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									Health Insurance Exchanges:
Key Issues for State Implementation
by Robert Carey
Prepared for State Coverage Initiatives by Public Consulting Group

September 2010

    Introduction                                    developing their own Exchange. As a
                                                    result, they will need to make a number of
                                                                                                    participate in the myriad policy and
                                                                                                    regulatory decisions to be issued by the
    Well-functioning Health Benefit Exchanges
                                                    key decisions.                                  federal government. As federal policies
    (Exchanges) may determine the success of
                                                                                                    are established and regulations are
    federal health care reform in meeting its       This issue brief delves into some of the
                                                                                                    promulgated, states will need to adapt and
    goals to improve access to health coverage,     details of the health insurance Exchange,
                                                                                                    modify their plans in order to successfully
    enhance the value of health insurance, and      as defined by the ACA, and highlights a
                                                                                                    establish their Exchange.
    moderate the cost of health care. Across        number of key issues for states to consider,
    the country, state governments will play        including:
    the pivotal role in operating the Exchanges,
    facilitating the expansion of Medicaid, and     • Governance structure and                      Whether to Establish
    implementing market-altering changes                administration;                             a State-Based
    to the rules governing commercial health
                                                    • Key functions and responsibilities;           Exchange
                                                                                                    An immediate decision for states is
    The American Health Benefits Exchange
                                                    • Operation of the Exchange alongside           whether to establish their own Exchanges
                                                        the state’s commercial health insurance
    (for individuals) and the Small Business                                                        or to rely on the federal government to do
    Health Options (SHOP) Exchange (for                                                             so on their behalf. While deferring this
    small employers) will serve as central          • Rules governing carrier participation in      responsibility to the federal government
    points of access to commercial health               the Exchange;                               may seem appealing, there are pros and
    insurance for millions of individuals                                                           cons for states to consider. The value
    and hundreds of thousands of small
                                                    • Risk selection, inside and outside the        of establishing a state-based Exchange
    employers. In some states, enrollment in                                                        includes:
    the Exchange may exceed the number of           • The interaction between the Exchange          • Maintaining regulatory authority over
    people currently covered by their Medicaid          and the state’s Medicaid and CHIP
                                                                                                      a large share of the commercial health
    program.                                            programs;
                                                                                                      insurance market;
    By January 2014, individuals and small          • The type and level of customer service that • Mitigating risk selection that may result
    employers will be able to shop for                the Exchange will need to provide; and
                                                                                                      from different rating and underwriting
    insurance from a range of health plans
    offered through the Exchanges. Lower-           •   Whether states should establish               rules for insurance policies sold inside
                                                        their own Exchange or defer that              and outside the Exchange;
    and middle-income individuals earning
                                                        responsibility to the federal government.
    up to four times the Federal Poverty Level                                                      • Enabling greater coordination of
    (FPL) – more than $88,000 for a family          Although much remains to be determined            benefits and eligibility rules across health
    of four in calendar year 2010 – may             with regard to the set up of the Exchanges,       coverage programs (e.g., Medicaid,
    be eligible for premium subsidies for           state officials will need to begin planning       CHIP and policies sold through the
    commercial health plans. Small employers        and establishing the infrastructure and           Exchange); and
    with lower-income workers that provide          the policies required for the successful
    employer-sponsored insurance (ESI) may          implementation of health reform and             • Promoting state health reform strategies
                                                                                                      and priorities through the Exchange.
    be eligible for premium subsidies for up to     the operation of state-based Exchanges.
    two years.                                      Figuring out how best to position the           On the other hand, there are risks for
                                                    Exchange in 50 state health insurance           states that choose to establish their own
    People who today cannot afford health
                                                    markets and the District of Columbia            Exchange, including:
    insurance or are denied coverage due to
                                                    will require an unprecedented amount
    poor health will soon be able to purchase
                                                    of collaboration between states and the         • The challenge of creating a new
    insurance. In addition to premium                                                                 program, particularly at a time when
                                                    federal government, across state agencies,
    subsidies, the health plans will limit point-                                                     many states are struggling to balance
                                                    among stakeholders, and throughout the
    of-service cost sharing (i.e., co-payments,                                                       their budgets;
                                                    health insurance industry.
    co-insurance, deductibles) and cap
    members’ out-of-pocket expenses.                This brief provides policymakers and            • The requirement that the Exchange be
                                                                                                      self-sustaining by 2015; and
                                                    interested parties with a framework to help
    Though the Patient Protection and
    Affordable Care Act (ACA) sets broad
                                                    states plan for and establish state-based       • The tension that will be created between
                                                    Exchanges. While this brief can help states       keeping administrative fees low while
    parameters for the Exchanges and federal
                                                    develop a roadmap to implementation,              satisfying the demands for high quality
    regulations will provide further guidance,
                                                    they will need to actively monitor and            customer service.
    states are allowed some flexibility in
To ensure that residents of every state have   responsibility of state government. Given      of inconsistent rules between the two
access to insurance through an Exchange,       the central role the Exchange will play as     markets. That might then lead to one
the law requires the secretary of the U.S.     a distribution network for commercial          distribution channel (e.g., the Exchange)
Department of Health and Human Services        insurance, states may be loathe to             attracting less healthy individuals than
(HHS) to determine by January 2013             relinquish any regulatory authority over       the other, thereby driving up premiums
whether a state has taken actions necessary    what will likely be a sizeable share of the    due to adverse risk selection for health
to implement an Exchange (i.e., adopt laws     individual market, as well as a portion of     plans offered through the Exchange. A
and regulations to establish the Exchange)     the small group market.                        state-administered Exchange will likely
and whether a state is likely to have an                                                      be better positioned to align the rules and
                                               Regulatory Issues: The law explicitly
Exchange operating by January 1, 2014.                                                        regulations across all distribution channels
                                               states that federal establishment of an
For states that choose not to, or are unable                                                  to avoid, or at least minimize, the potential
                                               Exchange will not preempt any state law
to, establish their own Exchanges by that                                                     for risk selection.
                                               “that does not prevent the application of
date, the federal government will establish
                                               the provisions” of the federal Exchange.       Promoting State Priorities: The Exchange
and operate the Exchange within the state.
                                               However, in the event a state decides not      can also be a powerful tool for states to
This means that by early 2011 states will
                                               to operate an Exchange, its authority to       help advance other health care priorities,
need to determine whether to establish a
                                               regulate insurance inside the Exchange         such as payment reform, development
state-administered Exchanges. A number
                                               would likely be compromised, potentially       of medical homes and accountable care
of factors will influence that decision, and
                                               subjecting carriers to two sets of rules and   organizations, promotion of consumer-
the following sections highlight the major
                                               reporting requirements for policies sold       directed health insurance, or the
issues for states to consider.
                                               inside the Exchange (federal) and outside      establishment of select or tiered network
Funding: A key issue for states will be        the Exchange (state).                          health plans. The combined volume of
the level of funding available from the                                                       lives covered by the Exchange and state
                                               More importantly, a federally administered
federal government to support states in                                                       Medicaid programs, particularly after
                                               Exchange that operates alongside a state-
the planning and establishment of the                                                         the Medicaid eligibility expansion to 133
                                               regulated health insurance market could
Exchange. An initial allotment of funds                                                       percent FPL, will greatly enhance a state’s
                                               lead to risk selection issues if the rating
– up to $1 million for each state and the                                                     influence in the health care market. A
                                               and/or underwriting rules are not the same.
District of Columbia – to assist states with                                                  federally-run Exchange may not align
                                               For example, if small employers purchasing
this effort was made available by federal                                                     with a state’s health reform policies and
                                               coverage through the Exchange must meet
HHS in September 2010. The federal                                                            priorities.
                                               participation requirements (i.e., percentage
government has indicated that additional
                                               of employees that are covered by the           Competition and Transparency: Other
funding in the form of implementation
                                               policy) that differ from the participation     issues for states to consider in deciding
grants will become available in spring
                                               requirements for small employers               whether to establish an Exchange is the
2011. Unlike the initial planning grants,
                                               purchasing coverage outside the Exchange,      number of carriers operating in the
the implementation grants will be based
                                               carriers operating inside the Exchange         market, the potential to increase carrier
on the specific needs of each state.
                                               may be advantaged or disadvantaged.            competition, and the ability to promote
At a time when most states are unable to       In addition, the Exchange itself may be        greater transparency about cost and
fund existing programs, it will be difficult   advantaged or disadvantaged vis-à-vis          quality. The dominance of a single
for states to appropriate a significant        other distribution channels (i.e., policies    insurer in some markets has been offered
amount of state revenues to establish          purchased through brokers or direct from       as a reason why an Exchange may not be
their Exchange. An additional financial        the carriers) if the rating and underwriting   appropriate for all states. With only one
consideration is that federal funding is not   rules are not consistently applied.            carrier operating in the market, there may
available beyond December 2014, and the                                                       be little that an Exchange can do to affect
                                               Nonetheless, regardless of who runs the
Exchange will need to establish a funding                                                     the health insurance market.
                                               Exchange, rating rules, underwriting
stream to support ongoing operations and
                                               requirements and strategies to mitigate        However, three confounding factors are
become self-sustaining.
                                               risk selection inside and outside the          worth considering. First, the availability
Policy Issues: Beyond financing the            Exchange will need to be addressed. An         of premium subsidies for millions of
Exchange, there are a number of key policy     Exchange administered by the federal           individuals across the country – including
issues to consider. First and foremost,        government, operating alongside a state-       tens of thousands of people in states with
health insurance regulation has largely        regulated individual and small group           relatively small populations – will alter the
been – and will continue to be – the           market, will only increase the likelihood      competitive landscape and should result

