Primer: State Health Insurance Exchanges Hannah Gregg l September 2011 Introduction The Affordable Care Act (ACA) mandates that all Americans will have access to online marketplaces where they can compare and purchase health insurance plans by 2014. These marketplaces, called State Health Insurance Exchanges, will be the platform for regulating and administering new federal subsidies to help low income families afford health insurance. Exchanges are the central plank of the ACA s aggressive insurance coverage expansion plan. How Will Insurance Exchanges Work? Health Insurance Exchanges will have two main functions. First, they will help organize the health insurance marketplace and facilitate insurance purchasing for individuals and small businesses. Second, they will develop and enforce regulatory standards for qualified health plans that can be sold on the Exchanges. In order to first build this online marketplace, an Exchange must maintain a website providing information on insurance plan costs and benefit packages, assign a quality and price rating to each plan, and operate a toll-free hotline to assist consumers. It must provide a method for determining if an individual or family is eligible for Medicaid, Children's Health Insurance Program (CHIP), and ACA subsidies and then provide a calculator to show the Key Takeaways Health-Insurance Exchanges mandated to be open nationwide on January 1, 2014. Large federal subsidies hope to move 32 million uninsured Americans onto health insurance plans by 2021. Conservatively estimated price tag: $818 Billion in federal costs over the first ten years. A sound plan on paper Organization of health insurance marketplace to facilitate insurance purchasing for individuals and small businesses. Development and enforcement of regulatory standards for qualified health plans. Implementation of Exchanges highly unpredictable State-by-state progress on Exchange design and implementation remains inconsistent. The ACA does not appropriate funds to HHS for the creation of federally-run State Exchanges. Concerns loom around extensive federal regulations, which may disrupt insurance market competition and be unsuccessful in controlling future premium hikes. actual remaining costs that the individual would pay for each health plan after taking the available federal assistance money into account. States must also establish a small business Exchange in which employers can provide a set amount of money that they will pay towards each employee s premiums. Employees will then be able to choose between multiple health plans offered on the Exchange and use the pre-tax dollars contributed by their employers towards purchasing their chosen plan. To ensure that all the insurance plans offered on the Exchange are high quality, States must develop a process for certifying health plans based on specific criteria for benefit packages, network adequacy, enrollment procedures, and performance measures. For more information, please contact the American Action Forum s director of healthcare policy, Michael Ramlet, at mramlet@americanactionforum.org.
Policy Goals of Insurance Exchanges Successful Exchanges will accomplish these four goals i : 1. Reduce the rate of national uninsured persons by providing an easily accessible place where people can qualify for federal premium subsidies and then actually purchase their chosen insurance plan. 2. Maintain low insurance premiums by driving competition between health plans for consumers shopping for insurance through the Exchanges. 3. Keep health benefits high by assuring insurance plans meet certain standards before allowing them to be sold on the Exchanges. 4. Enable small businesses to afford to offer health insurance benefits to their employees by providing tax credits and lower premiums at group rates similar to big businesses. Figure 1: State Progress on Implementing Health Insurance Exchanges, as of August 2, 2011 ii Existing Exchange Enacted Pending 1 Executive Order 2 N/A 3 1 Legislation pending or tabled. 2 Studying feasibility of establishing an exchange. 3 No legislation or failed legislation.
