NEW YORK/WASHINGTON | Wed May 11, 2011 5:54pm EDT - Most states likely will run their own medical insurance marketplaces or partner with neighbors to help expand coverage under the federal health overhaul, U.S. Health Secretary Kathleen Sebelius said on Wednesday.

The health insurance exchanges are a centerpiece of Democratic President Barack Obama's health care law. While Republican governors have objected to the law, Sebelius said she expected most states to opt to join the program.

"We think that the vast majority of states will choose to either run their own or run their own in conjunction with neighbors," rather than leave it to the federal government, Sebelius told the Reuters Health Summit.

States can create exchanges alone, band with neighboring states, or opt out entirely and have the federal government establish exchanges within their borders. Exchanges must be operational by January 2014 and self-supporting by January 2015.

The exchanges will be marketplaces where individuals, families and small businesses can shop for health insurance offered by various companies.

Sebelius, a former Kansas governor and insurance commissioner, said she was optimistic of state participation because states "know the market best."

"Having the knowledge of both the market, the companies (and) who's uninsured in my state" means exchanges "can best be structured at the state level," she said.

More than half of all states are challenging the health care law in federal court, focusing largely on a requirement that all Americans buy health insurance or pay a fine.

"We're confident that the law is on solid constitutional ground," Sebelius said. But she added there were other ways to expand insurance coverage if the mandate is struck down.

"There are all kinds of signup possibilities, auto enrollment and a variety of strategies," she said.

Health insurers, which were prime political targets during the debate over last year's law, face many new regulations, including rules starting this year that require them to meet certain thresholds for spending on medical care.

However, most of the large insurers, including Aetna, UnitedHealth Group and WellPoint, were able to post financial results for the first quarter of the year that surpassed Wall Street's expectations. Many also raised their profit targets for the year.

"The financial reports would indicate that health insurers are doing well in the market," Sebelius said. "Profits are robust. And companies who early on suggested in various parts of the country that they were going to withdraw unless X, Y or Z happened have indeed not followed through on those commitments."

Sebelius said she was encouraged that companies are able to strike a balance between insurance premium increases and the new requirements for industry spending on health benefits, known as medical loss ratios.

"We're seeing actually good news in rates going down in many places in the country, I think as a direct result of some of the initiatives under way" in the law, she said.

Small business owners are also returning to the marketplace to offer health care coverage, Sebelius said.

"Some of the issues about stability, I think in spite of the accusations that somehow the (law) was going to dismantle the market, seem to be wildly incorrect," Sebelius said.

© 2010 Thomson Reuters. Click for Restrictions.

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