    in new entrants, particularly in markets
    that have been dominated by one or
                                                      Regional, Statewide,                          With regard to a multi-state Exchange,
                                                                                                    there may be efficiencies achieved by states
    two insurers. States should evaluate the          or Multi-State                                joining together to establish and operate
    potential to improve competition with             Exchange                                      some of the back-office administrative
    the introduction of an Exchange and               In addition to determining whether to         functions of an Exchange. These could
    consider the role the Exchange may play in        establish a state-based Exchange or defer     include processing enrollment, providing
    promoting greater transparency of health          to the federal government, states have the    customer service, developing a website, and
    plan pricing, policies, and performance.          option of operating a single Exchange that    generating rates (i.e., monthly premiums
                                                      serves the entire state, multiple Exchanges   for individuals and small groups seeking
    Second, the federal government’s Office
                                                      serving different geographic areas within     coverage through the Exchanges). Many
    of Personnel Management (OPM) is
                                                      the state, or a multi-state Exchange that     of these functions will be similar, if not
    responsible for contracting with insurers
                                                      serves two or more states.                    identical, across all Exchanges, and states
    to offer at least two multi-state plans in
                                                                                                    may find value in jointly developing or
    each Exchange. These multi-state plans            Given the administrative and operational      purchasing these services.
    will need to be licensed in each state and        responsibilities of the Exchange, it is
    meet the requirements of a “qualified health      difficult to envision a scenario in which     However, because insurance regulations
    plan.” As a result, states with limited carrier   establishing more than one Exchange in        are administered at the state level, there
    competition will likely be able to offer          a single state would be an efficient use      are likely meaningful differences in
    residents additional carriers to choose from.     of resources. While it is quite likely that   insurance regulations across states that
                                                      certain carriers may only be available        would need to be harmonized before
    Finally, the availability of federal funds
                                                      in select regions of a state and the cost     states joined together to operate an
    to establish nonprofit, member-run
                                                      of health insurance within a state may        integrated, multi-state Exchange. In the
    health insurance plans (i.e., Consumer
                                                      vary from one region to another, a single     near term, it may be unlikely that states
    Operated and Oriented Plans, or CO-
                                                      state-wide Exchange’s information             will establish a fully-integrated, multi-
    OPs) may provide an opportunity to
                                                      technology, infrastructure, and customer      state Exchange. However, there may be
    improve competition in those markets
                                                      service unit should be able to provide        opportunities to consolidate some of the
    that have limited carrier participation. By
                                                      customers with information regarding          functions of the Exchanges across two or
    overseeing and operating an Exchange, a
                                                      the health carriers and health plans          more states.
    state will be able to ensure a level playing
    field for all carriers, including CO-OPs          available in different regions of the state
                                                      without the need to set up more than one
    and new market entrants.
                                                      Exchange. In addition, the administrative     Governance
    Establishing a state-administered                 and quasi-regulatory responsibilities of      Structure,
                                                                                                    Administration, and
    Exchange will carry both risk and reward.         the Exchange (e.g., processing eligibility,
    A successful Exchange that efficiently            establishing interfaces with federal
    and cost-effectively connects people with         agencies, contracting with health insurers,   Financing
    health insurance can be a powerful force          evaluating and rating health plans,           For states that decide to run their
    for change in a state, but will take time         determining whether individuals are           own Exchange, the governance and
    and effort, with plenty of challenges along       exempt from the individual mandate, etc.)     administration of the Exchange are
    the way. State officials, as well as health       make it difficult to envision the advantage   among the most important initial
    insurers, consumers, advocates, employers,        of establishing more than one Exchange        decisions, as these choices will have
    providers, brokers, and other stakeholders,       in a state.                                   profound effects on the ability of the
    are rightfully concerned about how this                                                         Exchange to successfully meet the health
    new entity will fit into their existing           This is not to suggest that some functions
                                                                                                    insurance needs of individuals and small
    markets. Allowing the federal government          of the Exchange cannot, or should
                                                                                                    employers. At its core, an Exchange is
    to operate the Exchange is clearly an             not, be delivered or administered on a
                                                                                                    a distribution channel for commercial
    option for states to consider. But in             regional basis. For example, outreach
                                                                                                    insurance. Under federal health reform,
    making that decision, states will need            and education activities could be
                                                                                                    Exchanges are also conduits for premium
    to carefully weigh the advantages and             coordinated and administered regionally;
                                                                                                    subsidies and reduced cost sharing,
    disadvantages.                                    or enrollment brokerage might be handled
                                                                                                    thereby enabling individuals – and, to
                                                      on a regional basis. These decisions may
                                                                                                    a lesser extent, small employers – to
                                                      be affected by the size of the state and
                                                                                                    purchase insurance. The governance
                                                      the manner by which health insurance is
                                                                                                    structure and administration of the
                                                      currently distributed in a state.

Exchanges should reflect this fundamental      Because the Exchange will need to be in-         include an individual with experience in
role and responsibility.                       sync with the activities of a number of          those markets on the Exchange board.
                                               other state agencies – particularly a state’s
The governance structure and                                                                    As states draft legislation to establish the
                                               insurance regulator and its Medicaid
administration of the Exchange may                                                              Exchange’s governance structure, they
                                               agency – the Exchange’s governing
determine, among other things:                                                                  will need to determine the roles and
                                               board might include state officials with
                                                                                                responsibilities of the board. A balance
• The management and extent to which           expertise in those areas. An Exchange
                                                                                                will need to be struck between the policy-
  the Exchange will be allowed to operate      governing board might also benefit
                                                                                                setting responsibilities of the board and
  outside the confines of state government;    from the inclusion of an individual with
                                                                                                the administrative responsibilities of the
                                               commercial health insurance experience,
• The level of transparency and public         as well as a consumer representative.
                                                                                                Exchange staff. In general, the Exchange’s
  accountability;                                                                               governing authority might have
                                               Board representation from organizations          responsibility for setting broad policy for
• The manner by which goods and                with experience in the individual and/or         the Exchange, approving major contracts,
  services will be procured;                   small group markets could also be useful,        setting carrier selection criteria, and
• Staffing levels and hiring procedures;       providing the governing board with               overseeing the activities of the Exchange
                                               insight into those markets and firsthand         staff. Restrictive processes that require
• The criteria that may be used to select      knowledge of the types of plans consumers        board approval for all activities of the
  health plans; and                            have selected in the past and the way those      Exchange will not be conducive to effective
                                               markets operate. Because the individual          and efficient operations. The Exchange
• The intersection between publicly-           and small group markets operate under            will need to be adaptive and flexible in
  subsidized coverage and non-subsidized
  commercial insurance.                        different rules than the large group             order to respond to an ever-changing
                                               market, states would be well served to           marketplace, and an evolving set of federal
Governance                                                                                      rules and regulations.
The ACA provides states with latitude in
establishing a governance structure for
                                                 Individuals and Groups Purchasing Through the Exchange
their Exchange. A state could operate the
                                                 The availability of subsidized coverage for individuals and families with income up
Exchange like any other state program and
                                                 to 400 percent FPL will likely drive millions of people to purchase coverage through
designate an executive agency to run the
                                                 the Exchange. Small employers with lower-income workers may also be eligible
Exchange. Under this approach, a state’s
                                                 for premium subsidies for insurance purchased via the Exchange. However, small
secretary of health and human services or
                                                 employers’ premium subsidies will be limited to two years in duration.
commissioner of insurance, for example,
might be responsible for oversight and
                                                 Though premium subsidies may induce tens of thousands of small employers
management of the Exchange. An
                                                 to purchase health insurance through the Exchange, it is likely that individual
advisory board might be established
                                                 purchasers will comprise the largest share of the Exchange’s market. A further
to provide input and offer advice on
                                                 complicating factor with the Exchange is that group coverage purchased through
Exchange policies and procedures, but the
                                                 the Exchange may require a shift from composite rating, the practice in most
ultimate decision-making authority would
                                                 markets, to list-bill rating.
rest with an executive branch agency.

An alternative approach, and the one             Under composite rating, a group’s premiums for each rate basis type (i.e., individual,
recommended here, is for states to establish     two-person, family) are based on the membership of the group as a whole. For
a governing body that is separate and            each rate basis type, all members of the group are charged the same premium. In
apart from state agencies to serve as the        contrast, under list-bill rating, premiums for each member of the group will differ
policy-making body for the Exchange. A           based on the member’s age and the health plan selected.
governing board responsible for setting
policy and overseeing the operations             This will add a level of complexity that may affect the Exchanges’ ability to attract
of the Exchange can help establish the           employers. In Massachusetts, administering the small employer program has
independence of the Exchange, provide            proven challenging, and participation by small employers in the Massachusetts
greater continuity in the event of a change      Connector, to date, is extremely limited.
in administrations, and include individuals
with relevant business and insurance             Exchange administrators will need to simplify the shopping experience for
expertise, as well as representatives from       employers, and their employees, in order to attract sufficient volume.
across the political spectrum.

