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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
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
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