A cornerstone of last year’s Affordable Care Act (“ACA”) was the establishment of state-based “American Health Benefit Exchanges.” These Exchanges are to serve as health insurance clearinghouses, allowing health care consumers to connect with insurers. Each Exchange must also maintain a “Small Business Health Options Program” (or “SHOP”), through which small employers may obtain health insurance for their employees. In mid-July, the Department of Health and Human Services (“HHS”) proposed two sets of regulations concerning these new Exchanges.
One proposal outlines the requirements that each Exchange would be required to meet, along with similar requirements for the health insurers that would be allowed to offer “qualified health plans” through the Exchanges. Among other requirements, each “qualified health plan” must offer “essential health benefits,” a term that is yet to be defined.
The second proposal describes three different “transitional” programs. These are designed to minimize the negative consequences for insurers — and for the entire health insurance marketplace — as the Exchanges come online.
REQUIREMENTS FOR EXCHANGES
Under the ACA, each state is to establish either a single Exchange covering the entire state or multiple exchanges covering discrete geographic areas. States may even enter into agreements with other states to create multi-state Exchanges. In no event, however, may Exchanges overlap; each individual is to have access to only a single Exchange.
The Exchanges are to become operational on January 1, 2014. If a state chooses not to establish an Exchange, HHS is to do so on its behalf. Moreover, each state wishing to establish an Exchange for 2014 must demonstrate to HHS by January 1, 2013, that its Exchange will be operational by January 1, 2014. This includes the ability to start enrolling individuals in qualified health plans by October 1, 2013.
In the first set of proposed regulations, HHS lists those functions that each Exchange must be able to perform. Consistent with their overall purposes of facilitating the purchase of health insurance coverage by qualified individuals and allowing small employers to offer their employees such coverage, each Exchange will be required to do the following:
- Establish a website through which individuals can obtain information about — and enroll in — qualified health plans.
- Operate a toll-free telephone hotline through which individuals and small employers can obtain information about qualified health plans.
- Certify plans proposed by health insurers as “qualified health plans.”
- Gather and disseminate quality data concerning health plans.
- Administer exemptions from the ACA’s “individual coverage mandate.”
- Establish a “Navigator” program to assist individuals and small employers in selecting a health plan.
Many of these Exchange functions are designed to give individual consumers the same advantages they would enjoy as participants in a group health plan. These include assistance in selecting a qualified health plan and the benefit of group pricing.
The SHOPs are specifically designed to assist small employers in providing health coverage to their employees. For this purpose, “small” employers are generally defined as those with no more than 100 employees. Through 2016, however, states may limit SHOPs to employers with no more than 50 employees. Moreover, starting in 2017, states may open their SHOPs to employers with more than 100 employees.
THE NAVIGATOR PROGRAM
The Navigator program is to be available in both the individual market and through the SHOPs (i.e., in the small-group market). A “Navigator” must be knowledgeable in the health care market and have (or be able to establish) relationships with health care consumers, employees, employers, or self-employed individuals. They must also meet any state licensing requirements, and they may not have any conflicts of interest. To satisfy this final requirement, “a Navigator must not receive any consideration, directly or indirectly, from any health insurance issuer in connection with the enrollment of any qualified individuals.”
It will be interesting to see how this Navigator concept evolves. Many health insurance agents or brokers would seem to satisfy these requirements — assuming they do not rely solely on commissions paid by health insurers. The proposed regulations would not preclude a Navigator from receiving commissions when enrolling individuals or employers in health plans outside of an Exchange. Moreover, states may allow brokers or agents who do not choose to become Navigators to receive commissions for assisting consumers in obtaining coverage through an Exchange. Finally, Exchanges are free to list contact information for agents and brokers who are not serving as Navigators. As a result, the ACA’s negative effect on brokers and agents may be less significant than some had feared.
A shorter set of proposed regulations provides guidance on three different transitional programs created by the ACA. Two of these would be effective only from 2014 through 2016, while the third program would be ongoing.
One of the short-term programs would be a reinsurance program designed to help stabilize premiums in the individual insurance market. This program would work by making payments directly to insurers that insure high-cost cases. These payments would be funded by fees imposed on all health insurers and third-party administrators during the period from 2014 through 2016.
The other temporary program would establish a “risk corridor” in both the individual and small-group markets. Under this program, insurers that experience larger-than-expected losses would receive subsidies from the federal government, while insurers that fare better than expected would be required to share a portion of their surplus with the government.
The third transitional program would be established only at each state’s option. If a state chooses to adopt this program, it would adjust risks for all non-grandfathered plans — in both the individual and small-group markets, and both inside and outside of the Exchanges. In essence, an insurer that takes on more risk (such as more chronic cases) would receive a premium subsidy for doing so. HHS has proposed a risk adjustment methodology for this purpose, but states would be free to adopt their own alternatives.
STILL TO COME
Although the primary goal of these proposed regulations is to outline federal standards for Exchanges, HHS has taken pains to point out that states would retain broad discretion in many areas. HHS also promises to continue its ongoing consultations with the National Association of Insurance Commissioners, individual state representatives, and industry groups.
As noted above, both of these sets of regulations are only proposed. HHS has asked for public comments, with a comment deadline of September 28, 2011. The final regulations are to address those comments, as well as the numerous comments already received to date.
Moreover, there is much more Exchange-related guidance to come. According to HHS, future guidance will address the definition of “essential health benefits”; the quality-related standards to be met by Exchanges and insurers of qualified health plans; standards for determining whether an individual is eligible to participate in an Exchange and, if so, whether the individual should receive either the premium tax credits or cost-sharing reductions called for by the ACA; and standards for granting exemptions from the ACA requirement that all individuals maintain some sort of health coverage. Given the ambitious timeline for states to demonstrate their ability to operate these Exchanges, we should expect to see some of this guidance soon.