HEALTH INSURANCE EXCHANGES UNDER THE AFFORDABLE CARE ACT: THE BUMPY ROAD TO IMPLEMENTATION

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1 HEALTH INSURANCE EXCHANGES UNDER THE AFFORDABLE CARE ACT: THE BUMPY ROAD TO IMPLEMENTATION Russell S. Buhite Shareholder MARSHALL DENNEHEY WARNER COLEMAN & GOGGIN Tampa, Florida Theodore J. Tucci Partner ROBINSON & COLE Hartford, Connecticut Introduction In June 2012, the U.S. Supreme Court issued a historic decision largely upholding the constitutionality of the Patient Protection and Affordable Care Act ( ACA ). The Supreme Court affirmed ACA s individual mandate requirement that individuals obtain a minimum level of health insurance or otherwise pay a penalty. The election results later in the fall of 2012 effectively ended any hope for wholesale repeal of this mandatory nationwide health insurance coverage requirement, and states are taking widely divergent paths toward compliance with ACA, as exemplified in their varied responses to ACA s requirement to set up Health Insurance Exchanges ( Exchanges ). Exchanges are a major component of ACA s policy goal to promote competition in the private health insurance market and to expand access to affordable coverage. The Congressional Budget Office estimates that by 2016, as many as 25 million Americans (individually or through small employers) will be covered under policies offered on and sold through Exchanges. All states especially those that have not engaged in serious efforts to plan for Exchanges now face the daunting task coming into compliance with ACA by January 1, 2014 when Exchanges must be fully operational. The purpose of this article is to provide a broad overview of ACA s requirements for Exchanges, to describe the options available to states regarding Exchange implementation, and to summarize the current state of affairs regarding states efforts (or lack thereof) to implement Exchanges and the operational challenges that go along with creating an entirely new marketplace for the availability of health insurance coverage. ACA s Requirements for Exchanges Exchanges are intended to be simple, streamlined websites that allow individuals to shop for health insurance coverage by comparing the prices and features of approved Qualified Health American Bar Association Tort Trial & Insurance Practice Section Health And Disability Insurance Law Committee 2013 American Bar Association, Tort Trial & Insurance Practice Section, 321 North Clark Street, Chicago, Illinois 60654; (312) All rights reserved. The opinions herein are the authors and do not necessarily represent the views or policies of the ABA, TIPS or the Health And Disability Insurance Law Committee. Articles should not be reproduced without written permission from the Tort Trial & Insurance Practice Section.

2 Plans ( QHP ) offered by insurers in the private market. ACA requires that QHPs provide ten categories of Essential Health Benefits ( EHB ) ranging from hospitalization to mental health services to prescription drug coverage. In November, 2012, the Department of Health and Human Services issued proposed EHB regulations applicable to non-grandfathered individual and small employer (generally fewer than 100 employees) plans. Each state must designate a benchmark plan to serve as the standard for health benefits offered in each of the ten categories. There are also limits imposed on the amount of cost-sharing that such plans can impose on insureds. The regulations also envision a standard methodology for determining the level of coverage that each QHP will provide: bronze (60% of actuarial value of expenses), silver (70%), gold (80%), and platinum (90%). ACA also establishes standards that Exchanges must meet for customer outreach and operational compliance. ACA requires that consumers be allowed to apply for and enroll in health insurance coverage online, in person, by phone, fax, or mail. To allow consumers to make informed choices, Exchanges must make appropriate assistance and information available. Specifically, Exchanges must establish call centers, website information about QHPs and the application process, and establish a Navigator program that provides public outreach, enhances awareness of coverage options, and facilitates the enrollment process. To accomplish all of this, ACA imposes information technology performance standards on Exchanges. These include development of IT systems that allow user-friendly individual/small employer shopping and plan enrollment. At the same time, the Exchange systems must have the behind-the-scenes capability to determine enrollment eligibility, coordinate with other benefit programs such as Medicaid, and connect with a federally managed data services hub to determine the level of premium tax credits and cost-sharing subsidies available to assist those buying plans through the Exchange. It has been estimated that federal subsidies available to assist people in buying health insurance coverage on Exchanges may average $5,000 a year per person. And all of these requirements need to be in place in time for open enrollment starting on October 1, Options for Exchange Implementation by States ACA allows Exchanges to be implemented in one of three ways: (1) State Based Exchanges; (2) State Partnership Exchanges; or (3) Federal Exchanges. Under the State Based Exchange model, states have the most flexibility to create the legal structure of the Exchange, choose which plans qualify as QHPs, and design consumer outreach and information programs most tailored to local needs and requirements. For example, a state may determine whether its Exchange will be operated within an existing or a new state agency, as an independent quasipublic entity, or as a non-profit. To date most of the approximately 20 states that have obtained conditional HHS approval to operate state exchanges have created quasi-public entities governed by a representative board, which include key stakeholders and subject matter experts. State Based Exchanges are also free to define their contractual relationship with participating QHPs. States may choose the clearinghouse model, which allows all plans that meet the designated criteria to be offered as QHPs through the Exchange. Alternatively, states may adopt the active purchaser model, which allows the Exchange to selectively contract with those plans that achieve the Exchange s goals relative to plan choice, quality or value. Here, states electing to pursue State Based Exchanges have split almost evenly between these choices. 2

