"Public Consulting Group - SCI Report Exchange"
Health Insurance Exchanges: Key Issues for State Implementation by Robert Carey Prepared for State Coverage Initiatives by Public Consulting Group September 2010 1 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 insurance. • 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 markets; 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 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 2 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 3 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. 4 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. 5 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 administrators. 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 6 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 include: 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 7 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 purchasers. • 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? 8 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 programs.”3 9 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. 10 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. 11 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 Enrollment 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 12 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 (HDHP). 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 13 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. employees. 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- broker. 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 14 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 15 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 complementary. 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 16 collaboration between states and the federal government, across state agencies, implement new health insurance programs, including publicly subsidized and commercial Endnotes 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. www.actuary.org/pdf/health/state_ 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 17 Appendix premiums would differ under the Exchange. 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 18