DHHS Announces Proposed Rules for State Health Insurance Exchanges

After more than a year of anticipation, the US Department of Health and Human Services (DHHS) on July 11 released proposed rules for health insurance Exchanges, considered an integral part of the Patient Protection and Affordable Care Act (ACA). Still, plenty of questions remain about the marketplaces that are scheduled to be implemented in January 2014. DHHS is accepting public comments until September 28, with the final regulations likely to be announced later this year. The state-based Exchanges are for people who do not get insurance from their employers as well as for small businesses. The Congressional Budget Office (CBO) estimates 8.9 million people will buy insurance on the Exchanges in 2014, with the number growing to 24 million people in 2021.

In announcing the proposals, DHHS mentioned it would be flexible with states and allow them to choose if they want to participate or how they would structure the Exchange. If states decide not to create a marketplace, the federal government will oversee the Exchanges. “It’s quite an effort,” Joan Henneberry, MS, director of the Colorado Health Insurance Exchange, told First Report Managed Care. “Everybody’s trying very hard to not reinvent the wheel. There are some core things that will be uniform [across the states]. The overarching goals will be fairly standard. It’s about trying to find a better way to offer affordable health insurance.”

The program is intended to provide more transparency, competition, and lower prices. Government officials compare the Exchanges with Web sites that aggregate flight information from numerous airlines and allow customers a one-stop shopping experience. With the Exchanges, people will be able to compare the prices and benefits of health plans and make an informed decision. They can access the information through the Internet or toll-free call centers. The marketplace will also provide information on eligibility for Medicaid, the Children’s Health Insurance Program, or subsidies that will help offset the cost of the insurance. People with annual incomes ≤4 times the federal poverty level can receive the subsidies. According to the CBO, the average federal subsidy per person will be $4610 in 2014 and $7080 in 2021. During that period, the CBO predicts the government will spend $777 billion on Exchanges and related expenses. Companies with ≤100 employees can participate in the Exchanges, but states can limit enrollment to businesses with ≤50 employees through 2016. From 2011 through 2013, businesses that cover ≥50% of employees’ health insurance costs and have <25 full-time workers with an average annual wage of <$50,000 are eligible for a tax credit of up to 35% of their share of employees’ premiums. Beginning in 2014, they will receive a tax credit of up to 50% for 2 years if they participate in the Exchange. Nonprofits meeting the same requirements can receive up to a 25% credit through 2013 and up to 35% in 2014 and 2015.

DHHS said the Exchanges must be approved by January 1, 2013, although states making progress toward creating an exchange by then will receive conditional approval to operate in 2014. Open enrollment in the Exchanges will begin on October 1, 2013. States that decide not to participate in 2014 can change their mind in subsequent years and create an Exchange as long as they provide DHHS with 12 months’ notice. The ACA also allows for regional Exchanges, in which multiple states work together to offer the marketplace. As of August 1, only 13 states had enacted legislation for establishing the Exchanges, according to the National Conference of State Legislatures: California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, North Dakota, Oregon, Vermont, Virginia, Washington, and West Virginia. The governors of Alabama, Georgia, and Indiana bypassed legislation and issued executive orders stating the states planned to study the Exchanges. Massachusetts and Utah already had Exchanges functioning before the ACA was passed in March 2010, and DHHS will examine those Exchanges to determine if they fit the criteria. Meanwhile, legislation was pending in 5 states and Washington, DC, while 16 states failed to pass legislation for Exchanges. The governor of New Mexico vetoed an Exchange bill, and Louisiana’s governor said the state would not establish an Exchange. Texas’s governor opposes the Exchanges, as well, and Texas Medical Association President Bruce Malone, MD, told American Medical News the subsidies to help buy insurance through the Exchanges are a “middle-class welfare entitlement.” Setting up an Exchange is complicated, time-consuming, and costly. States must pass a law creating the Exchange, appoint a board of directors, and establish a public authority. They are provided leeway in terms of who runs the Exchanges and what health plans can be included. For instance, health plans must qualify to join the Exchanges, although the qualifications have not been determined. Still, even if plans meet the standards, states have the authority to not include them in the Exchange.

In a report titled Change the Channel: Health Insurance Exchanges Expand Choice and Competition, PricewaterhouseCoopers (PwC) found that only 10% of health insurance executives favored the model in which states select what insurers can compete for customers. So far, the federal government has provided $326 million to states to help set up the Exchanges. According to the Henry J. Kaiser Family Foundation, each state other than Alaska received a planning grant for between $800,000 and $1 million to investigate and research how to implement the Exchanges. Florida has since announced it would return the money. In addition, 6 states and a consortium of 5 New England states received grants ranging from $6 million to $48 million to offset the costs of creating the information technology infrastructure. However, Oklahoma returned the grant funds. Washington, Indiana, and Rhode Island received additional money through an Exchange establishment grant program that provides up to 1 year of funding.

States have the option to establish the Exchanges within a new or existing state agency, as an independent public entity, or as a nonprofit organization. The Kaiser report, titled Establishing Health Insurance Exchanges: An Update on State Efforts, outlined the positives and negatives of the options. If states choose to have the Exchange in a state agency, they will benefit from already having existing systems and being closely tied to the government. The report mentioned, though, that independence may lead to a more flexible structure that can adapt to the needs of the Exchanges. In addition, if enacted as a nonprofit entity, the Exchange may be less prone to political or interest groups’ influence, although the report hypothesized that it may be difficult for a nonprofit to perform certain duties. Of the states that have passed legislation, the Exchanges are expected to be overseen by an independent, 5- to 15-member board of directors that includes health economists, actuaries, and experienced managers or purchasers of health benefits, according to the Kaiser report. Because members of the boards are responsible for planning and operating the Exchanges and identifying the qualified health plans, they are subject to conflict-of-interest clauses that state they cannot financially benefit from work with insurers. After the health insurance Exchange legislation in Colorado passed in May, the governor appointed 5 of the 9 board members, while the 4 caucus leaders each chose an appointee.

The group met in July and plans on gathering at least twice per month until setting the policy and framework for the state’s Exchange, which will be structured as a public, nonprofit. “The board will have some big decisions to make,” Ms. Henneberry said. “They’ll get there. They’re moving quickly. They understand how complicated and important their role is.” The PwC report estimated insurers would compete for approximately $60 billion in premiums when the Exchanges go into effect in 2014 and for nearly $200 billion by 2019. The survey found 52% of the 153 health insurance executives interviewed plan on participating in the Exchanges, approximately one third were not sure, and the remainder said they would not participate. Of the companies saying they will participate, 37% do not currently offer individual policies and 20% do not offer small group plans.

Companies that indicated they will not participate in the Exchanges cited an inability to integrate technology and an inability to profit from the marketplace as the main reasons. In fact, only 30% of the executives expect to see an increase in profit if they are involved in the Exchanges. The insurers expect it would take an average of 15 months to be fully operational for the Exchanges, but 40% of respondents said it would take 18 months and 20% said it would take between 24 and 36 months. In addition, 22% of executives who indicated their companies would participate mentioned that their plans were on hold until they learned more about how the Exchanges would operate. In the coming months, DHHS officials will provide more guidance on the Exchanges and define the requirements and essential benefits that plans must cover. Beginning in 2014, health plans participating in the Exchange will receive temporary reinsurance and risk corridor programs as well as a permanent risk-adjustment program that are intended to spread the risk and decrease the uncertainty insurers may have regarding the Exchanges.