Health Insurance Exchanges - National Versus State-Level Marketplace

The Facts 

Both the House health reform bill, H.R. 3962 (Affordable Health Care for America Act), and the Senate health reform bill, H.R. 3590 (Patient Protection and Affordable Care Act), include provisions establishing one or more health insurance marketplaces (exchanges). The exchanges would serve as an organized and transparent marketplace designed to facilitate access to, evaluation of and purchase of qualified health insurance plans by individuals and small businesses. Premium subsidies would be available through the exchange, and benefit packages would be structured in standardized tiers. An exchange would seek to create a large enough risk pool so that competition among insurers would increase not only with respect to pricing but on quality and service aspects as well. Insurance market reforms in both bills would disallow preexisting condition exclusions and impose medical loss ratio requirements. 

There are key differences between the House and Senate proposals. The House bill would create one national exchange overseen by a new federal agency, the Health Choices Administration (HCA), with an opt-out provision for states under certain circumstances. The HCA would oversee the health plans and premiums charged for policies available through the exchange. Under the House bill, the exchange would be the exclusive marketplace for all individual (non-group) policies, other than grandfathered policies. Insurers would be required to bid to participate in the exchange, with the HCA able to negotiate terms before allowing a plan to participate in the exchange. By contrast, the Senate bill provides for each state to establish and administer its own exchange, subject to compliance with minimum federal standards, with federal intervention if a state does not provide an exchange. 

What’s at Stake

The exchanges will be at the crux of revamping the individual and small business markets. Whether there is a single national exchange or separate state exchanges will have significant implications for providers, payors and consumers. The House proposal could offer greater economies of scale and potential efficiencies for products offered across state lines, but would represent a significant shift from how insurance is currently regulated at the state level. The Senate proposal would retain the benefit of the local market knowledge of the states and would preclude an additional layer of federal regulation. 

Steps to Consider

Understand the impact of the exchanges on structure and oversight of the insurance market, evaluate current plans and prepare for refinements needed to transition to new exchanges.

Health Insurance Exchanges: The Next Forum for Commercial Health Insurance?

The Facts

Draft health care reform bills circulating on Capitol Hill would seek to expand access to health insurance by creating “health insurance exchanges” or “gateways” (Exchanges) at the state or local level. Qualified individuals and small businesses could purchase health insurance offered by a private entity participating in an Exchange, or, if adopted, a public plan option.

  • Covering essential benefits:   The draft House “Tri-Committee” bill released on June 19, 2009, would require qualified health benefits plans to cover “essential” benefits through defined benefit packages that would vary by the insured’s cost-sharing obligation. Plan sponsors could elect to offer benefit plans that include additional benefits, such as vision care. The amended Senate bill proposed by Democrats on the HELP Committee would permit sponsors of qualified health plans to provide “essential” benefits through benefit plans with one of three cost-sharing variations. States could require these plans to cover additional benefits.
  • Sponsors of Qualifying Health Plans:  Both bills anticipate that private entities (including health insurers and HMOs) would participate in the Exchanges by sponsoring these qualified health plans. The House bill contemplates a bidding process with selected entities entering into a minimum one-year contract to offer plans in the Exchanges. The Senate bill would authorize the Exchanges’ administrators to permit participation of “certified” sponsors that are “determined” to offer plan(s) that are “in the interests of qualified individuals and qualified employers.”

What’s at Stake

For health care providers, whether their services would be part of the “essential” benefits defined for these qualifying health plans, and the terms and conditions (including payment) of participation will be key. For health insurers and other managed care organizations, a significant question is the extent to which the conditions of participation in the Exchanges—including mandatory acceptance of all enrollees and participation in the risk-pooling mechanism established for the Exchanges—affect the ability to offer the essential benefits (and any permissible additional benefits) at an affordable rate. 

The role of a public plan option, if any, will be critical for all potential participants.

Steps to Consider

Both bills offer general parameters for defining the “essential” benefits, setting provider network requirements, and adopting criteria for qualifying health plan sponsors. The details, however, likely will be addressed through the administrative rulemaking process, albeit in accordance with any requirements included in the final legislation.



Senate Finance Committee Releases Second Health Reform Policy Paper

The Facts
On May 11, 2009, Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Charles Grassley (R-IA) released the second of three health reform options papers.  The options seek to expand health insurance coverage to the nation’s 46 million uninsured through insurance market reform, a new public health insurance plan, expansion of public programs, insurance coverage mandates on both employers and individuals, and new premium subsidies and tax credits.

A Health Insurance Exchange would facilitate the purchase of coverage through a web portal on the internet.  Initially, only individuals and “micro-groups” would be able to purchase insurance through the exchange. 

Plan options would include:

  • Medicare Like Program – Operated by the U.S. Department of Health and Human Services and offered through the exchange 
  • TPA Administration – Public plan administered through regional third-party administrators (TPAs) 
  • State-Run Public Plan – Flexible state plans that may allow individuals to purchase coverage available to state employees

Individuals ages 55 though 64 who do not have employer-sponsored insurance or Medicaid coverage could enroll in Medicare and pay a premium. Medicaid eligibility would be standardized, with parents, children and pregnant women with income below 150 percent of the Federal Poverty Level ($33,000 a year for a family of four) eligible for coverage. 

Individuals would have a “fair share” responsibility to purchase health care coverage, with certain exemptions.  Employers must offer qualified coverage to full-time employees or provide coverage that is the actuarial equivalent to the lowest coverage option.  Employers with total annual payroll of less than $250,0000 would be exempt.

Premium subsidies would be available on a sliding scale for individuals with incomes under 400 percent of the Federal Poverty Level.  These subsidies would take the form of a tax credit used to purchase health coverage through the exchange.  Tax credits would be available for small businesses with less than 25 workers and average employee earnings of $40,000.

What’s at Stake
The Finance Committee is proposing transformative changes to the health care sector in order to expand health insurance coverage to all Americans. The requirements on individuals to purchase coverage and the obligations of employers to provide coverage are key along with the creation of the exchange.

Steps to Consider

  • Insurers should examine the impact of a Medicare-like public plan option on provider payments and the ultimate competitiveness of private plans.
  • Insurers should also examine the concept of the exchange and assess the business impact of the proposed new rating rules and benefit structure.
  • Employers should carefully monitor “pay or play” proposals and prepare to adapt to potential requirements.