By Sharon Begley and Lewis Krauskopf
NEW YORK, Sept 21 (Reuters) - U.S. State officials behind the launch of President Barack Obama's healthcare reform on Oct. 1 say they could weather a federal government shutdown, though the scenario would add new pressure to the political attacks and technical issues that have weighed on the program's introduction.
Several officials running new state-based insurance exchanges that are due to open for enrollment next month said they expected to have access to funds in the case of a shutdown, which if it happens, would also start on Oct. 1, the beginning of the the fiscal year.
But they were unsure of the consequences for the federal agencies they work with, in part because they have not been briefed by the Centers for Medicare & Medicaid Services (CMS), the agency taking the lead in implementing the reform law.
The exchanges are key to the success of "Obamacare," as they aim to help millions of uninsured Americans receive benefits by providing government subsidies to buy insurance.
Officials involved in building the online marketplaces have already warned of technical bumps and glitches in the first few weeks after they go live, contributing to a slow start to enrollment.
Independent experts believe that "the effects of a government shutdown on the implementation of the ACA (Affordable Care Act) are likely to be pretty small," said Paul Van de Water, a policy analyst at the Center on Budget and Policy Priorities, a Washington-based non-profit think tank.
The main reason, he said, is that the money flowing to the 16 states and the nation's capital that are running their own ACA exchange is what's called a "permanent appropriation," enshrined in the 2010 healthcare reform law. Because the funds are not subject to annual appropriations, they will continue to be available to states that need to pay employees and contractors and buy equipment and supplies.
What is even less clear is the ability of the U.S. Department of Health and Human Services to operate a federal data "hub" that underpins both the state-run exchanges and the 34 state exchanges that fall under the purview of the administration.
The possibility of a federal government shutdown became more likely late last week, when congressional Republicans voted to fund the government but not the implementation of Obama's healthcare law.
The Democrat-controlled Senate is unlikely to go along. If the two chambers cannot agree on a spending bill by Sept. 30, it will trigger a government shutdown the next day.
Previous shutdowns, as well as a memo issued by the White House Office of Management and Budget (OMB) last week, shed some light on how another one would affect the rollout of the ACA.
OMB told federal agencies that they could continue to run "entitlement programs, such as social security benefits, for which an indefinite appropriation provides the funding."
During the longest government shutdown, from Dec. 16, 1995, to Jan.6, 1996, similar procedure allowed almost all employees of the Social Security Administration to continue working (and get paid), because Social Security "is a permanent program" that does not require annual appropriations from Congress to operate, said Van de Water.
The benefits established under the healthcare reform law, including federal subsidies to help people pay insurance premiums, "are also entitlements provided in permanent law," he said. "Under the OMB memo it seems highly likely that CMS would conclude that the people necessary to carry out the ACA could continue to work."
Federal employees working on Obamacare could therefore keep reporting to their desks even if they are not deemed "essential." OMB defines essential employees as those "providing for the national security," which means the military continues to operate during a government shutdown, or "the safety of life and property," which means people such as meat inspectors, FBI agents and federal prison guards remain on the job.
CMS referred questions about who would work and what ACA-related functions would be affected by a shutdown to OMB. In a statement, OMB spokesman Steven Posner said "agencies are still in the process of reviewing relevant legal requirements and updating their plans. Determinations about specific programs are being actively reviewed as agencies undertake this process."
KEEPING THE HUB OPEN
Another key question concerns how a shutdown would affect Obamacare's core information technology (IT) component, called the federal data services hub.
The hub funnels personal information, such as income, from databases at the Internal Revenue Service, other federal agencies and private data companies back to the state exchanges, indicating whether someone is eligible for federal subsidies to purchase health insurance.
"I have not been provided any information from CMS on whether the hub would operate" in the event of a government shutdown, said Rocky King, executive director of Cover Oregon, that state's Obamacare marketplace.
That will depend on how CMS interprets OMB's directive in two areas: contractors and information technology.
Contractors led by CGI Group Inc and Quality Software Services Inc have built and will operate much of the information technology (IT) underpinning the exchanges. Even if the data hub is allowed to operate during a government shutdown, "it needs continuous maintenance," said Michael Marchand, spokesman for Washington Health Plan Finder, that state's ACA marketplace.
OMB says that a contractor "may continue to proceed with its work" during a shutdown if the agency it's working for "already obligated funds representing the entire price under a contract" before the shutdown.
"This seems to say that if there is an issued contract, the contractors can keep working," said Van de Water.
CMS declined to say whether the IT contracts for Obamacare meet that criterion.
IT operations are allowed to continue only under limited circumstances, according to the OMB memo. One circumstance is if "their continuation is necessarily implied from a congressional authorization or appropriation of other continued functions."
States running their own Obamacare exchanges are also uncertain about whether their own employees will get paid in the event of a shutdown, and whether they will have access to the federal grants that support their operations. The ambiguity stems from the fact that the grants, totaling tens and even hundreds of millions of dollars, did not come in the form of a lump payment deposited in a state's bank account.
"These are draw-down grants so the money is not in our bank," said Oregon's King, referring to a system in which the federal government deposits funds in accounts that states draw from as expenses are incurred. "No information has been shared with me that we would be prevented from continuing that draw-down, but I just don't know."
Kevin Counihan, chief of Connecticut's Access Health CT exchange, said he should have enough money to operate for about four months in the event of a shutdown. Should the federal data hub not be operational, the state could still accept applications, he said. Officials in Colorado also said their exchange would function, but the state would have to make adjustments if the shutdown was prolonged.
Federal payments to subsidize insurance for eligible buyers - those with incomes less than four times the federal poverty level, or $62,040 for a couple - would not be in jeopardy because they are due just before coverage begins, not when someone enrolls. Anyone buying health insurance by Dec. 15, 2013, is covered as of Jan. 1, 2014.