As New Mexico moves forward with a federally mandated health insurance exchange, some state lawmakers are crying foul.

Democrats on the legislative Health and Human Services Committee say they've been left out of the process of creating the exchange—and that the resulting model will favor health insurers over consumers.

SFR recently obtained months' worth of emails between top officials at New Mexico's Human Services Department, which has overseen the development of the new exchange, and Utah-based Leavitt Partners, LLC—the private contractor HSD has hired to help design it.

The emails, obtained through a public-records request, show a state agency and a private, out-of-state contractor forging a close relationship while making behind-the-scenes decisions that will impact thousands of New Mexicans.

But state lawmakers don't plan to stand idly by. They're threatening legal action against Gov. Susana Martinez' administration, arguing that the planned exchange violates certain requirements of the federal Patient Protection and Affordable Care Act (also known as Obamacare). On Dec. 21, Attorney General Gary King, a Democrat, quietly issued an opinion arguing that provisions of a 1994 law that created the New Mexico Health Insurance Alliance—a sort of prototypical exchange that helps small businesses find affordable health insurance plans—"conflict with substantive requirements" of Obamacare. His conclusion? The Martinez administration's decision to use HIA as the basis of the new exchange may violate the new federal law.

Exchanges, a central tenet of Obamacare, are intended to be a one-stop shop where consumers and small businesses can easily find health insurance plans that fit their needs. States can build their own exchanges or let the federal government do it for them; New Mexico, which has opted to build its own, must begin enrolling people this October and have a fully operational exchange by January 2014.

Much of the current conflict centers around the HIA. Five of HIA's 14 board members represent health insurance companies; another nine are appointed by the governor to represent small businesses and nonprofits. The law creating HIA doesn't actually prohibit "majority control by insurance carriers, brokers or agents," the AG opinion states—so if enough non-industry seats on HIA's board remain vacant, insurers could dominate it. That would violate the Obamacare requirement that a majority of exchange boards' voting members cannot be insurers, brokers, "or any other individual licensed to sell health insurance."

HIA's board currently has five vacancies, leaving a breakdown of four industry representatives and five non-industry members.

"We're working with the governor's office to fill the vacancies we have. That's the best way to balance the board," says HIA Executive Director Mike Nuñez. He adds that there's no set timeline to fill those seats, but that they'll do it "as quickly as we can."

Still, some lawmakers say letting HIA run the new exchange may stifle consumer input and empower the very insurers Obamacare was supposed to regulate.

"One of the whole principles behind the exchanges is people [can] access quality, affordable health care," says state Sen. Jerry Ortiz y Pino, D-Bernalillo, a member of the HHS committee. "If the insurance industry is running it, they're going to try to maximize profit in the insurance industry. To me, that's the antithesis of quality, affordable care."

The law behind HIA has other problems, too. According to the AG opinion, for instance, it allows insurers to deny coverage based on preexisting conditions "in limited cases," which also would violate Obamacare.

Ortiz y Pino says the committee is considering taking "some kind of formal action," starting with sending a letter to HSD.

Still, there's something to be said for taking advantage of HIA's existing infrastructure and years of relevant experience rather than starting from scratch.

In many ways, HIA already operates like a health insurance exchange. And, according to HSD spokesman Matt Kennicott, "The governor's office does fully agree that there needs to be consumer representation on the board of the Alliance, and they're working towards finding an appropriate appoint to that board."  

But the emails obtained by SFR show that many of the exchange's details were discussed months ago—long before Martinez announced that the state would build an exchange—with Leavitt Partners playing a key role in crafting its policy and message.

On May 25, for example, HSD Secretary Sidonie Squier wrote in an email to Cheryl Smith, a director at Leavitt Partners, "It seems like you're waiting for us to tell you what we want, and we want you to tell us what we need."

Leavitt Partners—whose founder, Michael O Leavitt, has family with ties to the health insurance industry—took the green light.

On June 11, Smith emailed Squier, saying she would "prepare all educational and presentation materials in conjunction with each of these [public-input task force] meetings."

"We can be the subject matter experts and conduct all the meetings," she wrote, "but we'll need to have someone from HSD there to 'legitimatize' the meetings." Smith also wrote a speech for Squier to present to the HIA.

The issue is so fraught that both Ortiz y Pino and outgoing state Rep. Dennis Kintigh, R-Chaves, agree that, at this point, it might be better just to let the federal government handle it.

"I actually would rather have the Obama administration structuring the exchange than to see another attempt to give it to the insurance industry," Ortiz y Pino says.

Still, he expects the Obama administration to accept New Mexico's exchange model, "however bizarre" it is, "because they're so eager to have some Republican governor cooperating with the idea."

But Kintigh blames the federal government for contributing to the general confusion—especially when it comes to how much time and labor the exchange will cost the state.

 "A lot of people are throwing rocks at the [Martinez] administration, and I understand that," he says. "But what was Secretary Squier expected to do when we don't even know what the feds…[require] of us?"