
100 percent support for Exchange IT infrastructure and now this 
[Medicaid] 90 percent matching rate will be available for the 
Exchange-related (accessed Apr. 8, 2011). Medicaid eligibility 
system changes well as for those Medicaid system changes not 
directly related to the Exchanges.''\32\
    \31\, States Leading the Way on Implementation: HHS 
Awards ``Early Innovator'' Grants to Seven States (online at http:// (accessed 
Apr. 8, 2011). Medicaid eligibility system changes well as for those 
Medicaid system changes not directly related to the Exchanges.''\32\
    \32\Letter from Joel Ario, Director, Office of Health Insurance 
Exchanges, Office of Consumer Information and Insurance Oversight, U.S. 
Department of Health and Human Services and Cindy Mann, CMS Deputy 
Administrator and Director, Center for Medicaid, CHIP and Survey ` 
Certification, Centers for Medicare ` Medicaid Services, to State 
Medicaid Directors, State Health Officials, and State Health Insurance 
Commissioners (Nov. 3, 2010) (online at

Structure of Funding

    The structure of the funding for the establishment of 
exchanges has been criticized as being an open ended mandatory 
funding stream. However, mandatory, time limited funding is 
consistent with previous laws passed by both parties.
    Having a mandatory and stable stream of funding for this 
central feature of the health insurance reforms is critical. 
Senator Harkin stated, in testimony for the record, that ``[T]o 
ensure the success of the Affordable Care Act, we needed to 
guarantee that reliable and predictable funding would be 
available for key programs. As the Chairman of both the Senate 
Committee on Health, Education, Labor, and Pensions and the 
Appropriations Subcommittee for Labor, Health and Human 
Services, and Education, I understand the implications of this 
guarantee--that Congress should mandate appropriations for 
certain programs in the Affordable Care Act that are 
fundamental to its success. This is a process that Congress has 
done many times in the past in various areas and there has been 
no controversy. It is now clear that those who want to repeal 
the Act are seeking to starve these important elements of funds 
in an effort to derail health reform.''\33\
    \33\House Energy and Commerce Committee, Subcommittee on Health, 
Testimony of Senator Tom Harkin, Chairman of the U.S. Senate Committee 
on Health, Education, Labor, and Pensions and the U.S. Senate Committee 
on Appropriations, Hearing on Setting Fiscal Priorities in Health Care 
Funding, 112th Cong. (Mar. 9, 2011).
    In fact, in this regard, the Affordable Care Act was little 
different from other laws passed by Congress in recent years. 
It included a mix of discretionary program authorizations and 
mandatory spending. That mandatory spending was well-documented 
at the time of passage and included in each CBO score of the 
legislation from the summer of 2009 through passage in March, 
    Two examples of laws considered by the Energy ` Commerce 
Committee when it was last under the control of Republicans in 
the 108th and 109th Congresses illustrate how Congress has 
previously used mandatory appropriations. These laws are the 
Medicare Prescription Drug Improvement and Modernization 
Act\34\ and the Deficit Reduction Act,\35\ both of which were 
spearheaded by Republican congressional leadership. These laws 
contained billions of dollars of mandatory appropriations 
funding a wide array of government activities.\36\
    \34\The Medicare Prescription Drug Improvement and Modernization 
Act is P.L. 108-173.
    \35\The Deficit Reduction Act is P.L. 109-171.
    \36\House Committee on Energy and Commerce, The Pitts Proposal to 
Block Mandatory Funding in the Affordable Care Act (Mar. 2011) (online 
    The Medicare Prescription Drug Improvement and 
Modernization Act included specific mandatory appropriations, 
including an open ended but time limited mandatory 
appropriation for a drug assistance program. That program, like 
the exchange grants, served as a bridge until the full Medicare 
prescription drug benefit became effective.

Analysis and Impact of H.R. 1213

    H.R. 1213 repeals the mandatory funding provided to states 
under the ACA to establish exchanges. This denies States the 
necessary funding to establish the new health insurance 
marketplace and undermines the work they have already done to 
implement exchanges. This legislation would rescind unobligated 
funds from the $54 million states have been awarded in planning 
grants, and would prohibit further funding, limiting states 
ability to advance on the establishment of their exchanges.
    According to Alan Weil, Executive Director of the National 
Academy for State Health Policy, ``[S]tates are doing their 
best to comply with the federal law and to implement the law in 
a manner that conforms to their own needs. Federal support for 
those activities is critical. One likely consequence of reduced 
federal funding is poor implementation, with state officials on 
the hook for failures that are not of their own making. Another 
likely consequence is states deciding to cede authority for 
implementation to the federal government--a decision most 
states would strongly prefer not to make.''\37\
    \37\House Committee on Energy and Commerce, Testimony of Alan Weil, 
Executive Director, National Academy for State Health Policy, Hearing 
on Setting Fiscal Priorities in Health Care Funding, 112th Cong. (Mar. 
9, 2011).
    Current budget deficits in most states have created 
difficult economic environments to establish state-based 
exchanges. Without grants from the Department of Health and 
Human Services, states will be forced to pay for exchange 
activities, along with outreach and education activities, on 
their own if they wish to establish a state run exchange. 
Exchange grants provide states the financially security needed 
to avoid wrestling with budget issues and worrying about self-
sustainability before January 1, 2015. The inevitable result of 
enactment of this legislation is that a number of states that 
would prefer to run their own exchanges will be unable to do 
so, and the default to federal control will be more likely to 
occur. Yet states are best positioned to establish the new 
marketplace for their residents.
    Already 49 states and the District of Columbia have shown 
an interest in the setting up an exchange marketplace on their 
own. A repeal of the exchange grants is effectively taking away 
from states the ability to set up exchanges.

                                   Henry A. Waxman.
                                   Frank Pallone, Jr.
                                   Doris O. Matsui.
                                   Anna G. Eshoo.
                                   Mike Doyle.
                                   Donna M. Christensen.
                                   Anthony Weiner.
                                   Edolphus Towns.
                                   Charles A. Gonzalez.
                                   Lois Capps.
                                   Eliot L. Engel.
                                    Edward J. Markey.
                                   John D. Dingell.
                                   Jay Inslee.
                                   Diana DeGette.
                                   Jan Schakowsky.
                                   Tammy Baldwin.
                                   Bobby L. Rush.
                                   G.K. Butterfield.
                                   Gene Green.