    Administration                                 commercial insurance and has experience           the conflict of interest and public disclosure
    The law requires that the Exchange be          operating a health insurance program for          requirements for the board and the Exchange
    administered by a governmental agency          employees, the individual and small group         staff; whether the employees of the Exchange
    or non-profit entity established by the        markets are materially different from large       will be subject to civil service rules and state
    state, providing some flexibility for states   group, employer-sponsored insurance.              compensation levels; as well as, in some states,
    to decide whether to house the Exchange                                                          whether employees will be unionized.
                                                   Finally, a state’s economic development
    within an existing governmental agency;
                                                   agency, given its role in promoting policies      Overall, a key consideration is the ability
    in a new agency or quasi-public authority;
                                                   to improve the business climate in a state,       of the Exchange, wherever it is housed, to
    or at a non-profit entity. The nature of the
                                                   certainly understands the financial burden        be adaptive and capable of developing new
    Exchange and its range of responsibilities
                                                   that health insurance premiums can                programs and modifying those programs
    may be best served by an entity that is
                                                   place on businesses and is keenly aware           as circumstances change. States with
    accountable to the public yet separated
                                                   of the importance of a healthy workforce.         long procurement cycles, stringent hiring
    – although certainly not immune – from
                                                   However, economic development agencies            practices, and/or rigid work rules will
    executive and legislative influence.
                                                   are generally not in the business of              need to carefully consider these and other
    Day-to-day activities of the Exchange will     operating a commercial insurance program          management issues in deciding where to
    need to be carried out by a professional       and are not set up to administer premium          place the administration of the Exchange.
    staff that can effectively implement and       subsidies, process eligibility for lower-         An Exchange will need to respond to
    operate a health insurance marketplace,        income individuals, administer requests for       changing market conditions, the evolving
    help consumers make informed choices,          exemptions from the individual mandate            preferences of consumers, and the ongoing
    and provide a level playing field for          to maintain health coverage, nor handle           development and issuance of federal
    insurers to compete. Given the amount          many of the other provisions of the federal       guidelines regarding the administration
    of work that will be required to set up and    health care reform law.                           and operation of the Exchange.
    operate the Exchange and the inherently
                                                   This is not to suggest that any of those state    Financing
    commercial nature of the Exchange,
                                                   agencies, or other state agencies, is incapable   While federal grants will be available
    placing the day-to-day operations of the
                                                   of developing the administrative apparatus        from late 2010 through 2014 to support
    Exchange within an existing state agency
                                                   to handle the myriad responsibilities of          the planning, establishment and initial
    should be carefully evaluated before a state
                                                   an Exchange under the federal health care         operations of the Exchange, federal grants
    opts for this choice.
                                                   reform law. However, existing priorities          cannot be renewed beyond December
    Three existing state agencies may be           of state agencies may not allow senior            31, 2014 (one year after the Exchange is
    generally considered as “natural homes” for    managers to devote the necessary time and         operating), and the Exchange will need to
    the Exchange: 1) insurance departments; 2)     attention to the establishment and operation      be self-financed in 2015 and beyond. In
    Medicaid agencies; and 3) state employees’     of an Exchange.                                   much the same way that insurance brokers
    health benefits administrators. In addition,                                                     are paid from the policyholders’ premiums,
                                                   The high-profile nature of the Exchange
    Utah currently houses its Exchange                                                               the Exchange will likely need to generate
                                                   and its wide range of responsibilities
    in the governor’s office of economic                                                             operating revenues through retention of a
                                                   suggest that the administration of an
    development. There are pros and cons to                                                          portion of the premiums or through direct
                                                   Exchange might best be placed in the
    each of these agencies serving as Exchange                                                       payments from the participating carriers.
                                                   hands of a new agency, a quasi-public
                                                   authority, or a nonprofit entity established      The financing required to operate the
    Although state insurance departments           for the express purpose of operating the          Exchange will depend on a number of
    obviously have expertise with commercial       Exchange. The recommended approach is             factors, including, but not limited to:
    insurance, they may be an unlikely             to designate or create an entity that is solely
    Exchange administrator in light of their       devoted to the establishment and operation        • The ability of the Exchange to leverage
                                                                                                       existing infrastructure for its operations;
    regulatory authority, their oversight of       of the Exchange, overseen by a governing
    the insurance markets, and their lack          body responsible for setting policies and         • The manner by which eligibility for
    of experience operating an insurance           procedures.                                         premium subsidies will be processed;
    program. A state Medicaid agency
    clearly has experience operating publicly
                                                   In determining how – and where – the              • The need to establish interfaces between
                                                   Exchange should be administered, states will        the Exchange and health insurers for
    subsidized health coverage programs, but
                                                   need to consider whether state procurement          functions such as rate development,
    little if any experience with commercial
                                                   rules apply to the Exchange or whether the          transfer of enrollment information, and
    insurance. Though a state employees’
                                                   Exchange will be given greater latitude to          eligibility for premium subsidies;
    health benefits administrator understands
                                                   procure goods and services; what will be

                                             including documenting the potential               rates) of the different programs, the
• Whether the Exchange will handle           population to be served by the Exchange.          distribution methods (i.e., outreach and
  premium billing, collection and
  reconciliation;                            Assembling a strong foundation                    enrollment) for each program, and a
                                             of knowledge and data will enable                 review of how existing programs may
• The extent of outreach and marketing       the Exchange board, staff, and state              complement or compete with coverage
  undertaken by the Exchange;                policymakers to structure an Exchange             that will be offered through the Exchange.
                                             that best meets the state’s needs.2
• The development and maintenance of                                                           The final phase of the baseline
  a website that is capable of providing     A comprehensive understanding of a                analysis should include a review of the
  decision-support tools used by             state’s current health insurance market           commercially insured, in much the same
  consumers to evaluate their health         should include not only an examination            way that the examination of the uninsured
  insurance options;                         of the uninsured, but also an examination         was undertaken. For many states, detailed
                                             of the insured, recognizing that people           information on the insured population may
• Whether brokers will be paid from          move in and out of health coverage, as well       not be as readily available as information
  Exchange revenues or by the carriers;
                                             as across different types of coverage (i.e.,      on the uninsured. For some of the
• The amount of consumer support that        public and private), throughout the year.         metrics noted below, it may be necessary
  will be provided by the Exchange versus                                                      to piece together information from a
                                             The analysis of the uninsured should
  the insurance carriers; and                                                                  variety of sources (e.g., state insurance
                                                                                               agencies, commercial health plans, private
• The level and type of reporting required • Estimates of the total number of people           researchers), or states may need to sponsor
  by the federal government.
                                                 who lack health coverage;                     new research to obtain this information.
How these and other issues are handled,
along with an estimate of the number         • Demographic information (i.e., age,             The review of the insured population
                                                 gender, marital status, race/ethnicity), as   should include the following:
of people served by the Exchange, will
                                                 well as geographic/regional variations;
determine the revenues needed to support                                                       • A demographic profile of the insured
the operations of the Exchange. There will   • Family income status;                             across each of the major market
be tension between keeping administrative                                                        segments (i.e., individual, small group,
fees as low as possible and providing        • Employment, including a breakdown                 large group);
consumers with high quality service. To          of the uninsured who are employed
achieve economies of scale and minimize          based on the size of their employer (i.e.,    • Geographic/regional variations in the
                                                 number of employees), and whether               coverage rate of the commercially insured;
per-member cost, the Exchange will
                                                 they are offered employer-sponsored
likely need to spend money to attract and
                                                 insurance; and
                                                                                               • The number of carriers operating in the
retain consumers by offering value-added                                                         market;
services. Achieving a balance between        •   Eligibility for existing publicly
                                                                                               • A breakdown by size of employers that
those two competing – although not               subsidized health coverage programs.
mutually exclusive – factors, will be an                                                         offer insurance;
                                             This information is useful for a number
ongoing challenge faced by the Exchange.
                                             of reasons, not least of which is the value
                                                                                               • Types of insurance provided by
                                                                                                 employers (i.e., benefit design, cost
                                             in helping to quantify the number of
                                                                                                 sharing arrangements);
Developing a                                 people who do not have access to health

Strategic Plan                               coverage, determining how effectively             • Premiums and the percentage paid by
                                             current programs are reaching their target          employees and employers;
Having established a governance structure    populations, and developing projections of
and administrator for the Exchange,          the potential pool of people who may be           • Employees’ take-up rate of employer-
a critical step will be the development                                                          sponsored insurance by size of employer;
                                             covered through the Exchange. Detailed
of a strategic plan and timeline for                                                             and
                                             information on the uninsured can also be
implementation.1 The strategic plan will
identify the services that need to be in
                                             used to target outreach and enrollment            • The manner by which individuals
                                             efforts for existing health coverage                obtain coverage (e.g., directly from
place, along with a roadmap to get there,    programs and the expansion of Medicaid.             carriers, through a broker, using an
to meet the January 2014 deadline.
                                                                                                 intermediary, etc.).
                                             A second phase of the analysis should
A key ingredient in the development          include a review of existing publicly             Particular attention should be paid to the
of the strategic plan will be a thorough     subsidized health insurance programs,             individual and small group markets. The
understanding of the current market,         including the penetration (i.e., take-up          Exchange and state policymakers will need

