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Decoding State Health Insurance Exchanges

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With the largest expansion of the nation’s health care system since President Johnson created the Medicare and Medicaid programs in 1965, the new health reform law has major implications for small businesses and brokers alike. The sweeping legislation, among many other things, establishes state-based health insurance exchanges and preserves the broker’s role in post-health reform America, with influence from each state.

Exchanges are designed to make it easier for individuals and small businesses to purchase health insurance, and are crucial to more efficiently managing health care costs, increasing price and quality transparency, and expanding access to health insurance for many of the nation’s uninsured, as well as small businesses struggling to afford health benefits. They allow for greater choice and flexibility for not only the human resource decision-makers within small firms, but also for workers and their families.

By making a defined contribution toward employees’ health care benefits, employees who obtain their coverage through the exchange can choose from a variety of choices and enjoy greater flexibility when switching plans at year’s end. The primary goal of health reform was, after all, to make it easier for consumers to purchase health insurance; in the end, the Senate bill that became law included provisions requiring each exchange to standardize coverage options.

How do exchange plans work?

Each option will be included in one of four benefit tiers with different out-of-pocket limitations. Bronze tier plans will cover at least 60 percent of costs; silver plans 70 percent; gold plans 80 percent; and finally, rich platinum plans will cover at least 90 percent of costs. Catastrophic plans will be available to individuals who are exempt from the individual mandate because no affordable plan is available to them or they are under the age of 30. These plans should help stem the tide of uninsured, young adult “invincibles,” a population often stymied by the prohibitive cost of individual insurance. To encourage health plans to participate fully in the exchange, each plan that wants to to become a qualified health plan must offer at least one plan in both the silver and gold benefit tiers.

While the federal Department of Health and Human Services (HHS) must provide guidance on how exchanges will be established, each state that chooses to institute an exchange must create two different exchanges that must both be operational by Jan. 1, 2014. The American Health Benefit Exchange will serve individuals, including those receiving premium reduction and cost-sharing subsidies. Small businesses will be able to purchase coverage through Small Business Health Options Program (SHOP) exchanges. At first, only firms with up to 50 employees will be eligible to purchase coverage through SHOP exchanges. Beginning in 2016, they will be expanded to allow larger employers with up to 100 employees to participate. In parts of the country with separate and distinct insurance markets, states will be allowed to form geographically distinct sub-exchanges, or even partner with neighboring states to structure regional exchanges. States have also been granted the authority to merge their individual and small-group markets to enhance the size and formidability of their risk pools.

Exchanges in context

When the reform bill was passed on March 23, there were three major exchanges in operation, each providing a different example of the exchange governance systems.

Each provides a different example of the possible exchange governance systems. The Connector is run out of a quasi-public agency; Utah’s exchange is housed within the Governor’s office; and HealthPass is a private non-profit that originated as an innovative collaboration between the health insurance industry, the City of New York, and New York Business Group on Health.

Exchanges in reform, and the agent’s role

Agents have an important role to play under this new exchange-based small group market as it’s outlined in the reform legislation. A provision in section 1312 of the bill enables the secretary of HHS to allow brokers and agents to sell exchange-based products, as well as help individuals apply for premium tax credits and cost-sharing reductions. It goes even further in granting the secretary the authority to establish broker commission rate schedules. This is an unprecedented move by federal lawmakers; their legislation essentially allows a massive federal agency to regulate, oversee, and administer something that is usually the states’ responsibility.

As shown in the past, local stakeholders can best address unique market conditions, especially when it comes to health insurance-related issues. In addition to facilitating exchange enrollment and helping with premium credits, brokers may also be allowed to serve as “navigators” – entities charged with offering health coverage assistance and education to consumers. The bill’s language, however, raises concerns about whether brokers compensated on a commission basis will be able to serve this important function.

As HHS guidance continues to roll out, such advocacy organizations as the National Association of Health Underwriters and the Council of Insurance Agents & Brokers will certainly influence federal regulators to exempt licensed health insurance agents and brokers from the unfavorable bill language, as well as to bring rate schedule-setting responsibilities back to the states.

Vince Ashton is the executive director and Shawn Nowicki is the director of public policy for HealthPass, the New York City health insurance exchange for small employers. They can be reached at 212-252-8010.


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