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The Department of Health and Human Services July 11 issued a proposed rule for minimum standards that states must meet to set up their own health insurance exchange markets in 2014 under the health care reform law.
The 244-page proposal, to be published in the July 15 Federal Register, gives states flexibility to design exchanges that they believe will work best in their state, and gives them the option to partner with each other as well as with the Department of Health and Human Services, HHS Secretary Kathleen Sebelius said in announcing the proposed rule, as well as a proposal on reinsurance and risk corridors. Comments are due 75 days after publication.
Individuals and businesses with up to 50 employees will be able to shop for health insurance policies that offer “essential minimum benefits,” which HHS will define later this year. The federal government will set up exchanges in states that do not set up their own, under the Patient Protection and Affordable Care Act. After 2017, states may let businesses with more than 100 employers buy large group coverage through the exchanges.
Sebelius emphasized benefits of the exchanges for small businesses by making the announcement at Frager's Hardware Store, a family-run business on Capitol Hill. “The health insurance market today is often broken, especially for small businesses,” she said. Small companies can pay up to 18 percent more for the same insurance that larger chains with which they compete are able to get, Sebelius said. Small business owners also are more likely to face large premium increases or to be offered coverage that may exclude care for pre-existing conditions, she added.
As a result, small companies are less likely than large companies to offer health benefits to their workers, Sebelius said. The exchanges will help small businesses, which create two-thirds of new jobs, remain competitive by enabling them to offer coverage to workers, she said.
All exchanges must have key features, including being a “one-stop shop” in which individuals and small business owners can compare affordable plans, Sebelius said. The exchanges will bring more transparency to the health insurance market, which will put pressure on health insurers to lower premium prices, she said.
In addition, all plans offered in the exchanges must offer minimum benefits similar to what employers offer, and insurers will be prohibited from discriminating against people with pre-existing medical conditions, Sebelius said.
Although 49 states have accepted grants to plan for the exchanges, only 10 have enacted legislation to set up their own exchanges, Donald Berwick, administrator of the Centers for Medicare & Medicaid Services, said at the press conference. In 11 other states, legislation is pending, and six more states are moving forward on exchanges without legislation, he said.
The proposed rules “give states the flexibility to design exchanges that best fit their unique insurance markets,” and the rules are consistent with steps several states have taken in setting up exchanges, Berwick said.
In large part, the proposed regulation sticks to requirements laid out by PPACA, and it clarifies choices for states, said Steve Larsen, director of CMS's Center for Consumer Information and Insurance Oversight.
Under PPACA, states that operate their own exchanges must be certified by the secretary of HHS in January 2013. HHS will evaluate the readiness of states to perform key exchange functions, including certifying plans, financial management of the exchange, and providing information and web capabilities, Larsen said.
“Not every state is necessarily going to be prepared to perform every exchange function, but they may be prepared to perform many of the functions,” Larsen said. In those cases, HHS can “meet the states where they are,” by “partnering” with states to perform functions states are not ready to perform by 2014, he said.
The proposed regulation clarifies that if states are not certified by HHS in January 2013 or if they are not able to begin operating exchanges in 2014, “a state still does have an opportunity to come in” by providing HHS with 12 months' notice and a plan to make a transition from a federal exchange to a state exchange, Larsen said.
Under the proposed regulation, states could receive certification from HHS to operate some aspects of the exchange, while HHS operates other aspects of the exchange, such as the information technology functions, Sebelius said.
States can be certified as “fully approved” by January 2013, said Joel Ario, director of CCIIO's health insurance exchange office. “If they're close but not quite there,” however, the secretary could grant “conditional approval” that would be subject to further readiness assessment during 2013, he said. Otherwise, HHS will set up exchanges in states, he said.
The proposed regulation allows states to choose “open market” models, such as Utah's exchange model, or choose to be active purchasers, negotiating rates with insurers, much like the exchange operated by Massachusetts, Larsen said.
Under the proposed regulation, health insurers could serve on governing boards of exchanges, but consumer representatives must form a majority of the governance boards, Larsen said.