    to consider a number of issues in these         or who are effectively priced out of the
    market segments, including:                     market due to health status may be able to
                                                                                                  • How many people are susceptible to
                                                                                                    switching their source of coverage (e.g.,
                                                    purchase coverage. On the other hand, it
    • The current rating rules and regulations;     will also mean that individuals and small
                                                                                                    from employer-sponsored insurance to an
                                                                                                    individual product offered in the Exchange
    • The extent to which these markets are         employers who have coverage today may           or to other publicly subsidized coverage)?
      well-functioning (i.e., competitive and       see their premiums adversely affected by
      providing meaningful coverage);               the addition to the risk pool of people who   • Should the individual and small group
                                                    had previously been denied coverage due         markets be merged, and, if so, what
    • The number of carriers and types of           to their medical conditions.                    might be the impact on coverage and
      health plans available;                                                                       premiums in each market?
                                                    The law recognizes that in most states
    • The manner by which commercial                these changes to the individual and           • Will the inclusion of groups of 51–100
      insurance is distributed (e.g., the role      small group market rules will result in         employees have a positive or negative
      of insurance brokers, intermediaries,         risk selection problems for insurers. To        effect on the risk pool, and how will
      carriers, third-party administrators,         mitigate this impact, the health care           premiums be affected?
      etc.); and                                    reform law includes three mechanisms to
                                                                                                  • Should groups of more than 50 employees
    • The sources and types of information          address risk selection and provide some
                                                                                                    be prohibited from purchasing coverage in
      available to individual and small group       financial protection for insurers:
                                                                                                    the small group market during the first two
                                                    • Transitional reinsurance program for the      years of the Exchange?
    This baseline information will help on a          individual market in each state;
                                                                                                  The analysis from this research effort will be
    number of fronts, particularly with regard
    to key policy decisions that will need to
                                                    • Risk corridors in the individual and        helpful to the Exchange, as well as beneficial
                                                      small group markets; and                    to state policymakers and regulators who
    be made to effectively shift the individual                                                   will be implementing changes to the state’s
    and small group markets from one in             • Risk adjustment to transfer funds among     individual and small group markets. Using
    which insurers “compete” by avoiding risk         health plans that offer coverage in the     the information from each phase of the
    through the use of medical underwriting           individual and small group markets          analysis will help with the development of a
    to a market in which insurers compete             based on the relative health status of      strategic plan for the Exchange, which can be
    based on price and quality.                       their enrollees.                            used to determine:
    Currently, most states allow insurers in        While these provisions of the health care
    the individual and small group markets to       reform law are designed to address the
                                                                                                  • How the Exchange will interact with the
                                                                                                    state’s Medicaid/CHIP program and how
    set premiums based on the health status         risk selection problems that may result         the Exchange will fit into other publicly
    of applicants and to raise premiums if          from the switch to a guaranteed issue,          subsidized health coverage programs;
    individuals or small group members              modified community rating system, the
    become ill. Furthermore, in most states         data and information collected as part of     • The Exchange’s business plan and financial
    insurers are not required to accept all         the background research effort can be used      model to become self-sustaining;
    applicants in the individual market (i.e.,      to develop actuarial and economic models
    no guaranteed issue requirement).               to help policymakers as they grapple with
                                                                                                  • The targeted outreach and marketing
                                                                                                    efforts that will be necessary to attract a
                                                    a number of key questions, including:
    Under federal health care reform, medical                                                       broad and diverse risk pool;
    underwriting will no longer be allowed in the   • How will changes to the rating and          • The role of the Exchange in the
    individual and small group markets. In 2014,      underwriting requirements in the
                                                                                                    commercial health insurance market,
    health insurance policies in these markets        individual and small group markets
                                                                                                    and whether the Exchange will be
    will be guaranteed issue using a modified         affect premiums for people currently
                                                                                                    proactive in encouraging carriers to
    community rating system to set premiums.          covered?
                                                                                                    develop and offer innovative plan
    Rates will still vary, primarily based on the
    age of the applicant; however, the health
                                                    • What might be the cost of coverage            designs; and
                                                      for the policies within each benefit tier
    status of individual applicants will not be a
                                                      offered through the Exchange (Platinum,
                                                                                                  • Whether, and how, the Exchange will
    factor in the development of premiums.                                                          be used to support broader policy
                                                      Gold, Silver, Bronze, and Catastrophic)?
                                                                                                    initiatives such as payment reform,
    These changes in the rating rules will mean
    that individuals and small employers who
                                                    • How many people will receive coverage         service delivery reform, or other health
                                                      through the Exchange and what will be         care and health insurance reforms a state
    are currently unable to purchase insurance                                                      may be pursuing.
                                                      their demographic profile?

The strategic plan may also establish           developing health care reform websites, and       States are expected to establish a single
whether the Exchange will be an active or       initiating an outreach and education plan.        portal – potentially feeding into a single
passive player in the market. The level of      The ongoing involvement of a broad cross-         eligibility engine – that will be used to
market involvement will depend on state         section of individuals and groups who may         determine eligibility for Medicaid, CHIP,
policymakers’ interest in using the Exchange    directly benefit from the operations of the       the Exchange, and other state health
to buttress broader policy initiatives, and     Exchange will help states design an Exchange      insurance programs. In many states with
whether they see the Exchange as a market       that reflects their needs and desires. Engaging   separate Medicaid and CHIP programs that
“maker” or a market “taker.” The Exchange       people in the planning efforts can also serve     operate under different eligibility rules and
may be an agent of change or it may play        as an effective way to disseminate information    that process applications through different
a more limited role as a basic distribution     about health care reform, in general, and the     eligibility engines, establishing a single
channel for commercial insurance and            Exchange, in particular.                          portal/single eligibility engine may require
premium subsidies for low and moderate                                                            a significant upgrade to existing eligibility
income individuals and families.                                                                  systems or the development of a new

An important challenge for policymakers
                                                Key Functions and                                 eligibility system to process applications

and governing boards of the Exchanges           Responsibilities of the                           and determine eligibility.

will be to develop a strategic plan that        Exchange                                          The vision for the Exchange, and other
recognizes and reflects what is happening       The Exchange is a market organizer,               public health coverage programs, is that
in the market and seeks to align the goals      distribution channel for commercial               an individual will be able to provide a
and objectives of the Exchange with each        insurance, conduit for premium subsidies and      limited amount of information and find
state’s health reform priorities. While         reduced cost-sharing, and enforcement arm         out whether he/she is eligible under any of
policymakers must make certain that the         for compliance with the individual mandate.       the health coverage programs available in
essential “blocking and tackling” functions     At its core, the Exchange must attract and        the state. The elimination of the asset test
of an Exchange are not undermined by            retain customers by offering quality health       for most Medicaid recipients and no asset
focusing too much attention on larger           insurance plans offered by qualified health       test for premium subsidies through the
policy matters, states should also recognize    insurers. Thus, it must process transactions      Exchange will certainly reduce the amount
the opportunity that the Exchange presents      effectively and efficiently; provide members      of information that states will need to
in supporting broader health care and           with information to make informed decisions;      collect to determine eligibility.4
health insurance reform activities.             establish a streamlined eligibility and           However, eligibility for coverage
Engaging Stakeholders: The success of each      enrollment process; and administer a process      and premium subsidies through the
state’s Exchange in meeting the needs of its    to enable individuals to apply for waivers from   Exchange will be predicated on whether
residents will be enhanced if a broad cross-    the health insurance mandate.                     the applicant has access to employer-
section of stakeholders is engaged and          These can be viewed as four distinct and          sponsored insurance (ESI), whether
actively participating in the planning and      separate responsibilities – determining           the ESI meets actuarial standards and
development of the Exchange. States will        eligibility, carrier and plan selection,          provides “minimum essential benefits,”
need to engage stakeholders in meaningful       enrollment, and enforcement. Each is              and whether the employee’s share of the
and substantive discussions about how best      discussed below.                                  premium as a percentage of his/her income
to design and implement an Exchange that                                                          is above or below a certain percentage of
will complement – and hopefully improve         Determining Eligibility                           his/her income (see Appendix for more
– the state’s health insurance market           Federal law expects states to use a:              information on subsidy determination).
and its health care system. Meaningful             “single, streamlined form that: may be used    In addition, only legal residents will be
engagement will require reaching out to            [by individuals] to apply for all applicable   allowed to purchase coverage through the
a wide range of individuals and groups,            state health subsidy programs, within the      Exchange, regardless of their eligibility for
including business associations, small             state; may be filed online, in person, by      premium subsidies.
employers, consumer advocates, insurers,           mail, or by telephone; may be filed with an    The federal government will be issuing
hospital executives, physicians, union             Exchange or with state officials operating     regulations regarding the single portal
members, small employers, brokers,                 one of the other applicable state health       eligibility system and the standard
legislators, and other interested parties.         subsidy programs; and is structured to         eligibility form. However, states will need
Some states have already started this process      maximize an applicant’s ability to complete    to start planning for the development of a
by establishing work groups comprised              the form satisfactorily, taking into account   system that can process applications and
of public officials and private sector             the characteristics of individuals who         determine eligibility for all health coverage
representatives, holding public forums,            qualify for applicable state health subsidy    programs. Additionally, a mechanism

