HHS’s Proposed Regulation for Health Insurance Exchanges: An Emphasis on State Flexibility, Part I
Last week the U.S. Department of Health and Human Services issued its proposed regulation for several features of the new health insurance exchanges that states are to establish by 2014 under the Affordable Care Act. Guidance on additional provisions related to exchanges are expected in the months ahead. In general, the rule provides states maximum flexibility to tailor the exchanges to their particular insurance markets, employer communities, and populations within the boundaries established by the health reform law.
The state insurance exchanges will be organized markets in which individuals and small businesses can purchase health insurance plans starting in 2014. For people without access to employer-sponsored or public insurance, the exchanges will be the main portals for finding a health plan and learning about and applying for any federal subsidies for which they are eligible.
The proposed regulation closely adheres to the provisions of the Affordable Care Act, which sets a floor of minimum requirements for state exchanges. At the same time, states have considerable flexibility and options when designing their exchanges, a process that requires difficult tradeoffs with uncertain impacts on premium costs and enrollment by individuals and small businesses.1 The regulation clarifies those options and, in some cases, offers guidance to states.
In this two-part post, I highlight selected aspects of the proposed rule that provide new flexibility for states or answer key questions about how the exchanges will operate in practice.2
- What must states do to win federal approval by January 1, 2013, to operate their exchanges?
- By what criteria will Massachusetts and Utah gain federal approval for their existing exchanges?
- When can individuals and small business start signing up for coverage?
- How will individuals and small businesses find health plans that meet their needs?
- Who will govern the exchanges?
- What standards must health plans meet?
- Will there be enough health care providers in plan networks offered through the exchanges?
- Will there be essential community providers in every network?
New Wiggle Room for States to Establish Their Exchanges
The rule lays out the proposed approval process for states that elect to establish their own exchanges, with the details left to guidance that HHS will issue later this year.
Each state must submit what the regulation refers to as an ”exchange plan,” which will describe how the state will meet federal requirements to operate its exchange. To receive federal approval, state exchanges must demonstrate through their plans that they are capable of carrying out the full set of required functions, including: the general functions of an exchange laid out in the new rule, operating a small business health options program (“SHOP” exchange); certifying qualified health plans that will be sold through the exchanges meet the information requirements necessary to make advance payments of the premium tax credits; agree to perform their responsibilities with respect to the reinsurance program established under the law; and cover the entire state.
The federal government must give written approval of its exchange plan by January 1, 2013. HHS does provide wiggle room for states: systems development for the exchanges and contracting activities can continue into 2013. If a state cannot demonstrate complete readiness by that deadline but is making considerable progress, HHS may provide “conditional approval” while it continues to work with the state and monitor progress until full approval is granted or, conversely, conditional approval is revoked.
The Federal Government as State Partner in Exchange Operation
HHS notes in the rule that some states have expressed a preference to run their exchanges through a state partnership model, which would combine state-designed and -operated business functions with federally designed and operated business functions. These shared business functions might include eligibility and enrollment in the exchanges, financial management, and health plan management systems and services. HHS is exploring different partnership options for states.
States that are not able to establish their exchanges will work with HHS to develop what the agency refers to as a “federally facilitated exchange.” HHS left the details of the federal exchanges to future regulations. But states with federally facilitated exchanges can decide to take over operation of the exchanges after 2014. States that elect to do this must have an approved exchange plan in place 12 months prior to the first effective date of coverage, or January 1 of any given year. Likewise, states with state exchanges may also decide to cede control of their exchanges to the federal government after 2014; however, they must give HHS 12 months notice to establish a federally facilitated exchange in the state and work with HHS on a transition plan.
Will Massachusetts and Utah Gain Federal Approval for Their Existing Exchanges?
Both Massachusetts and Utah already have insurance exchanges. Massachusetts’ exchange, or Connector, is part of an overall universal health insurance system similar to that envisioned by the Affordable Care Act. Utah’s exchange is currently open only for small business owners and covers just 2,200 people.3 In order to receive federal approval for their exchanges, these states would have to show that they have insured a percentage of their populations that is not less than that projected to be covered under the Affordable Care Act.
When Can Individuals and Small Businesses Start Signing Up for Coverage?
In its rule, HHS proposes that the initial period for people to sign up for health insurance coverage through the exchanges for 2014 is October 1, 2013, through February 28, 2014. Enrollment periods in subsequent years would begin in either October or November and extend through early December. HHS proposes special enrollment periods of 60 days for people who lose other sources of coverage for such reasons as: death of a spouse or parent or divorce; loss of job, or reduction in the hours necessary to be eligible for employment-based coverage; relocation; termination of eligibility for public insurance programs; and exhaustion of COBRA continuation coverage.
The initial enrollment period for employers seeking to offer coverage through the SHOP exchanges would also start on October 1, 2013, but employers can enroll their employees at any time during the year, as they now can in the small-group market. Employees, however, would enroll just once during the year, unless they are eligible for a special enrollment period. New hires would have the ability to join the plan beginning on their first day of employment.
How Will People Find Health Plans That Fit Their Needs?