Potential Problems Facing Exchanges If a State does not elect to organize an Exchange, or if the Department of Health and Human Services (HHS) deems that the state will not meet the January 2014 deadline, a federally designed Exchange will be compulsorily implemented for each noncompliant State. Many legislators did not support the passage of the ACA and continue to fundamentally disagree with its approach to health reform. Therefore, bills to establish State Exchanges as well as bills to appoint a council to research and design a State Exchange have been blocked or vetoed in multiple States across the nation. Remaining Questions for States: What would a federally designed Exchange look like if established in their State? And, who would be responsible for its administration and costs? Will HHS allow any flexibility on federal requirements for Exchanges if States do indeed move forward with their own designs and establishment? Will businesses be responsive to the ACA s incentives to drop insurance benefits for employees? And, will the federal budget be able to afford the additional subsidy costs if widespread employer drop happens? On the other hand, some States see the opportunity to design their own State Exchange as a way to prevent a federal takeover of the insurance market. Amongst States, there is currently a vast assortment of positions on Exchange establishment: from Florida Governor Rick Scott s return of an exchange planning grant and refusal to accept any federal funds supporting provisions of the ACA iii to California s quick and easy passage of all Exchange related bills (Figure 1). It is unclear where many States will stand at the January 2013 deadline, when HHS will determine whether or not they will establish federal Exchanges instead. The Congressional Budget Office projects federal spending on Exchange subsidies and related costs to total $818 billion dollars from 2011-2021 iv. This analysis assumes a low level of enrollment in the Exchanges and further studies have shown that this cost could easily triple, depending on future employer decisions about continuing to offer insurance benefits. v While nearly $2 billion in federal grants have been allocated to help States with the design and initial start-up costs of Exchanges, after 2015, each State Exchange will be entirely self-funded. This could be a potentially hefty strain on State budgets as the administration costs of the Massachusetts State Exchange already reach $30 million dollars annually. Adding a large number of formerly uninsured individuals to certain health plans is an adverse selection concern as the Exchanges could end up with a disproportionate share of high cost persons compared to the outside insurance market. This will drive up premium costs and cause Exchanges to fail as market facilitators. The ACA mandates three risk adjustment measures to address this problem vi : a temporary Reinsurance Program, temporary Risk Corridor Program, and a permanent Risk Adjustment Program. The goal of these programs will be to direct money towards insurers covering high-risk individuals, allowing them to keep premiums relatively lower and more stable within the Exchanges. If States are unable to establish reinsurance and risk adjustment agencies in How will HHS find funding to set up federally-run State Exchanges?
time, these programs will be federally implemented and administered, raising serious concerns about the implications of widespread federal interference in the insurance market. Although HHS has been instructed to take over exchange planning for States that do not comply, a wrinkle in the ACA is that it lacks a provision to appropriate funds for HHS to set up the Exchanges. In order to secure the funding for the implementation of Exchanges, HHS will likely borrow funds from other programs temporarily until fees can be collected from Exchange enrollees vii.
The American Action Forum is a forward-looking policy institute. The Forum produces realtime, fact-based, innovative policy analysis and solutions for policy makers and the public alike. Our mission is to promote common-sense, innovative and solutions-based policies that will reform government, challenge outdated assumptions, and create a smaller, smarter government. Operation Healthcare Choice is the Forum s public policy center focused on promoting highvalue healthcare and higher quality health insurance that expands consumer choice. Operation Healthcare Choice experts conduct research, offer commentary, and develop policies aimed at eliminating healthcare s burden on the economy. References i U.S. Department of Health and Human Services. Initial Guidence to States on Exchanges. Healthcare.gov http://www.healthcare.gov/center/regulations/guidance_to_states_on_exchanges.html Accessed on 8/29/11 ii Adapted from Kaiser State Health Facts. State Action Towards Creating a Health Insurance Exchange, as of August 2, 2011. http://statehealthfacts.kff.org/comparemaptable.jsp?ind=962&cat=17. Accessed 8/31/2011. iii Sack K. Opposing the Health Law: Florida Refuses Millions. New York Times. 7/31/2011 iv Elmendorf DW. CBO s Analysis of the Major Health Care Legislation Enacted in March 2010. Testimony before the Subcommittee on Health, Committee on Energy and Commerce, U.S. House of Representatives. March 30, 2011. v Holtz-Eakin D & Cameron S, Labor Markets and Health Care Reform: New Results. American Action Forum. May 2010 vi U.S. Department of Health and Human Services. Patient Protection and Affordable Care Act; Standards Related to Reinsurance, Risk Corridors and Risk Adjustment. Federal Register Vol. 76, No.136. July 15, 2011. vii Feder JL. HHS may have to get creative on exchange. Politico. http://www.politico.com/news/stories/0811/61513.html. Accessed 8/29/11.