One of the primary features of the Patient Protection and Affordable Care Act law is the creation of health insurance exchanges. An exchange is an insurance marketplace with the goal to help individuals and small businesses access affordable and quality health insurance. Ultimately, these marketplaces will be one of the most important features of the Affordable Care Act as they will represent the method of purchasing health insurance for groups of Americans who have had the most challenges in obtaining affordable and comprehensive health insurance—the low- and moderate-income uninsured, small businesses and families who purchase health insurance on their own through the individual market. It is estimated that about 11.5 million people will use the exchanges in 2014, with 27 million using them by 2018. The marketplaces will also provide a means to distribute premium assistance subsidies and to enroll qualifying individuals and families in public health insurance programs such as Medicaid and Medicare.
By January 2014 the Affordable Care Act requires states to have an operating exchange. In the event a state does not develop an exchange, the federal Health and Human Services Department (HHS) has the authority to create and operate an exchange in the state. States are provided great authority and latitude in developing their exchange, and the federal government has provided funds for planning and, until 2015, will provide funds for implementation and operating costs.
On July 11, 2011, the U.S. Department of Health and Human Services released rules on the design and regulation of Health Insurance Exchanges. The proposed rules reiterated that states would be given broad leeway to design and regulate the health insurance marketplaces. States now have until Jan. 1, 2013, to demonstrate they will have the marketplaces up and running a year later. However, states that are showing progress will be granted “conditional approval” by the federal government. The federal government will still step in and operate an exchange in any state that cannot—or will not—set up their marketplace.
States have the authority to create two exchanges—an American Health Benefits Exchange for individuals and a Small Business Health Options (SHOP) Exchange for businesses with up to 100 employees. Beginning in 2014, individuals and small employers will be able to shop for health insurance from a hoped-for range of health plans in each exchange. Lower- and middle-income individuals earning up to four times the federal poverty level—over $88,000 for a family of four in 2010—may be eligible for premium assistance subsidies for health insurance purchased through the exchange. Small employers with lower-income employees and who provide employer-sponsored insurance may also be eligible for the premium assistance subsidies for up to two years.
The HHS rules also propose enrollment periods for the purchase of health insurance through exchanges. In this way the new marketplaces will be similar to current public employee health benefit plans and will have a new wrinkle that does not exist in the current health insurance purchasing world. Currently, an individual, family or small business can purchase health insurance whenever they want. The HHS rules propose an initial open enrollment period from Oct. 1, 2013, to Feb. 28, 2014. In subsequent years, enrollment would run from Oct. 15 to Dec. 7. Exceptions are made for specific circumstances that would allow purchase outside of the enrollment periods (e.g., birth or adoption of a child or loss of employer-provided coverage).
Below are several items we think Nebraska—and other states—should consider as they go about developing their health insurance marketplaces. In general, states should develop the health insurance marketplaces in ways that are user-friendly and allow as many individuals, families and businesses as possible to purchase affordable and comprehensive health insurance through them.
Consider the Uniqueness of Certain Places and Populations
The recently released HHS rules require that the marketplaces will have to post information online about price and quality. By their very nature certain places and populations are more isolated. That is particularly true of low-income rural residents. Information about exchanges will be difficult to spread to these places and populations without a specific emphasis and significant resources.
Section 1311 of the Affordable Care Act sets forth minimum requirements for exchanges set up by states. At a minimum exchanges must implement a web portal “where consumers and businesses can view coverage options, with benefits and costs presented in a standardized formula.” Exchanges must also provide a toll-free hotline for consumer assistance; screening for eligibility in, and the ability to enroll people in, public health insurance programs such as Medicaid and the Children’s Health Insurance Program; and an online calculator so that people can see the actual cost of their coverage options after accounting for any premium assistance.
There should be concern about these minimum requirements and how they affect people and businesses, especially if states decide only to implement the minimum. The conventional wisdom appears to be that exchanges must be web-based to be effective and efficient. This may be true for the largest number of people across the nation, but it is not necessarily true for many rural residents or low-income urban residents. Generally, rural people have less access to high-speed telecommunications technology. Again, that is particularly true for low-income residents in both rural and urban areas and residents of remote rural areas. A solely web-based exchange will leave out a significant portion of the rural population and low-income urban population and provide less than optimum service for a larger share of the rural population. If that is the case, health care reform will accomplish little to address the health insurance disparities currently endured by many people.
To address these rural challenges, states should consider creative means to provide exchanges that go beyond the minimum requirements of the Affordable Care Act and provide access to the exchange to all people and businesses in need of the services the new marketplaces will offer. State and federal exchange efforts should explicitly address access issues to health benefit exchanges. States should be required to provide a specific plan on how exchanges will address access issues in both rural and urban areas. The federal Department of Health and Human Services should also devise a grant solicitation to states and private entities to provide ideas and best practices on how to address access issues related to health benefit exchanges. Finally, states should allow and devise methods for consumers to apply for coverage (and be assisted in doing so) at physical locations such as community health centers, libraries, churches and other faith-based facilities, fairs and other community locations.
Section 1311(i) of the Affordable Care Act provides that exchanges shall establish grant programs for outreach to the public for education, enrollment information and to facilitate enrollment and referrals for grievances, complaints or questions. This outreach and the information it provides will be very important for rural residents and low-income urban residents. Outreach in rural areas is challenging for a number of reasons. Residents are scattered across vast expanses of land, making personal or community outreach difficult. Communication vehicles in rural areas are limited and different than in urban settings. Resources dedicated to rural outreach are also limited. Grant programs established pursuant to Section 1311(i) of the Affordable Care Act should also be written to specifically address outreach initiatives unique to certain places and certain populations and that some portion of grant resources be made available to implement those outreach initiatives.
