NASE Health Blog

Advice and information on small business health insurance coverage.

A Primer On Health Insurance Exchanges

Monday, July 18, 2011
Posted by Mike Beene - Exchanges are perhaps the most appealing feature of the health care reform law to those on both sides of the debate. Many believe that exchanges will survive even if the law does not. There were broad calls for reform to the market for people who buy their own coverage long before the Patient Protection and Affordable Care Act (PPACA) was born. And exchanges are not a new creation. Several states had them before the PPACA was even written.
An exchange as envisioned by the PPACA is a marketplace where individuals and small businesses can shop for health insurance. The PPACA  set out two kinds of exchanges. The first is one that would provide options for those who buy their own coverage in the individual market, which often includes the self-employed. A second type of exchange, which the PPACA calls the Small Business Health Options Program (SHOP) was in very general terms created to facilitate small employers’ purchase of coverage for their employees in the small group market. Congress was fairly general in describing exchanges , leaving many of the details to  the Department of Health and Human Services(HHS). In formulating the regulations that HHS will adopt to carry out the law, HHS prepares a set of proposed regulations and publishes them for public comment before finalizing them. While it is possible changes will occur to the proposed regulations before they are finalized, they give a view of what the final regulations will be and probably are very close to what the exchanges will look like. On July 11, 2011 HHS issued the proposed exchange rules giving the public 75 days to comment. The proposed rules are 347 pages and address exchange regulation and risk regulation for these markets.
 
The states have flexibility in setting up exchanges as long as the exchanges approve only qualified health plans which contain the required essential benefits. Some argue that this makes the exchanges very flexible. Others agree if the definition of choice is either expensive or very expensive insurance. Getting past the debate, what are some things we learn from the proposed regulations?

The most significant rule deals with when an individual or small group can enroll in a plan. A concern of many has been that since a pre-existing condition is not a bar to acquiring coverage (a highly touted feature of the PPACA), people will wait until they are sick to purchase insurance. If they don’t get sick in a given year they will opt to just pay the penalty which will pale in comparison to the cost of qualified coverage. This would create the dreaded adverse selection that drives premium costs up, there being few well people paying premiums but large numbers of sick people undergoing expensive treatment and driving premiums higher in what could quickly become an unmanageable cycle.  The regulations clarify that exchanges will have open enrollment periods once a year between October 15 and December 7. Therefore, unless you qualify for a special enrollment period (examples include birth, marriage, losing other qualified coverage, gaining citizenship) you will not be able to wait until you need coverage and then buy it. The PPACA provided that carriers , while being forced to cover all pre-existing conditions, could have open enrollment periods  thus implying that there would be times that they did not have to take anyone. The rules, by defining the open enrollment periods as short times, and even more important as specific dates for all companies, remove the possibility that some carrier would always be in a required open enrollment period even if others were not. In a much more effective manner than any mandate, this rule will keep many people from taking the risk of having no health insurance. At least there is actual risk now that it appears buying coverage on the way to the hospital will not be an effective strategy at the same time. This will be the only time that exchanges will accept new applications for insurance or applications to change insurance unless special circumstances are present (such as loss of other coverage, marriage, birth). This is consistent with the statute which allows carriers to restrict to open enrollment periods.
The proposed rules also offer a glimpse into what the exchanges may really look like.  An application may be submitted through the internet so a web presence will be required. Many view exchanges to be almost totally electronic, and the current Utah exchange operates in this manner.  However, the proposed rules also require an exchange to accept phone applications and in-person applications. Sounds like an office and more than just a small crew will be required.  While the regulations leave flexible how active the exchange will be in negotiating with carriers and certifying policies (will they certify all that meet the minimum essential benefits standard or only a smaller number they vet for the public) it appears that the current Utah exchange will not meet federal requirements. 

To prove that nothing makes everyone totally happy, consumer groups are disappointed that the proposed regulations do not prohibit insurance industry people from serving on exchange boards (not in a majority and with proper conflict of interest rules). Other structural items include guidance on who can serve on the board of a state exchange. Others who will have continuing questions are agents and brokers who are mentioned as important to the market but given little in the way of substance.
One area that did receive a great deal of clarification is the previously mentioned SHOP exchange program. The AAPCA provided little guidance .The proposed regulations address SHOP exchanges in some detail. These exchanges , which are envisioned to help small employers purchase coverage for their employees, will cover geographic areas consistent with the individual exchanges and states will have options in combining the risk pools in the individual and group markets. In what may be a very convenient process for the small employer, exchanges will be required to accept an aggregate premium payment from the employer for its employee coverage and accept a single employer application. Significantly, the SHOP exchange must allow a qualified employer to select a level of coverage (bronze, silver, gold, platinum) and each plan in the exchange qualified under that specific level can be chosen. Thus, some employees may pick company x and others company y and the employer will still just send the exchange one check and the exchange will handle the details.
These are just a few brief highlights from the proposed regulation. Areas of direct concern should be referenced in more detail. Remember, this is the comment phase and HHS has shown a willingness to reevaluate proposals that may create unintended consequences if they can make a change consistent with the law.  

Read more here.

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