The Patient Protection and Affordable Care Act refers to state health insurance exchanges as "American Health Benefit Exchanges." In theory, insurance companies will compete for business on a transparent, level playing field, which should reduce costs and give individuals and small businesses the purchasing power enjoyed by big businesses. However, health reform does many things to increase costs by covering those who are now uninsurable and by increasing mandated benefits. Many predict these factors will far outweigh any efficiencies created by the exchanges and that health insurance prices will increase. If exchanges succeed, they will create the first viable alternative to the group markets for the younger-than-65 population.

1. What happens beginning in 2014?

  • Each state is required to create an exchange (a governmental agency or nonprofit organization, established by the state) to facilitate the sale of qualified health plans (QHPs), including federally administered multistate plans and nonprofit cooperative plans. The law requires the Department of Health and Human Services to create an exchange in states that do not set up their own exchanges. However, the health reform law does not provide the federal government with adequate funding to set up or operate federal health insurance exchanges.
  • States can create either one exchange to serve both small group and individual markets or separate exchanges for these pools.
  • One goal is to facilitate a comparison of available health insurance options by purchasers.
  • Standards for qualified coverage must include:
  • Mandated essential coverage
  • Cost-sharing requirements (deductibles, copayments, and coinsurance)

      – Out-of-pocket limitations

      – Minimum actuarial value of 60 percent, which means that the policy, on average, pays 60 percent of the costs for essential health benefits and the insured pays the remaining 40 percent. [The coverage levels are Bronze (60 percent), Silver (70 percent), Gold (80 percent), and Platinum (90 percent).]

  • Catastrophic coverage for purchasers ages 30 and younger in the individual market.
  • States must also create Small Business Health Option Programs, or "SHOP Exchanges," for small employers to purchase coverage. The states can expand the programs to include large employers beginning in 2017. 

2. What options can states offer employers?

  • Employers can choose any QHP offered in the SHOP in any tier;
  • Employers can select specific tiers from which an employee may choose a QHP;
  • Employers can select specific QHPs from different tiers of coverage from which an employee may choose a QHP; or
  • Employers can select a single QHP to offer employees.

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3. How do employers use exchanges?

There is rolling enrollment for employers, but, upon enrollment, the employer is locked into the plan for one-year periods. The plan premiums are also locked in for the same amount of time. Once the employer enrolls in a state exchange:

  • The employer must offer Exchange coverage to all employees.
  • The Exchange must provide an aggregate bill to the employer for all employees.
  • Employers must notify the Exchange about any employee change of status, for example, adding dependents or terminating employment.
  • Employers with multiple worksites can offer access to a single Exchange or to state Exchanges where employees are located.

4. Are there any issues with state exchanges?

Another issue is the interaction with cafeteria plans regulated by Code Section 125. Coverage offered through an exchange is not a permitted benefit under Code Section 125 and cannot be offered under a cafeteria plan unless the employer offers its employees the opportunity to enroll through an exchange in a group market.There are several issues that may affect a state's exchange. For example, states do not have full authority over their own exchanges. HHS has final approval authority for each exchange.

Although the law does not provide the federal government with adequate funding to set up or operate federal health insurance exchanges, exchange costs must be funded by HHS until Jan. 1, 2015. Thereafter, all exchanges must be self-funded.

5. What about costs?

Massachusetts and Utah have operating exchanges, but neither one has produced lower costs. Massachusetts has some of highest insurance rates in the United States, and Utah's exchange rates are higher than purchasing outside the exchange.

One study, conducted for the Ohio Department of Insurance, has predicted that the likely cost increases for health insurance in Ohio will be a total of 55 percent to 85 percent for several reasons, including:

  • The law's requirements for commercial, employer-sponsored, small group and individual health insurance markets, both inside and outside the exchanges, including guaranteed issue of insurance coverage regardless of pre-existing medical conditions or health status,
  • Adjusted community rating with premium rate variations only for benefit plan design, geographic location, age rating (limited to ratio of 3:1), family status, and tobacco usage (limited to ratio of 1.5:1),
  • Premium rate consistency inside and outside the exchanges, and
  • Requirements for essential health benefits.

Although the percentage of Ohio residents with coverage could rise by about 7.9 percent, the price of individual health insurance coverage might rise by about 55 percent to 85 percent, excluding the impact of medical inflation, Milliman predicts. These increases will be 8 percent to 12 percent higher than adjusted small group rates. This is primarily driven by the estimated health status of the new individual health insurance market and the expansion of covered benefits.In addition, the study noted that:

  • The small group market (from 2 to 100 individuals) is expected to see increases of 5 percent to 15 percent.
  • Due to community ratings, some groups could see an increase of 150 percent while others could receive a decrease of up to 38 percent.
  • Employers with age 55 and older dominant demographics are likely to see the decreases.
  • The highest rate increases are expected in companies with two to nine employees.
  • Large groups are expected to see an increase of zero to 5 percent.
  • None of these increases take into account the increase in medical inflation, which for 2012 is estimated to be 7 percent to 8 percent.
  • One important factor for cost increases in group plans is the pass-through fees resulting from increased taxes on insurance companies and medical manufacturers.  

6. What are the functions of the state health insurance exchanges?

The exchange functions and responsibilities include the following:

  • Certification, recertification, and decertification of health insurance options as qualified;
  • Operation of a toll-free hotline;
  • Maintenance of a website for providing information on plans to current and prospective enrollees;
  • Assignment of a price and quality rating to plans;
  • Presentation of plan benefit options in a standardized format;
  • Provision of information on Medicaid and CHIP eligibility and determination of eligibility for individuals in these programs, as well as eligibility for the refundable income tax credit;
  • Provision of an electronic calculator to determine the actual cost of coverage, taking into account eligibility for premium tax credits and cost sharing reductions;
  • Certification of individuals exempt from the individual responsibility requirement;
  • Provision of information on certain individuals and to employers, and,
  • Establishment of a "navigator" program that provides grants to entities assisting consumers.

7. What are the areas over which HHS has responsibility for the state health insurance exchanges?

HHS is responsible for regulatory standards in five areas that insurers must meet in order to be certified as qualified health plans (QHPs) by an exchange:

  • Marketing;
  • network adequacy;
  • accreditation for performance measures;
  • quality improvement and reporting, and
  • uniform enrollment procedures.

8. What are the primary federal requirements for state exchanges?

Information on the availability of in-network and out-of-network providers, including provider directories and availability of essential community providers;Only lawful U.S. residents may obtain coverage in an exchange. Exchanges must comply with federal regulatory standards in the following areas:

  • Consideration of plan patterns and practices with respect to past premium increases and a submission of the plan justifications for current premium increases;
  • Public disclosure of specific plan data, including claims-handling policies, financial disclosures, enrollment and disenrollment data, claims denials, rating practices, cost sharing for out-of-network coverage, and other information identified by HHS;
  • Timely information for consumers requesting their amount of cost sharing for specific services from specified providers;
  • Establishment of "navigators" to assist consumers in selecting their health insurance;
  • Information for participants in group health plans;
  • Information on plan quality-improvement activities;
  • Presentation of enrollee satisfaction-survey results; and
  • Publication of data on the Exchange's administrative costs.
  • Additionally, exchanges must meet detailed requirements for call centers and an Internet web site.
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