The Commonwealth Fund Blog

Health Insurance Exchanges: Overcoming Implementation Barriers

September 30, 2010

Tags: health insurance Affordable Care Act

Jost

By Timothy Jost

The new state-level health insurance exchanges that are to be established under the Affordable Care Act (ACA) will serve as major insurance marketplaces when they become fully operational in 2014, and should provide many currently uninsured and underinsured Americans with an affordable, easy way to obtain comprehensive coverage.

To start, the exchanges can be open to individuals and to businesses with up to 100 employees, but after 2017 states have the further option of opening up the exchanges to larger employers. Federal subsidies will help defray the cost of health plan premiums for lower- and middle-income individuals, and participating insurance carriers will have to provide a package of essential benefits and meet other federal criteria. The exchanges will also enable individuals and employers to access information about the quality and price of participating plans through an online rating system and other tools.

But to ensure that the exchanges work as intended, federal and state governments will have to tackle a number of thorny issues throughout the implementation process. Below, I outline these issues and offer my recommendations for addressing them.

1. Governing the exchanges. In each state, the exchange should be placed within an independent agency, which should be explicitly exempted, as necessary, from specific state administrative law or government operations requirements. The governing board of the exchange could include representatives of state agencies with which the exchanges must work, interested parties, and persons with relevant expertise. Management, on the other hand, should be apolitical and professional. Exchanges should outsource those services, such as premium billing, for which competitive markets exist and for which performance can be readily monitored.

2. Deterring adverse selection. To the extent possible, each state's regulation of the individual and small-group market should be identical inside and outside the exchange so that the exchange does not include only "high-risk" individuals with costly health care needs. Some states may be able to eliminate altogether the market outside. To discourage adverse selection both against and within the exchange, federal officials should design a sophisticated but practical risk-adjustment system allowing states to adjust risk among participating and nonparticipating insurers.

3. Incorporating large employer plans, particularly formerly self-insured employee benefit plans. Because self-insured plans are not subject to all the requirements of the Affordable Care Act or to state regulation, they pose a degree of risk to exchanges. Businesses with self-insured plans may seek to remain outside the exchange, only insuring their employees through the exchange when the health of their pool deteriorates. In defining "self-insured" status, the federal government should clarify that only employers who bear substantial risk for the cost of health care for their group can be self-insured. States should consider extending the requirements of the Affordable Care Act to large plans and to grandfathered plans that qualify for exchange coverage.

4. Making exchanges attractive to employers. Exchanges should offer employers the possibility of an aggregated bill covering the premiums of all employees. The exchange should assume the task of allocating premiums among the various insurers and plans chosen by individual employees. Employers should be able either to pay a fixed percentage of the premium for a specified level of coverage, with the employee covering the remainder of the premium, or to charge employees a premium share based on the category and richness of their coverage—and, if desired, on their tobacco use and involvement in wellness incentive programs. Employers could also offer greater financial support to their lower-income workers.

5. Regulating the participating plans. Exchanges must use their certification power to ensure that health insurance plans meet the statutory requirements for qualification and that plans do not impose unreasonable premium increases on their members. Legislation authorizing state exchanges should under no circumstances require exchanges to admit all insurers in the market, but should at least give exchanges the option of being an active purchaser. Exchanges should decide whether to take a more inclusive or exclusive approach to insurer participation based on the conditions in their own state and local markets. In addition, they should use their regulatory authority to lower prices and increase value to the extent that market conditions allow, while also standardizing and limiting the range of plan choices available within each benefit tier to stimulate competition based on price and value.

6. Making comparative information available to consumers. Information about the benefits and limitations of various health plan choices should be easily accessible. To enable consumers to make informed selections through the exchange Internet portal, health plans should be contractually bound by the information they disclose on their Web sites. Exchanges should develop rating systems that permit accurate comparison of the value of competing health plans, as well as satisfaction-survey programs that pay particular attention to the opinions of plan members who have serious health problems or financial problems related to their health needs. When conducting their evaluations, exchanges should be attentive to the views of employers and individuals alike.

7. Determining eligibility for premium tax credits and cost-sharing. Although the Affordable Care Act includes extensive provisions for determining eligibility for premium tax credits, cost-sharing reductions, Medicaid, and the Children's Health Insurance Program (CHIP), the allocation of responsibility for making such determinations remains unclear and contradictory. The statute should be implemented in such a way as to permit an individual to apply initially either to the exchange or to the state Medicaid agency. Either entity must then ascertain that the individual is signed up for the appropriate program. The exchange and the Medicaid and CHIP programs should facilitate electronic applications that minimize the need for paper documentation. Interim assistance should be readily available in cases where eligibility cannot immediately be determined. Moreover, the reconciliation requirements of the statute should be interpreted so as not to defeat the purpose of providing assistance to those who need it: exchanges should see it as their responsibility to ensure the continued enrollment of eligible individuals and families for tax credits or public programs, rather than forcing individuals to work constantly at maintaining their own eligibility.

8. Reducing administrative costs and attracting funding. Exchanges should develop a variety of revenue sources to fund their work, including an assessment on all insurers in the market. Exchanges should seek opportunities to lower administrative costs both for insurers and for employers. State enabling legislation should neither require nor bar the use of agents and brokers for the purchase of insurance from the exchange. However, agent and broker commissions should be rationalized, and they should be consistent, regardless of which health plan is being sold and whether it is inside or outside the exchange.

If careful consideration goes into developing policies that address these challenges, the exchanges will be able to accomplish what they are intended to do: expand access to affordable health insurance coverage, improve the quality of coverage, and reduce costs. These are outcomes that will benefit the health system overall.

See the complete report for more detail.