Under the proposed rule, states can decide what plan choices small businesses can offer employees, Larsen said. However, under PPACA, once employers pick a level of coverage that designates the amount of benefits covered, employees can choose any plan available at that level, Ario said.
Ario said states that want to operate their own exchanges should adopt a governance model this year, which he said 12 states have done. In addition, states need to develop information technology infrastructure this year, and 30 states have done that, he said. Additional steps need to be taken in order to be certified in January 2013, he said.
“The states are going to continue to make progress and continue to make it at varying levels,” Ario said.
Along with the proposed rules, HHS also issued a procurement contract to create information technology functions that it will be performing irrespective of what the states do, Ario said. The federal contract will be for technology that will be used to operate a federal data services hub that all states will use to determine citizenship, as well as tax credits available under PPACA, Ario said.
Small businesses with up to 25 employees may be eligible for tax credits through the exchanges for several years, and individuals with income from 133 percent to 400 percent of the federal poverty level are eligible for premium subsidies through the exchanges. People with income up to 133 percent of the poverty level will be covered through Medicaid under PPACA.
Ario predicted that most partnerships among states or between states and the federal government will involve information technology to determine eligibility for plan participants, to determine health plan certification, and to make financial payments.
The proposed rule setting forth requirements states must meet to set up exchanges includes the requirement that exchanges must use standards under the Health Insurance Portability and Accountability Act for electronic transactions. The proposal includes a civil penalty of $25,000 for “knowingly and willfully” disclosing personal information.
During a telephone press briefing after the announcement, Larsen said that states were given flexibility to determine what role agents and brokers might play in the exchanges. “There's absolutely a role” that agents and brokers can play, “subject to some restrictions,” he said. Agents and brokers can serve as “navigators” in some circumstances, he said. Navigators are authorized by PPACA to help consumers use the exchange website.
The separate proposed rule concerning risk adjustment, reinsurance, and risk corridors is important in the first few years that the exchanges are in operation, Ario said. “You do have in most states today exclusionary policies, frankly, that discriminate against people who have health conditions.”
Many of those people are now uninsured, Ario said. Under PPACA, in 2014 insurers will not be able to refuse coverage to people with health conditions or to charge them more for coverage. “That puts a certain amount of pressure on the marketplace,” he said.
The reinsurance and risk corridor aspects of the proposed rule are temporary measures to help insurers who may end up with less-healthy policyholders compared with other insurers, Ario said. The risk adjustment portion of the rule will remain in effect permanently, however, “to protect what the promise of this law is, that every consumer, regardless of their health status, can come to the marketplace and get a policy,” he said.
In addition to a proposed rule on essential health benefits to come out later this year, HHS will address quality measurement and quality improvement activities, as well as eligibility enrollment, in a future rule, Larsen said.
America's Health Insurance Plans President and Chief Executive Officer Karen Ignagni issued a statement calling for the health insurance exchanges to function as “true marketplaces that maximize choice and competition so that individuals, families, and small businesses can purchase plans that are right for them.”
The proposed rule would allow any health plan that meets coverage qualifications to participate in the exchanges, or that health plan issuers with successful competitive bids could participate, “or anywhere in between,” according to an HHS fact sheet.
All health plans that meet the new quality and performance standards under PPACA should be allowed to offer coverage in the exchanges, Ignagni said. At the same time, she said, “Exchanges can supplement existing channels for purchasing coverage but should not be consumers' sole option for obtaining health care coverage. The establishment of exchanges should not cause consumers to lose their current coverage if they are satisfied with it.”
There has been disagreement over whether employers are likely to drop coverage for employees once the exchanges are in operation.
By Sara Hansard
Text of the proposal on exchanges (docket CMS-9989-P) is available at http://op.bna.com/hl.nsf/r?Open=mapi-8jnlaf . Text of the second proposal, on reinsurance and risk corridors (CMS-9975-P), can be found at http://op.bna.com/hl.nsf/r?Open=droy-8jnl73 . Fact sheets on the rules are available at http://www.healthcare.gov/law/provisions/exchanges/index.html .
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