     to capture and store eligibility and           Platinum plans will cover 90 percent of the    off one type of cost sharing (e.g., an
     enrollment information for all public          cost of care. This means that a member         upfront deductible, lower cost sharing
     subsidy programs will be needed to             enrolled in a Platinum level plan would,       after the deductible) for other types of
     minimize the potential for individuals         on average, pay ten percent of the cost of     cost sharing (e.g., no upfront deductible,
     to be covered by multiple programs             care through co-payments, co-insurance         higher co-payments) within the same
     simultaneously.                                and/or other types of cost sharing. The        benefit level.
                                                    actual amount of cost sharing will vary
     Minimum Essential Benefits: Federal                                                           While standardizing benefits may
                                                    for each member, based on their use of
     law requires that Exchanges offer only                                                        be desirable from the perspective of
                                                    services and supplies.
     “qualified” health insurance plans                                                            helping consumers navigate what can
     that provide coverage for “minimum             A health plan with an actuarial value of 90    be a confusing process, being overly
     essential benefits.” What “qualified” and      percent has relatively modest cost sharing.    prescriptive and micromanaging the
     “minimum essential benefits” mean will         For example, the Platinum plans might          product design within the Exchange may
     be determined by the secretary of HHS.         have no upfront deductible; office visit co-   result in products that are out of sync with
     However, a state may require plans to          payments of $20; inpatient hospitalization     the market and may stifle innovation. The
     cover benefits beyond the minimums             co-payments of $250 per admission;             depth and breadth by which benefits are
     established by the federal government, but     outpatient surgery co-payments of $50          standardized will be an important decision
     the cost of those additional benefits must     per procedure; and prescription drug           for state policymakers and the Exchange.
     be borne by the state. This may mean that      co-payments of $10/$25/$50 for generic,
                                                                                                   Basic Health Program: The health reform
     states with mandated benefits that are not     preferred brand-name, and non-preferred
                                                                                                   law provides states with an option to create
     considered “minimum essential benefits”        brand-name drugs, respectively.
                                                                                                   a “Basic Health Program” for individuals
     will be responsible for paying, on behalf
                                                    Gold plans will cover 80 percent, Silver       with income between 133 and 200 percent
     of enrollees receiving premium subsidies
                                                    plans will cover 70 percent, and Bronze        FPL, in lieu of their receiving coverage
     through the Exchange, for the additional
                                                    plans will cover 60 percent. Catastrophic      through the Exchange. This Basic Health
     premium amount associated with the cost
                                                    plans, which are limited to individuals        Program must offer, at a minimum,
     of those benefits.
                                                    younger than 30 or people who are              the same level of benefits and limits on
     In addition to the potential cost to states    exempt from the insurance mandate due          cost-sharing that individuals would have
     with mandates or requirements that             to affordability or other hardship, will be    received had they purchased a Platinum
     go beyond the federal government’s             high deductible health plans (HDHPs).5         level plan (for individuals with income up
     “minimum essential benefits,” the                                                             to 150 percent FPL) or a Gold level plan
                                                    Point-of-Service Cost Sharing: A key
     administrative challenge of adjusting                                                         (for individuals with income between
                                                    decision for the Exchange will be the
     premiums and paying health carriers                                                           150 and 200 percent FPL). However,
                                                    extent to which benefits are standardized
     separately for the cost of those                                                              the monthly member premium for the
                                                    (e.g., cost sharing, types of plans – HMO,
     additional benefits could be a significant                                                    Basic Health Program cannot exceed
                                                    PPO, Indemnity) within each benefit level.
     administrative and operational burden.                                                        the monthly premium that the eligible
                                                    The federal law provides some flexibility
     States will need to review carefully                                                          individual would have been required to
                                                    with regard to the plans offered and
     the federal regulations that establish                                                        pay if he/she had enrolled in the second
                                                    the cost sharing, within the parameters
     “minimum essential benefits” and                                                              lowest cost Silver level plan available
                                                    of actuarial value set by the ACA and
     compare those benefits to their list of                                                       through the Exchange.
                                                    “minimum essential benefits” to be set by
     mandates and benefit requirements.
                                                    the secretary of HHS.                          States opting for the Basic Health Program
     Benefit Levels: Health plans offered                                                          will be required to establish a competitive
                                                    On the one hand, dictating the specifics
     through the Exchange will be available                                                        procurement process, including
                                                    regarding the amounts and types of cost
     in five benefit levels: Platinum, Gold,                                                       negotiating premiums and cost sharing
                                                    sharing for each service within each
     Silver, Bronze, and Catastrophic. The                                                         with the health insurers; and, “to the
                                                    benefit level might help focus consumers’
     benefit levels will vary based on “actuarial                                                  maximum extent feasible,” states will need
                                                    decision making on the comparison
     value,” which is a summary measure of                                                         to make available multiple health plans
                                                    of premiums, differences in provider
     the amount of medical claims that would                                                       to eligible individuals covered under the
                                                    networks (i.e., hospitals and physicians),
     be paid by the health plan as a percentage                                                    Basic Health Program.
                                                    quality of service, and reputation of the
     of the total medical claims incurred for
                                                    carrier. On the other hand, this approach      This provision of the law provides
     a standard population. In essence, the
                                                    may result in less creativity in the market    states with an option to develop and
     different benefit levels will have different
                                                    and reduce a consumer’s ability to trade       offer a Medicaid-like health benefit for
     amounts of point-of-service cost sharing.

Table 1: Out-of-Pocket Limits by Income in the Exchange
                                                                                      Out-of-Pocket Limit
                                      Reduction in Out-of-Pocket Limit                                              Actuarial Value of Silver
 Income Category                                                                     (based on 2010 HSA/
                                      Relative to HSA/HDHP Maximum                                                            Plan
                                                                                       HDHP Maximum)
 Up to 150% FPL                              Reduced by two-thirds                          $1,963/$3,927                      94%
 150.1 – 200% FPL                            Reduced by two-thirds                          $1,963/$3,927                      87%
 200.1 – 250% FPL                                Reduced by one-half                        $2,975/$5,950                      73%
 250.1 – 300% FPL                                Reduced by one-half                        $2,975/$5,950                      70%
 300.1 – 400% FPL                                Reduced by one-third                       $3,986/$7,973                      70%
 Above 400% FPL                                      No reduction                       $5,950/$11,900                         70%