The role of insurance agents is definitely going to change with the advent of the new marketplaces. Theoretically, individuals and businesses will be able to go online and do their own research about and purchasing of health insurance without the assistance of insurance brokers or agents. However, there is a reason most people and businesses employ insurance or brokers to help them through the insurance-buying process. The Affordable Care Act recognizes that. Section 1311 of the law requires that exchanges establish a group of “navigators,” individuals or entities that will help consumers and employers learn about and enroll in health insurance coverage options. The law provides examples of potential navigators—community nonprofit organizations, local chambers of commerce and licensed insurance agents and brokers. All play critical roles in community life, and states would be well served to provide a means within exchanges for all to participate as navigators. State governments or other public navigators should be encouraged to involve community-based organizations and nonprofits in their outreach initiatives. Information provided to community members by community-based organizations is likely to be better received, and community-based organizations are familiar with the outreach challenges in their communities and how to address and overcome them.
Actively Prevent Adverse Selection
Adverse selection is likely one of the primary enemies to effective new health insurance marketplaces. Adverse selection will occur if healthier, lower-cost individuals are enrolled in plans outside the exchange marketplace while unhealthier, higher-cost individuals are enrolled in the exchange. If that occurs, the cost of exchange coverage will be higher than the cost of plans offered outside the exchange. Robust steps should be taken to limit adverse selection in the exchange.
One of the bottom-line goals of the Affordable Care Act is to spread the risk and lower costs for everyone. The new exchange marketplaces are one vehicle to do so. Nebraska should take measures to ensure that plans outside the exchange do not set rates artificially low to attract the lowest-cost, healthiest enrollees. Insurance plans sold outside the exchange should comply with all of the same consumer protection requirements that health plans inside the exchange must meet. Nebraska should also make sure that insurance brokers do not have incentives, such as higher commissions, to steer residents into coverage outside the exchange. The Nebraska state insurance commissioner shall have the means and authority to monitor the health insurance market outside the exchange and take appropriate action(s) to mitigate adverse selection
Make the Exchange Attractive to Employers and Small Businesses
Small businesses and self-employed individuals make up a substantial percentage of the population of Nebraska and many other states. Historically these workers have the highest likelihood of being uninsured due to the high cost resulting from very small risk pools. Because of the importance of small businesses to the overall economy, exchanges must be attractive to small business employers in order to be successful.
One method to make exchanges attractive to small businesses is through pooling. The exchanges must be structured to ensure that small businesses can pool their employees with other small businesses in order to spread the risk and lower insurance costs. Regulations should create incentives for states to create one insurance pool, and allow people buying in both the individual and the small business market to be captured in that one insurance pool. Such a structure will be extremely beneficial to small businesses and their employees and families. The opportunity for broader pools will address many of the issues that lead to high rates of uninsurance and underinsurance in some areas and among some populations.
Another suggested method to enhance participation by small businesses concerns billing of insurance premiums through the exchange. Exchanges should offer employers an aggregate bill covering the premiums of all employees. Even in the small businesses that dominate the rural economy, navigating the exchange for multiple employees will strain an employer. Exchanges should also allocate premiums among the various insurers and plans selected by individual employees. To lessen the administrative burden on small businesses, exchanges should also be set up so as to allow employers to pay a fixed percentage of the aggregate premium for a specified level of coverage, with the employees covering the remainder of the premium if applicable. Reducing the burden on small businesses will make the exchanges and the insurance coverage they offer more attractive and will prompt greater participation by small businesses.
The Affordable Care Act provides a number of options to states as to where an exchange will be housed. Existing state agencies, new state agencies or contracts with a nonprofit entity are the options provided by the law.
Whatever option is selected by the state, there is likely to be some sort of governing or advisory board for the exchange. These boards should include broad representation of state agencies with which the exchange must work, interested parties and those with expertise on matters of importance to the exchange. The exchange governing or advisory board should include geographic diversity, including rural representation, and representatives from those who will purchase health insurance through the exchange (primarily the self-employed and small businesses).
What’s Happening in Nebraska and Other States?
Almost all states are in the process of developing their exchanges with an eye toward having them ready in 2012 or by early 2013. So far, about a dozen states have either established exchanges or adopted legislation to do so. Massachusetts and Utah had exchanges prior to the Affordable Care Act. Washington, Oregon, California, Nevada, Colorado, West Virginia, Connecticut, Vermont and Maryland established exchanges after adoption of the federal law. In New Mexico and Louisiana the governor vetoed exchange legislation, and Florida has refused to even consider an exchange.
Nebraska did not consider exchange legislation during its 2011 Legislature, but Gov. Heineman and the Department of Insurance have given assurances that they are developing options and plans for the state’s exchange. To follow the actions taken by the Nebraska Department of Insurance and to view opportunities to provide comments and input to the department, visit www.doi.ne.gov/.
Health insurance exchange marketplaces hold great promise for those most in need of affordable, comprehensive health insurance. Given the newness of the concept to most states and most people, considerable work needs to be done on the design and implementation of the new marketplaces. In the coming year you will undoubtedly hear much about the new world of health insurance purchasing. How states—with the input of citizens and consumers—design and implement health insurance exchange marketplaces will go a long way toward determining the success of providing affordable and comprehensive health insurance to almost all Americans.
For more information, visit www.cfra.org.