Health Insurance Exchanges

July 14, 2011

On July 11, the Department of Health and Human Services (HHS) issued proposed rules outlining the mechanisms states must use in establishing Affordable Health Insurance Exchanges.  The establishment of these Exchanges was mandated as part of the Patient Protection and Affordable Care Act (ACA).

 

As envisioned by HHS, an Exchange is “a State-based competitive marketplace where individuals and small businesses will be able to purchase affordable private health insurance.” Under the new proposed federal standards, each state would have the opportunity to tailor its Exchange to meet its state-specific needs. 

 

Exchanges are, in effect, seen as a “one-stop shop” where individuals and small business can get information about their health insurance options, enroll in health insurance plans available through the Exchange, determine eligibility for federal tax credits for purchasing health insurance as well as determine eligibility for Medicaid or a state’s Children’s Health Insurance Program.

 

Under the proposed rule, Exchanges would:

 

*  Certify, recertify, and decertify health plans offering coverage through the Exchange, called qualified health plans;

*  Assign ratings to each plan offered through the Exchange on the basis of relative quality and price;

*  Provide consumer information on qualified health plans in a standardized format;

*  Create an electronic calculator to allow consumers to assess the  cost of coverage after  application of any advance premium tax credits and cost-sharing reductions;

*  Operate a website and toll-free telephone hotline offering comparative information on  qualified health plans and allowing consumers to apply for and purchase coverage if  eligible;

*  Determine eligibility for the Exchange, tax credits and cost-sharing reductions for private  insurance, and other public health coverage programs, and facilitating enrollment of  eligible individuals in those programs; and

*  Determine exemptions from requirements on individuals to carry health insurance, grant  approvals to individuals relating to hardship or other exemptions.

 

This proposed rule is intended to provide guidance to the states on how best to establish their Exchanges, including the purpose, scope, and operation of Exchanges and allow interested parties to comment on the contents of the proposed rule.

 

Although seemingly contradictory, HHS maintains that the rulemaking would establish a mechanism for state flexibility but yet create Exchange program that would be “standardized across the country.”

 

HHS also took this opportunity to announce the creation of the Small Business Health Options Program (SHOP).  According to HHS, SHOP will “provide a way for small employers to offer their employees a choice of health plans like those offered by large employers.”   SHOPs are intended to give small employers and their employees greater bargaining power, a bigger risk pool, and choices among affordable health plans.

 

Although employers would still be able to purchase health insurance coverage for the company’s employees outside of an Exchange, employers using the Exchange could choose the range of plans they want to make available to company employees, decide on a contribution toward the coverage and then allow employees to select the plans that best meets their needs and resources. 

 

Employers using the Exchange could offer multiple plans from several insurance companies, but would receive a single bill and write a single check to the Exchange.

 

As noted above, under the proposed standards, an Exchange must “certify” a health plan before it can be sold through the Exchange as a “qualified health plan.” 

 

In order to become certified, a health plan must meet certain minimum standards as outlined in this proposed rule.   The minimum standards encompass several different areas including

marketing and network adequacy (to the extent the plan is a network based plan). Exchanges can adopt additional criteria including affordability and quality.

 

Even though a health plan may meet the Exchanges marking and network adequacy requirements, an Exchange can reject an applicant if the Exchange determines that offering a particular plan is “not in the best interest of individuals or small businesses”.

 

The ACA mandates the establishment of an Exchange in every state but the law also allows the state to opt out of creating an Exchange.  If a state opts out of creating an Exchange, the federal government would then be authorized to create a federally supported and operated Exchange in that state. 

 

In announcing the guidelines for the establishment and operation of these state-based Exchanges, CMS also noted that they will be issuing additional guidance and proposed rules in the near future governing:

 

  1. Standards for individual eligibility for participation in the Exchange, advance payments of the premium tax credit, cost-sharing reductions, related health programs, and appeals of eligibility determinations;
  2. Standards outlining the Exchange process for issuing certificates of exemption from the individual responsibility requirement;
  3. Defining essential health benefits, actuarial value and other benefit design standards; and
  4. Standards for Exchanges related to quality.

 

To further review the Exchange proposed rule, click here.  

 

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