individuals with income between 133 and             It is likely that individuals with income        The ACA requires plans sold through the
200 percent FPL. The benefits available             between 133 percent and 200 percent FPL          Exchange to limit out-of-pocket expenditures
under a Basic Health Program would be               will constitute a sizeable proportion of the     to the maximum allowed under the federal
richer (i.e., lower point-of-service cost           uninsured who will be eligible for premium       rules pertaining to high deductible health
sharing) than Silver level coverage available       subsidies for commercial insurance               plans (HDHPs) that qualify individuals
through the Exchange, while premiums                through the Exchange. Roughly 25 to 30           for health savings accounts (HSAs). The
could be no greater than those charged for          percent of the uninsured in every state          current out-of-pocket maximum for an HSA-
Silver level coverage.                              have income between 100 percent and 200          qualified HDHP is $5,950 (individual) and
                                                    percent FPL.6 Removing that group from           $11,900 (family).
States would receive 95 percent of the
                                                    the individual commercial market and
value of tax credits and cost sharing                                                                However, federal law provides cost-sharing
                                                    separating them from the Exchange may
reductions that would have been provided                                                             subsidies that will further reduce the out-
                                                    have a number of consequences, including:
to individuals to purchase the second                                                                of-pocket expenses for individuals at or
lowest cost Silver level coverage through           • Negatively affecting premiums in the           below 400 percent FPL. These cost-sharing
the Exchange. These funds, combined with              individual market by splitting off a large     subsidies will effectively increase the value
the member’s share of the premium, would              group of people – quite possibly younger       of the Silver level plan, particularly for
be used to pay health insurers for the Basic          and healthier than the broader uninsured       individuals with income at or below 200
Health Program.                                       population – who would otherwise enroll        percent FPL. Table 1 displays the subsidies
                                                      in coverage through the Exchange;              that will be provided to individuals
This option may be attractive to those
                                                                                                     purchasing Silver level coverage through
states that had previously expanded                 • Reducing the number of people covered          the Exchange.
their Medicaid programs beyond the                    through the Exchange, thereby making it
federal minimums and/or developed                     less attractive for commercial insurers to     These cost-sharing subsidies and increases
other publicly subsidized programs for                participate;                                   in the actuarial valuation of Silver level
individuals with income above 133 percent                                                            plans for individuals with income at or
FPL. In addition, states may wish to use            • Limiting the Exchange’s ability to promote     below 200 percent FPL may address the
                                                      other health reform priorities; and
this option to smooth out the differences                                                            concerns expressed by some with regard to
between Medicaid benefits, which generally          • Affecting the ability of the Exchange to       the potential out-of-pocket costs for lower-
have very limited cost sharing and no                 achieve economies of scale, which may          income individuals who purchase coverage
monthly premiums, and the benefits                    increase the per-member administrative         through the Exchange, and may obviate the
and cost sharing requirements under the               costs of the Exchange.                         need to establish a Basic Health Program
Exchange.                                                                                            for these individuals.
                                                    Perhaps the most significant factor for
However, states will need to consider not           states to consider before deciding to            Carrier and Plan Selection
only whether they may be able to offer              establish a Basic Health Program relates         Because the Exchange will offer low and
individuals in this income category a               to the reduced cost sharing and increased        moderate income individuals federally
richer health benefit package for less, but         actuarial value of Silver level plans for        funded premium subsidies and reduced
the potential impact to the commercial              individuals with income at or below 400          cost-sharing, the Exchange will likely
insurance market that may result from               percent FPL. As discussed below, this            attract tens of thousands of individuals,
separating those individuals from the rest          provision of the ACA will minimize the           and in some states millions of people.
of the risk pool. Individuals eligible for the      effective cost of coverage (i.e., premiums       This market power makes it incumbent
Basic Health Program will not be eligible           and point-of-service cost sharing) for lower     upon the Exchange to establish a fair and
for premium subsidies and reduced cost              income individuals.                              transparent process in the selection of
sharing through the Exchange.                                                                        health carriers and health plans.
     Federal law requires the Exchange to offer       people purchasing coverage through              the chance that individual employees
     “qualified” health plans, and the Exchange       the Exchange, health status of enrollees,       will choose a plan based on their health
     will need to establish a selection process       demographic characteristics, etc.).             status and/or the health care needs of
     and evaluation criteria to solicit “qualified”                                                   family members. Although it does not
                                                      Given the Exchange’s role in the market
     plans from health carriers. Exchanges                                                            address risk selection that may occur at
                                                      and the availability of premium subsidies
     will have three ways in which they can                                                           the employer level (i.e., an employer may
                                                      for low and moderate income individuals,
     approach this responsibility: 1) as a market                                                     select a plan based on his/her health care
                                                      carriers offered through the Exchange
     organizer/distribution channel; 2) as a                                                          needs), it does address risk selection at the
                                                      will likely have exclusive access to a
     selective contracting agent; or 3) as an                                                         individual employee level.
                                                      sizeable population. This heightens the
     active purchaser.
                                                      responsibility of the Exchange to establish     However, restricting employees’ health
     Under the “market organizer/distribution         a fair and open health carrier and health       plan choices runs counter to what many
     channel” model, the Exchange would               plan selection process, regardless of           people consider the central purpose and
     establish threshold criteria and offer all       the decision to be a market organizer/          value of the Exchange for small employers;
     health carriers and all health plans that        distribution channel, selective contracting     that is, allowing employees to choose the
     meet the criteria. The Exchange acts as an       agent, or active purchaser.                     health insurance that best meets their
     impartial source of information on health                                                        needs. Some of the risk selection problems
     plans that are available in the market;                                                          will be addressed by the establishment
                                                      Setting up a mechanism by which
     provides structure to the market to enable                                                       of risk corridors and the risk adjustment
                                                      individuals and small employers can select
     consumers to compare health plans based                                                          mechanism that will apply in the small
                                                      a health plan and enroll in coverage is a
     on relative actuarial value; administers                                                         group market. Nonetheless, Exchange
                                                      primary purpose for the Exchange. How
     premium subsidies; and serves as a broker                                                        administrators and state policymakers will
                                                      this is handled and by whom will be
     of health insurance.                                                                             want to carefully monitor the coverage
                                                      important decisions.
                                                                                                      choices of small employers’ employees that
     In the “selective contracting agent” model,
                                                      Individuals will be allowed to choose           purchase coverage through the Exchange,
     the Exchange plays a more active role.
                                                      any health plan offered by the Exchange,        particularly if these employees are allowed
     The Exchange may attempt to exert its
                                                      while employees of small employers that         to select from any of the four coverage
     influence in the market and enhance
                                                      purchase coverage through the Exchange          tiers available in the small group market
     competition by contracting with a limited
                                                      may be limited to a level or tier of plans      (i.e., Platinum, Gold, Silver, Bronze).
     number of carriers offering a select group
                                                      selected by their employer. For example,
     of health plans, or by requiring that health                                                     Under the Exchange, employees may select
                                                      an employer that selects a Silver level
     carriers and health plans meet certain cost                                                      from health plans with benefits that range
                                                      plan might limit his/her employees to
     and/or quality metrics. The Exchange                                                             from 60 percent actuarial value (Bronze
                                                      select only from among the carriers and
     might solicit plans based on plan design                                                         plans) to 90 percent actuarial value
                                                      plans available in the Silver level. These
     parameters or preferred plan types or,                                                           (Platinum plans), and premiums will vary
                                                      employees would not be able to “buy up”
     depending on the number of carriers                                                              across the four tiers by 50 percent or more.
                                                      to Gold or Platinum level plans, nor would
     operating in the state, the Exchange might                                                       The structure of the employee choice
                                                      the employees be allowed to “buy down” to
     offer only the four or five lowest-priced                                                        model will affect the extent to which
                                                      Bronze level plans.
     carriers, for example.                                                                           older and/or sicker employees may select
                                                      The ability of employees to “buy up” or         more comprehensive coverage (i.e., higher
     The Exchange, under the “active
                                                      “buy down” and the manner by which this         premiums and lower cost sharing), while
     purchaser” model, establishes plan
                                                      selection process is structured will be of      younger, healthier employees opt for less
     designs and purchases health insurance
                                                      particular interest and concern to the health   comprehensive and less expensive policies.
     on behalf of its members, much like
                                                      insurers whose products are offered through     Balancing the value of consumer choice
     a large employer establishes and
                                                      the Exchange. In almost all small group         against the potential for risk segmentation
     purchases health benefits on behalf of its
                                                      markets, carriers do not allow employers        and the impact that risk segmentation
     employees. This model is predicated on
                                                      to offer their employees more than one, or      may have on the market will need to be
     the Exchange covering a large and broad
                                                      possibly two, health plans from which to        evaluated in establishing the underwriting
     risk pool that enables carriers to offer
                                                      choose. More importantly, carriers typically    rules and plan choices available to
     competitively-priced plans. Initially, it
                                                      do not allow another carrier’s plans to be      employees purchasing coverage through
     may be difficult to envision the Exchange
                                                      offered to a small employer.                    the Exchange.
     as a true “active purchaser,” in large part
     because the carriers will be required to         These carrier underwriting rules are used       While employees of small employers may
     establish premiums based on numerous             to minimize risk selection. Placing all         have limitations placed on their health
     unknown factors (e.g., the number of             employees in one benefit plan eliminates        plan options, individuals will be able
Table 2: Jones Family Income and Premium Share                                                  subsidy available to the individual. The
                         Mr. and Mrs. Jones and their two children                              carrier would need to coordinate with the
                                                                                                federal government to collect any advanced
 Modified Adjusted Gross Income                                   $55,125
                                                                                                tax credits and then bill the member for
 Federal Poverty Level                                             250%                         his/her share of the premium.
 Family Share of Premium                                           8.05%
                                                                                                While the Exchange will serve as a single
 Family Monthly Premium                                             $370
                                                                                                point of access for health coverage, federal
to choose from all of the plans and all          government’s share of the premium is fixed,    law dictates that health insurers, and
of the levels of coverage (i.e., Platinum,       regardless of the Jones family’s choice.       not the Exchange, will be responsible
Gold, Silver, Bronze) offered through the                                                       for billing and collecting premiums, as
                                                 Individuals will likely have a number of       well as coordinating with the federal
Exchange. Moreover, individuals younger
                                                 carriers and plans from which to choose.       government for the advance payment of
than 30 and those exempt from the
                                                 However, reduced cost sharing for lower-       tax credits for subsidy-eligible individuals.
individual mandate will be able to select a
                                                 income individuals (i.e., those with income    Given the number of carriers and health
Catastrophic or high deductible health plan
                                                 at or below 400 percent FPL) will only         plans that may be offered through the
                                                 apply if the individual selects a Silver       Exchange and the volume of subsidy-
For individuals at or below 400 percent FPL,     level plan. This provision of the law will     eligible individuals purchasing coverage,
the premium subsidy for the individual           likely limit the number of subsidy-eligible    the complexity of each health carrier
consumer is based on the cost of the second      consumers who decide to purchase a Gold        coordinating the billing process and
lowest priced Silver level plan. Individuals     or Platinum level plan. (See the “Basic        aggregating premiums for hundreds of
opting for a different plan may pay more         Health Program” section of this report         thousands of individuals with different
or less premium, depending on their plan         for a fuller discussion of the cost sharing    subsidy levels may add significantly to
choice. The federal government will be           reductions and increases in actuarial          the operational responsibilities of health
providing a “defined contribution” that an       valuation of Silver level plans available to   carriers participating in the Exchange
individual may then take with him/her to         individuals with income at or below 400        and may undermine the goal of reducing
shop for insurance. Tables 2 and 3 show a        percent FPL).                                  administrative costs.
simplified example of how this might work.
                                                 Premium Billing and Collection: The            The “Free Choice Vouchers” program may
The Jones family is eligible for a subsidy,      Exchange could be structured to serve          add another layer of complexity. Under this
based on their income of $55,125 for a           primarily as a conduit, providing people       provision of the law, employees who are
family of four. If they select the second        with information about their health plan       offered employer-sponsored insurance but
lowest priced Silver level plan, their share     choices, calculating health plan premiums      whose share of the premium exceeds eight
of the monthly premium would be $370.            – including the subsidy levels that may be     percent of their income may be eligible to
Or, they could take their federal subsidy        available – and sending consumers to the       use their employer’s premium contribution
and select a plan with lower out-of-pocket       health carriers to complete enrollment.        to offset the cost of insurance purchased
costs and higher premiums (i.e., Platinum        The carriers would be responsible for          through the Exchange. In contrast to
or Gold level plans); a different Silver         enrolling the individuals, handling            other provisions of the law, the Exchange
level plan with comparable out-of-pocket         premium billing and collection, and            is responsible for collecting the employer’s
costs but lower or higher premiums; or a         providing customer service.                    share of the premium and applying this
Bronze level plan that has higher out-of-                                                       payment to the premium of the health plan
                                                 Under this scenario, the health carrier
pocket costs but lower monthly premiums.                                                        in which the employee is enrolled.
                                                 would be provided information from the
As Table 3 below shows, the federal
                                                 Exchange with regard to the premium

Table 3: Jones Family Premium Amount by Plan Level

 Plan Tier                                     Total Monthly Premium       Federal Subsidy Amount        Jones’ Premium Amount
 Platinum                                              $1,800                       $1,030                        $770
 Gold                                                  $1,600                       $1,030                        $570
 Silver (most expensive)                               $1,430                       $1,030                        $400
 Silver (second-lowest cost)                           $1,400                       $1,030                        $370
 Silver (lowest cost)                                  $1,380                       $1,030                          $350
 Bronze                                                $1,200                       $1,030                          $170