3 For those states that are now more receptive to ACA following the presidential election, but have not engaged sufficiently to date in the planning process to operate independent Exchanges, adopting State Partnership Exchanges is being pursued. HHS has developed this state-federal partnership model to allow states to exercise local control and supervision of Exchange functions best carried out at the state level. State Partnership Exchanges allow for combined management of an Exchange in which states can choose to operate certain management functions, such as consumer assistance and outreach and QHP selection. At the same time the state may choose to cede responsibility for certain administrative and support functions such as eligibility determinations to HHS. This model allows states the flexibility to transition to the fully state-based system over time. If a state is either unwilling or unable to establish either of the two Exchange models described above, HHS will assume primary responsibility for establishing and operating Exchanges in those states. Under ACA, Federal Exchanges were originally considered as the fallback alternative to the preferred option of having states take responsibility and control of developing the framework for new insurance marketplaces. Federal Exchanges are not ideal given the potential for overlap and conflict regarding regulation of insurance an area traditionally reserved for states. In addition, it will be challenging at the federal level to coordinate consumer outreach and information efforts tailored to diverse needs of different states. HHS guidance released in the spring of 2012 indicates that certain policy choices have already been made. The Federal Exchange will follow the clearinghouse model of QHP participation. In addition, the Navigator program at the federal level will rely on participating insurance providers and brokers to carry out consumer information functions. Current Landscape of State Implementation HHS has been attempting to demonstrate as much flexibility as possible with regard to Exchange requirements in order to encourage and maximize state participation rather than ceding responsibility to the federal government. The original deadline for submitting an Exchange blueprint (consisting of a letter and application) to establish a State Based Exchange was extended from November 16, 2012 to December 14, In order to encourage more states to consider adopting the State Partnership Exchange, that deadline was moved to February 15, To date more than $2 billion in grants have been made available to states to assist in Exchange planning and design. On January 3, 2013, HHS announced conditional approval of eight more states to either fully or partially operate Exchanges, bringing the total to 20 (including the District of Columbia). Significantly, four of the conditionally approved states have Republican governors (Idaho, New Mexico, Nevada and Utah), which may signal that political opposition to ACA is beginning to give way to the practical realities of implementation. However, current best estimates as to the number of states that will default to Federal Exchanges is in the range of 20. In order to address concerns at the state level and encourage more states to get on board, HHS published December 2012 FAQ responses on Exchanges and market reforms in which additional information was provided as to how Exchanges will be implemented. These responses emphasized that the federal government will coordinate closely with states and preserve traditional state regulatory oversight and responsibility. 3

4 Conclusion HHS will continue to approve State Partnership Exchanges on a rolling basis starting March 1, Exchanges need to be fully operational by January 1, 2014 and financially selfsustaining in terms of operating costs by January 1, Whether Exchanges will be capable of offering a reasonable selection of QHPs that are both affordable and actuarially sound remains to be seen. Whether HHS and the states will have accomplished the enormous task of getting Exchanges ready to operate ten months from now is perhaps the more pressing question, although the HHS Director of Health Reform stated in the fall of 2012 that necessary resources are in place and we re on track to meet the deadlines to make the exchanges operational. ACA has been described as the most dramatic change to the Nation s health coverage landscape since the mid-1960 s. Exchanges are an integral part of the promise to expand access to affordable, quality healthcare. By this time next year, we should have a better idea of whether that promise is likely to be fulfilled. 4

5 AK PPACA: State Exchange Plans As of February 8, 2013 WA OR ID MT ND MN VT ME WY SD WI MI NY NH MA CT RI CA NV UT CO NE KS IA MO IL IN KY OH WV PA VA MD NJ DC DE AZ NM OK AR TN SC NC MS AL GA HI TX LA FL State-Based Exchange State-Federal Partnership Exchange Federally Facilitated Exchange Sources: Dept. of Health and Human Services ( and the Henry J. Kaiser Family Foundation (healthreform.kff.org)