As HHS emphasizes in the rule, the law establishes the exchanges as a central portal for small businesses and individuals without employer coverage to find health plans and determine their eligibility for premium tax credits and cost-sharing reductions for qualified health plans, Medicaid, the Children’s Health Insurance Program and, if a state elects it, a Basic Health Plan. HHS interprets the law to require the establishment of a system of streamlined and coordinated eligibility and enrollment through which an individual may apply for enrollment in a qualified plan, premium tax credits and cost-sharing reductions, Medicaid, and CHIP and receive a determination of eligibility for any such programs.4
The rule notes that eligibility determination and enrollment should be consumer-oriented, with minimal administrative hurdles and paperwork for applicants. To help out, HHS plans to develop a single streamlined application form that people will use to apply for the premium tax credits, cost-sharing reductions, Medicaid, CHIP, and the basic health plan. HHS will issue this streamlined form, in paper and online versions, along with more guidance on eligibility determinations, in future regulations.
The rule identifies a number of consumer assistance tools that state exchanges will need to provide to people who will shop for qualified plans in the exchanges. Those tools, all of which are named in the law, include a toll-free call center and a Web site. HHS will assist states in this effort by developing a model exchange Web site for posting standardized comparative information on each available qualified plan, including:
- premium and cost-sharing information;
- a summary of benefits and coverage that meets new standardized criteria developed by HHS;
- the level of coverage offered by a qualified plan: bronze, silver, gold, platinum, or catastrophic;
- an electronic cost-calculator enabling people to compare coverage costs in available plans after the application of any advance payments of premium tax credits and cost-sharing reductions (HHS proposes to develop a model calculator for states in the rule and invites comments on this);
- results of the enrollee satisfaction surveys that must be conducted under the law;
- the quality ratings that will be assigned to health plans;
- the percentage of premiums that plans spend on medical care, as opposed to profits and overhead (medical loss ratios), which must be reported to HHS; and
- a provider directory.
In addition, states must ensure that people with limited English proficiency have “meaningful” access to plan information. HHS is also considering requiring exchanges to provide a tool on their Web sites that would enable enrollees and applicants to store and access their personal account information and make changes.
How Will Employers Offer Coverage for Their Employees Through the Exchanges?
In addition to an individual exchange, states must operate a SHOP exchange where small businesses can purchase health insurance. States can operate the SHOP exchange separately from their individual exchanges, or they can merge the two. By 2014, states are to open the exchanges to employers with 100 or fewer workers, but they can opt to restrict eligibility to employers with 50 or fewer workers until 2016. After 2017, states can open their exchanges to more than 100 workers. The rule notes that firms offering health benefits through the exchanges must offer all their full-time workers this coverage.
One of the major areas of confusion in the Affordable Care Act is how exactly employers will offer coverage to their employees through the exchange. HHS substantially reduces this confusion by offering employer-offer options that it views as consistent with the law. The law requires SHOP exchanges to let employers elect a level of coverage—whether bronze, silver, gold, or platinum—and then allow their employees to choose qualified plans within that level with the employer premium contribution. But the rule proposes some additional state flexibility, by proposing that SHOPs allow employers to let employees choose any qualified plan across multiple benefit levels or from a set of selected levels (such as silver or gold). Or, conversely, employers might be allowed to offer a more narrow choice of qualified plans within or across benefit levels. Or employers might choose just one plan for their employees.
Another source of confusion with respect to the SHOP exchanges is how employers that have many workers joining different plans could pay their premiums without incurring significant administrative costs. HHS also helps to diffuse this confusion by proposing that the SHOP exchanges be required to provide participating employers with a single monthly premium bill for all qualified plans in which their employees are enrolled. An employer would then pay a single bill for their workers to the SHOP exchange. The rule observes that most SHOPs would include as payment to the qualified plans the combination of employer and employee contribution to the benefit.
The new proposed rule is a straightforward interpretation of the provisions of the Affordable Care Act as they relate to the establishment of state health insurance exchanges. The rule leaves several areas to future rule-making, including determination of eligibility for premium tax credits and coordination of eligibility and enrollment with Medicaid, CHIP, and the Basic Health Plan; the essential benefit package; the application process for states establishing exchanges; and details regarding federally facilitated exchanges. HHS also invites comment on a number of different requirements regarding the provisions covered in this rule. But rather than narrow choices for states, this rule, if anything, clarifies and even expands them, such as the employer options for enrolling employees through SHOP exchanges. In the rule, HHS establishes itself as a partner with which states can implement their exchanges, inviting comment from states and other stakeholders and offering assistance and flexibility within the boundaries established by the Affordable Care Act.
1 T. S. Jost, Health Insurance Exchanges and the Affordable Care Act: Eight Difficult Issues (New York: The Commonwealth Fund, Sept. 2010).
2 Timothy Jost highlights these and other important aspects of the rule including the proposed rule on the reinsurance, risk corridors, and risk adjustment programs in three blog posts for Health Affairs; see http://www.healthaffairs.org/.
3 S. Corlette J. Alker, J. Touschner et al., The Massachusetts and Utah Health Insurance Exchanges: Lessons Learned (Washington, D.C.: Georgetown University Health Policy Institute, March 2011), http://www.rwjf.org/files/research/72105massutah201103.pdf.
4 P. F. Short, K. Swartz, N. Uberoi et al., Realizing Health Reform's Potential: Maintaining Coverage, Affordability, and Shared Responsibility When Income and Employment Change (New York: The Commonwealth Fund, May 2011).