     For employers, the need for the Exchange       as the larger challenge of coordinating           If the Exchange is to attract sufficient
     to administer premium billing, collection,     premium subsidies with the federal                volume, it will need to undertake a
     and remittance will be particularly            government, should be an optional service         multi-pronged outreach, education, and
     crucial. Under the Exchange SHOP               that the Exchange could facilitate if there are   enrollment campaign. Such an effort
     model, employees will be able to choose        administrative efficiencies to be achieved.       might include Exchange employees, state
     coverage from a number of carriers,                                                              employees working for social service
     depending on how the small employer            Enforcement of the Individual                     agencies, schools-based promotional
     program is structured. If the health           Mandate                                           activities, community-based advocacy
     plans are responsible for premium billing      The Exchange is also responsible for              organizations, private employers, business
     and collection, an employer purchasing         establishing a process to determine               groups, hospitals, community health
     coverage through the Exchange would            whether an individual is exempt from              centers, physicians, health insurers, paid
     need to pay multiple health carriers for       the “individual responsibility penalty”           media, and public service announcements.
     his/her employees, and would need to           (i.e., individual mandate) based on
                                                    affordability or hardship. Information on         It is important to recognize that the
     establish contractual relationships with
                                                    each individual that is issued a certificate      vast majority of Americans have never
     the different carriers selected by his/her
                                                    of exemption from the Exchange must be            purchased health insurance on their own.
                                                    transferred to the secretary of the Treasury.     People either obtain insurance through
     From an employer’s perspective, the            Setting up a means by which individuals           their employer (perhaps choosing from
     prospect of dealing with multiple              will be able to request an exemption              among a limited number of plans) or
     insurers will greatly diminish the value       from the mandate will be another core             they receive publicly subsidized coverage
     of purchasing coverage through the             responsibility of the Exchange.                   from Medicaid or Medicare. It is likely
     Exchange. In addition to receiving multiple                                                      that most people will go their entire lives
     invoices and issuing multiple checks for                                                         without actually purchasing commercial
     his/her employees’ health coverage, by         Outreach and the                                  health insurance. Under the Exchange,
     not centralizing the premium billing and
     other administrative functions within the
                                                    Role of “Navigators”                              tens of millions of new “customers” will
                                                                                                      be responsible for purchasing health
     Exchange, the employer would need to deal      and Brokers                                       insurance, many of whom will be
     with various carriers to handle mid-year       Instituting an aggressive outreach and            doing this for the first time. These new
     changes in employment, changes in status       education campaign will be critical to            customers will need help wading through
     for existing employees, and all of the other   generating sufficient enrollment in the           their options.
     administrative tasks that are now handled      health plans offered through the Exchange,
                                                    which in turn will determine the ultimate         Navigators
     through one health carrier or through a
                                                    success of the Exchange. The fact that            Recognizing this need for consumer-
                                                    millions of Americans are eligible but            based information and assistance,
     In light of those administrative               not enrolled in (free) Medicaid coverage          the health reform law requires the
     challenges, the Exchange may be the more       may be an indication of the challenge             Exchange to establish an outreach and
     appropriate entity to assume responsibility    that states will face in enrolling people for     enrollment program that provides grants
     for premium billing, collection, and           coverage through the Exchange.                    to Navigators that are responsible for
     remittance to the carriers, as well as                                                           apprising people of their health coverage
     other mid-year administrative tasks,           The availability of premium subsidies             options and helping individuals enroll in a
     such as changes in enrollment, COBRA           and reduced cost sharing for health               health plan or in other publicly subsidized
     notification, etc. In some states, health      plans purchased through the Exchange              health coverage programs. Navigators
     carriers already utilize intermediaries        will undoubtedly provide the Exchange             are entities such as trade, industry, and
     or third-party administrators to handle        with a significant advantage over other           professional associations; chambers of
     virtually all of these administrative tasks    commercial insurance distribution                 commerce; unions; community based
     for individuals and small groups.              channels. However, Exchange                       non-profit groups; and other groups that
                                                    administrators and governing boards must          have established, or can readily establish,
     States may have an opportunity to influence    recognize that people will need information       relationships with employers, employees,
     the federal government’s approach and          on their health insurance options, their          consumers, or self-employed individuals.
     subsequent rulemaking on the issue of          responsibility to obtain and maintain
     whether the health insurers or the Exchanges   health coverage pursuant to the individual        Navigators will be responsible for
     could or should bill and collect premiums.     mandate, and the subsidized health                conducting public education activities
     At the very least, the responsibility for      insurance that may be available to them.          to raise awareness of the availability
     premium billing and collection, as well                                                          of qualified health plans through the

Exchange; distributing “fair and impartial”      insurance options, provide health plan          effort to include them in the outreach and
information concerning enrollment and            recommendations at the time of renewal,         enrollment program may prove invaluable
the availability of premium subsidies            and serve as their agents throughout the year   to the ultimate success of the Exchange.
and cost-sharing reductions; facilitating        in dealings with insurers.
enrollment in qualified health plans;
referring people to the appropriate
                                                 In determining the role that brokers may
                                                 play in the operation of the Exchange, a
                                                                                                 Measure Current
agency or agencies if they have questions,
complaints, or grievances; and providing
                                                 number of key issues/questions are worth        Capacity and Existing
information in a culturally and
                                                 considering:                                    Infrastructure
                                                                                                 The level of upfront investment and ongoing
linguistically appropriate manner.               • What is the current role of brokers in        funding to support the Exchange will
                                                   the individual and small group markets?
The secretary of HHS is responsible for                                                          depend, in part, on the types of services
                                                   In some states, brokers may be heavily
establishing standards for the Navigators.                                                       currently being provided in the market and
                                                   involved in the small group market but
However, federal law prohibits health                                                            the extent to which existing infrastructure
                                                   much less active in the individual market.
insurers from serving as Navigators and                                                          and resources may be leveraged and utilized
prohibits Navigators from receiving direct       • What types of services do brokers             by the Exchange. Regardless of whether the
or indirect payments in connection with            provide for their clients, beyond the         infrastructure and other resource needs are
the enrollment of an individual or an              annual health plan selection process?         built or bought (i.e., established and operated
employee in a qualified health plan. The                                                         by the Exchange or outsourced to a third
latter exclusion may preclude brokers from       • How are brokers compensated?                  party), there will be significant back-office
serving as Navigators.                             Traditionally, brokers receive a percentage
                                                                                                 infrastructure needed to set up the Exchange
                                                   of the monthly premium. However,
The Exchange will need to establish a                                                            and service consumers.
                                                   in some markets this traditional
selection process for awarding grants              compensation model is changing to a flat      As noted earlier, the process by which
to Navigators. Many states already use             dollar amount, unrelated to the amount        people will be determined eligible for
community-based groups to help with                of the monthly premium.                       subsidized coverage, as well as eligibility
outreach and enrollment for Medicaid,                                                            redetermination processes and program
CHIP, and other public assistance                • Do brokers receive additional                 integrity measures, is an integral part of
programs. It is likely that those groups will      compensation – sometimes referred to
                                                                                                 the Exchange’s operations. The availability
be prime candidates to become Navigators.          as retention bonuses or overrides – for
                                                                                                 and capabilities of existing public agency
However, the Exchange will want to                 meeting targets for renewing business
                                                                                                 infrastructure and resources to process
expand beyond those groups, given the              with a carrier? How might those
                                                                                                 applications for premium subsidies and
need to reach people who normally are not          payments factor into any Exchange-based
                                                                                                 the extent to which the infrastructure
eligible for public assistance programs (i.e.,     payment model for brokers?
                                                                                                 and resources may be leveraged by the
individuals and families with income up to       • Should brokers fees be transparent            Exchange will be important to evaluate
400 percent FPL).                                  and paid separate and apart from the          early on in the planning process.
Brokers                                            premium? The Exchange will likely
                                                                                                 In addition to determining eligibility for
In light of the possible exclusion of              want to coordinate this type of change
                                                                                                 premium subsidies and assisting consumers
health insurance brokers from serving              in disclosure and payment with the rest
                                                                                                 with initial health plan selection and
as Navigators, the Exchange will need              of the commercial market to ensure a
                                                                                                 enrollment, the Exchange may also need
to determine how best to use brokers to            level playing field across the various
                                                                                                 to provide ongoing account management
facilitate enrollment and assist consumers.        distribution channels.
                                                                                                 and maintenance (e.g., monthly premium
Although health insurance brokers’ level         How to utilize brokers and how they fit into    billing and collection, changes in coverage
of involvement in the individual and             the Exchange’s outreach and enrollment          status, delinquent payment notification,
small group markets varies from state to         program is one of the more important            renewals, etc.). The Exchange will need
state, they play an influential role in the      decisions to be made by the Exchange.           to establish, or work with an entity that
distribution of health insurance across          Brokers play a prominent role in the            has already established, electronic data
the country. Brokers serve as the de facto       market, particularly for small employers.       interchanges with the health carriers in
benefits offices for many small businesses,      They often have longstanding and trusting       order to generate monthly premiums,
providing firms with a range of services,        relationships with their clients and provide    process enrollments, and handle myriad
including assistance with health insurance,      information at the ground level about           administrative responsibilities.
disability coverage, life insurance, and other   health insurance options. Determining
ancillary lines of coverage. Business owners                                                     Private sector intermediaries already
                                                 how best to leverage the expertise of
rely on brokers to sort through their health                                                     provide those types of administrative
                                                 health insurance brokers and to make an
                                                                                                 services on behalf of health insurers and
     consumers in a number of states. These          In particular, states should review public     establish single portals through which
     entities typically operate in the individual    programs that provide premium subsidies        eligibility for all public subsidy programs
     and small group markets. Working in             for lower income individuals who work          will be determined, states may have an
     concert with health insurance brokers and       for small employers; programs that are         added incentive to limit the number of
     health carriers, the intermediaries generate    designed to assist people who are recently     programs offered.
     premium quotes; process enrollments; bill,      unemployed (e.g., COBRA premium
     collect, and remit premiums; and provide        subsidy programs); and other programs
     a range of post-enrollment administrative       geared toward helping working adults           The Road Ahead
     functions. Essentially, intermediaries take     obtain coverage.                               State governments will need to make a
     over account management functions that                                                         number of key decisions in the coming
                                                     For example, a number of states have
     are otherwise handled by a health carrier                                                      months to establish the proper foundation
                                                     established premium subsidy programs
     and/or the benefits management office of                                                       upon which to build an effective and
                                                     for lower income individuals who work
     midsized and large employers.                                                                  efficient health insurance Exchange.
                                                     for small employers. These programs
                                                                                                    And, while the federal health care reform
     In states with private intermediaries, the      subsidize the employee’s share of the
                                                                                                    law sets parameters within which the
     Exchange will need to decide whether,           premium for employer-sponsored
                                                                                                    Exchanges will need to operate, the law
     and how best, to leverage the capabilities      insurance, and some programs subsidize
                                                                                                    also provides some flexibility to allow
     of these businesses. There will likely be       the employer’s share, as well. It is
                                                                                                    states to develop Exchanges that best meet
     significant advantages to contracting with      important to understand how these
                                                                                                    the needs of their residents and employers.
     one or more intermediaries, particularly        programs will be impacted by federal
     with regard to the infrastructure and the       health reform and the establishment of         The successful development and operation
     data exchanges that these companies have        an Exchange. While states may want             of the Exchanges will likely determine
     already established with health carriers.       to continue to encourage and support           whether the federal health care reform law
                                                     the offer of health insurance by small         can achieve its goals of improving access
     The decision of whether and how best
                                                     employers, the availability of premium         to health coverage, enhancing the value of
     to utilize the services of private sector
                                                     subsidies for lower income individuals         health insurance, and moderating the cost
     intermediaries will be affected by the
                                                     through the Exchange may allow states          of health care. Across the country, state
     capabilities of these businesses. Exchange
                                                     to eliminate or modify their existing          governments will play the pivotal role in
     administrators will need to determine
                                                     programs.                                      operating these Exchanges.
     which services can be handled internally,
     which should be outsourced, and which           In addition, not only will it be important     Certainly, an immediate and significant
     intermediaries may be best equipped to          to understand the eligibility rules for the    challenge for most states will be the
     provide the administrative services required.   various public subsidy programs, but it        development of a single, streamlined
                                                     will be critical to recognize how premium      eligibility process to determine eligibility
                                                     subsidies and benefits (e.g., what’s covered   for Medicaid, CHIP, the Exchange, and
     Review Existing                                 and the cost sharing requirements) for         other state health insurance programs. For
     Public Subsidy                                  similarly-situated individuals might
                                                     compare across these programs. For
                                                                                                    many states, establishing a single eligibility
                                                                                                    engine will either require an upgrade
     Programs to Identify                            example, programs that subsidize               to existing eligibility systems or the
     Opportunities for                               employer-sponsored insurance offered by        development of a new eligibility system.

