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Federal Exchange Details Beginning to Emerge

By John Reichard, CQ HealthBeat Editor

December 6, 2012 -- Bottled up by the Obama administration for months before the election, details about how the federal government will operate insurance exchanges in states that don't establish their own are beginning to emerge—to the great relief of the insurance industry.

"They are opening the door," is how Candy Gallaher, a senior insurance industry official, summed up the situation after hearing remarks by Center for Consumer Information and Insurance Oversight (CCIIO) Director Gary Cohen at an industry conference at the Renaissance Chicago hotel.

CCIIO is the office at the Centers for Medicare and Medicaid Services (CMS) directly responsible for the federal role in standing up health insurance exchanges by Oct. 1, 2013 under the health care law (PL 111-148, PL 111-152).

The information has begun coming out in bits and pieces with no dramatic developments, such as a proposed rule on the so-called federally facilitated exchange.

But what has begun to happen is "critical," said Gallaher, who is senior vice president for state policy with America's Health Insurance Plans, which sponsored the two-day conference . She said, for example, that a CMS team in charge of eligibility and enrollment functions in the federal exchange has reached out to plans to do some of the testing of those systems. That gives plans a better idea of any operational changes they'll need to make to sell coverage in the new marketplace the health care law created for the uninsured and small businesses.

Cohen said insurers will have an April deadline for filing applications to participate in the federal exchange. In addition, he said CMS officials are developing a "comprehensive consumer-focused application" for coverage that will help federal exchange shoppers identify coverage options available to them. He added that CMS is building a website with a chat function and a 24-hour call center to assist shoppers.

Cohen added that officials have completed the technical design for the federal data hub that both state exchanges and the federally facilitated marketplace will use to confirm an applicant's citizenship and determine income for purposes of calculating eligibility for coverage and subsidies, for example. At least in 2014, states won't be charged for using the federal data hub, including checks to authenticate identity, Cohen indicated. "We've begun testing the hub," he added.

And last week, in other regulations governing the plans that will participate in exchanges, CMS disclosed that insurers will have to pay a user fee equal to 3.5 percent of premium charges to sell coverage in the federally facilitated exchange. The fees will support the federal exchange's consumer assistance; its outreach efforts to consumers, including advertising, to promote the availability of the new marketplace; and enrollment operations, among other functions, Cohen said.

Cohen added, however, that "it is our hope that as many states as possible will establish their own exchanges." So far 15 states have said they will do so, he said. And since CMS has moved back the deadline to Dec. 14 for states to declare their intention to open their own exchange and submit an application to do so, "we're hoping to hear from some more states by then," he added.

Gallaher offered her own tally of what states will do, saying it was based on letters filed by states with federal officials. As of Nov. 30, she said 16 states plus the District of Columbia have said they plan to open their own exchanges, 15 have said they will opt for the federal exchange, 6 states have opted for "partnership models" in which they share exchange functions with the federal government, and 13 have made no official decision.

Cohen said that CMS will establish an annual application process for states to run their own exchanges if they choose to change their minds in future years.

If insurers are relieved that they are beginning to get the details on what they must do to participate in exchanges, they also appear somewhat overwhelmed at the regulatory burdens they face and anxious about consumers coming to exchanges and experiencing sticker shock.

"I know I get nightmares sometimes," said Jeanette Thornton, AHIP's vice president for Health IT Strategies.

Gallaher said the federal exchange user fee will add 3.5 percent to premiums. In addition, a charge levied on insurers to fund the Patient-Centered Outcomes Research Institute will add a couple of dollars a year to premiums, she said. There was a bit of good news for plans, however, in that Cohen said the 3.5 percent fee would not be counted as an administrative expense, which would have made it more difficult for insurers to comply with medical loss ratios and avoid having to issue consumer rebates.

Cohen acknowledged, however, that he's hearing a lot from insurers about a new requirement they face that they submit all planned rate hikes to the Department of Health and Human Services. "It's a proposed rule and we do invite comment," he said, adding that CMS wants to avoid collecting more data than it needs. He wasn't making any promises that the requirement would be changed, however.

Cohen also took notice of a complaint by insurers that rules such as rating bands allowing older people to be charged no more than three times what younger people pay would make coverage too costly for some. "We obviously share the desire that coverage should be affordable," he said. But provisions of the law should not looked at in isolation, he added.

"There are many provisions in the Affordable Care Act that will make coverage more affordable," he asserted. Subsidies will lower charges, and cheaper catastrophic coverage policies will be available to the young. And a reinsurance program will reduce premiums to levels 10 percent to 15 percent lower than they otherwise would be, he said.

Cohen also said that additional guidance would be forthcoming on the federal exchange soon, but he wasn't specific. An industry source suggested that CMS isn't likely to issue a proposed rule on the federal exchange, but rather a guidance document.

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