     Consolidation,                                  small employers will need to be matched
                                                     against an Exchange-based program that
                                                                                                    Given the time and resources required
                                                                                                    to plan, design and develop eligibility
     Elimination, and                                provides subsidies for the purchase of         systems, states will need to begin work on
     Administrative                                  individual insurance, as these programs
                                                     will likely target many of the same people.
                                                                                                    this requirement immediately in order to

     Efficiencies                                                                                   meet the January 2014 effective date.
                                                     States need to understand how the various
     Federal health reform should be viewed                                                         Setting the rules for health insurers to
                                                     programs interact and may need to
     as an opportunity for states to review                                                         participate in the Exchange, providing
                                                     restructure the programs so that they are
     their existing publicly subsidized health                                                      consumers with relevant and useful
     insurance programs, with an eye toward                                                         information to help them make informed
     examining whether and how existing              There may also be opportunities to             decisions, streamlining administrative
     programs may fit into the changing              consolidate, restructure, and/or streamline    processes, and shifting the insurance
     marketplace given the availability of           program administration. Given the              market from one based on avoiding risk to
     premium subsidies through the Exchange.         requirement that states are expected to        one based on price and quality will require

collaboration between states and the
federal government, across state agencies,
                                              implement new health insurance programs,
                                              including publicly subsidized and commercial
                                                                                                 1 For more information on developing a timeline,
among stakeholders, and throughout the        health benefit plans, as well as health              see “Health Benefit Exchanges: An Implementation
health insurance industry.                    insurance financing arrangements. Mr. Carey          Timeline for State Policymakers,” Patrick Holland and
                                                                                                   Jon Kingsdale, State Coverage Initiatives, July 2010.
                                              was also responsible for coordinating activities
The Exchange can play an important role                                                          2 For a more detailed discussion of background
                                              across state agencies to implement the
in effectively and efficiently delivering                                                          research that should be compiled, see “Preparing
                                              numerous components of the Massachusetts             for Health Reform: The Role of the Health
health insurance and improving
                                              health reform law.                                   Insurance Exchange,” Robert Carey, State Coverage
competition in the market. It can also                                                             Initiatives, January 2010.
become an important part of a broader         Prior to his work at the Connector
                                                                                                 3 Section 1413 of the Patient Protection and
effort to improve the health insurance        Authority, Mr. Carey served as director
                                                                                                   Affordable Care Act.
and health care systems. Whether, and to      of policy and program management
what extent, that happens will depend on      at the Massachusetts Group Insurance               4 It should be noted that there is ongoing concern
                                                                                                   that states may need to maintain two eligibility
state policymakers’ willingness to use the    Commission, the state agency responsible             systems for their Medicaid program. The ACA
Exchange as a vehicle for change.             for providing health and welfare benefits            specifies that a state cannot get an enhanced federal
                                              to more than 325,000 state and local                 match for a person who was eligible under pre-
                                                                                                   ACA eligibility categories. Depending on how the
                                              employees, retirees, and dependents.
About the Author                              His work experience includes senior
                                                                                                   Department of Health and Human Services decides
                                                                                                   to address this issue, states may need to show that a
Bob Carey is a senior advisor at Public       research and policy positions with non-              new enrollee was not eligible under old rules before
                                                                                                   they enroll them in Medicaid at the new eligibility
Consulting Group (PCG). At PCG, he            governmental research organizations,
                                                                                                   levels and get enhanced match.
is principally responsible for providing      government oversight boards, and senior
strategic consulting and technical            policy positions with the U.S. Congress.           5 A high-deductible health plan (HDHP) offered
                                                                                                   through the Exchange must cover all of the
assistance to states in the implementation                                                         essential health benefits, as determined by the
of the federal health reform law and                                                               secretary of HHS, but may have a larger up-front
the establishment of state-based health       Acknowledgements                                     deductible than the $2,000 (individual coverage)
                                                                                                   and $4,000 (family coverage) limits established in
insurance Exchanges.                          The author would like to thank Enrique               the health reform law. In 2010, HDHPs could have
                                              Martinez-Vidal, Shelly Ten Napel, and                deductibles of $5,950 (individual) and $11,900
Prior to joining PCG, Mr. Carey was                                                                (family).
director of planning and development          Isabel Friedenzohn from the State Coverage
for the Commonwealth Health Insurance         Initiatives program for their helpful              6 “Critical Issues in Health Reform - State
                                                                                                   Characteristics,” American Academy of Actuaries,
Connector Authority, an independent           comments and suggestions.
                                                                                                   November 2009.
authority established to implement the 2006                                                        characteristics_nov09.pdf, accessed on September
Massachusetts Health Care Reform Law.                                                              2, 2010.

In this role, Mr. Carey helped design and

     Appendix                                        premiums would differ under the
                                                                                                   The table below shows the premium
                                                                                                   percentages for each FPL level, as detailed
     Unlike most Medicaid and CHIP                                                                 in the law. Depending on how the federal
     programs, the subsidy amount for                The ACA sets the applicant’s premium
                                                                                                   government interprets the requirement
     insurance purchased through the                 as a percentage of income depending on
                                                                                                   that the members’ share of the premium
     Exchange will be set as a percentage of an      the applicant’s FPL level. Additionally,
                                                                                                   be set in a “linear manner,” there may
     individual’s or family’s modified adjusted      federal law dictates that the applicant’s
                                                                                                   be as many as 167 different premium
     gross income. The amount that the family        premium will be set on a sliding scale and
                                                                                                   percentages that will need to be calculated
     must pay is set according to their income       “in a linear manner.” That means the
                                                                                                   for applicants with income between 133
     as a percent of the federal poverty level       eligibility process will need to determine
                                                                                                   percent and 300 percent FPL. For income
     (FPL). Under this methodology, two              the applicant’s income, the applicant’s
                                                                                                   over 300 percent FPL, the premiums will
     families with similar FPL percentages           FPL percentage, the percentage of
                                                                                                   be set at 9.5 percent of income. States
     may pay different premiums for the same         income required for health insurance
                                                                                                   will need to pay close attention to the
     coverage. The example below shows               that corresponds to that FPL, and the
                                                                                                   regulations that will be forthcoming on
     two families, both at 250 percent FPL,          applicant’s corresponding dollar share of
                                                                                                   this issue.
     and demonstrates how their monthly              the premium.

                                                                Premium as Percent
             FPL Level                    2009 Single                                             Annual                  Monthly
                                                                    of Income
            Up to 133%                     $14,844                        2%                       $297                     $24.75
              133%                         $14,845                        3%                       $445                     $37.11
              150%                         $16,742                        4%                       $670                     $55.81
              200%                         $22,322                       6.3%                     $1,406                   $117.19
              250%                         $27,902                      8.05%                     $2,246                   $187.18
              300%                         $33,483                       9.5%                     $3,181                   $265.07
              350%                         $39,063                       9.5%                     $3,711                   $309.25
               400%                        $44,644                       9.5%                     $4,241                   $353.43

                                                                             The Jones Family                    The Smith Family
      Number of family members                                                        4                                   6

      Modified adjusted gross income (AGI)                                        $55,125                             $73,825

      Modified AGI as % of income                                                  250%                                250%

      Family’s share of premium as % of family income                              8.05%                               8.05%

      Family’s share of monthly premium                                             $370                                $495


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