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A Complete Guide to State Exchanges
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Introduction
Health insurance has been, and continues to be, a highly debated issue in the United States. Every aspect of the healthcare industry is under question, from the cost of healthcare to its availability. This paper focuses on the changes mandated by the federally enacted Patient Protection and Affordable Care Act which calls for dramatic changes in the way health insurance is sold in this country.

The Number Game
The U.S. is well known for its medical advances, but it also has the dubious distinction of being one of the only developed nations that does not guarantee medical insurance for all its citizens. The U.S. Census Bureau claims that there are about 50.7 million uninsured Americans, including 8.7 million children. The U.S. also has the third highest per capita expenditure for public healthcare. Furthermore, in 2007, nearly half of all personal bankruptcies were attributed to medical debt.

Health Insurance Coverage Status


In 2000, the United Nation's World Health Organization (WHO), ranked America's healthcare system as the highest in cost, first in responsiveness, 37th in overall performance, and 72nd in overall level of health (among the 191 member countries of the UN). In addition, the Institute of Medicine of the United States National Academies points out that around 18,000 unnecessary deaths are caused in the U.S. every year and that the lack of medical care has resulted in the death of about 100,000 Americans annually .

Employers still serve as the primary source for health insurance among most Americans, but due to rising health care costs, many employers have limited or, in some cases, eliminated coverage for their employees. This and the large number of unemployed have contributed to the rising number of uninsured Americans.

Health Insurance Status (Under 65 Years of Age)


These statistics represent some of the reasons for the passage of the Patient Protection and Affordable Care Act.


Patient Protection and Affordable Care Act
Health reform was a key issue during the Presidential elections of 2008. While the Republicans emphasized having an open-market competition rather than government controlled, then Senator Barack Obama campaigned for universal healthcare.

Obama also called for the formation of state based Exchanges – a sort of market place – where insurers could compete for consumers based on the products, prices and services that they offer.

Reform finally culminated with President Obama signing into law on March 23, 2010 the Patient Protection and Affordable Care Act. This legislation promised to change the business of health insurance in the U.S. substantially – not just for consumers seeking to buy coverage, but also for brokers, health insurance insurers, states and the federal government as well. This law calls for the implementation of various health insurance provisions over a four-year period. The goal is to make healthcare more accessible and affordable to all individuals irrespective of age, income or health condition. The Act is an attempt to make health insurance more consumer-friendly and eliminate any unfair advantages among insurers.

The Act intends to reform individual and group coverage plans and also changes the insurance laws for health insurers selling medical insurance. The Act will be implemented in the following phases.


Timeline of the Act
EFFECTIVE BY 2010:
  • No discrimination permitted against children with pre-existing medical conditions
  • Insurance companies cannot drop people from coverage unless there is a serious case of fraud
  • There would be no lifetime limit on insurance coverage
  • Annual limits on insurance coverage would be regulated
  • Insurance companies must set up a consumer appeals board
  • Information on health insurance must be provided online
  • Qualified small businesses will get tax credits if they provide coverage at work
  • Seniors hitting the prescription drug coverage "donut hole" (the coverage gap in drug spending in which seniors pay 100% of the costs) are given a one-time rebate check of $250
  • Preventive healthcare such as mammograms and fl u vaccines will be available free of cost $15 Billion will be allocated to the Prevention and Public Health Fund to encourage Americans to live healthy lifestyles
  • Adults with pre-existing medical conditions can access affordable healthcare through a high risk pool program
  • Children can stay on their parents' coverage until the age of 26
  • A $5 billion federal fund will ensure that early retirees have access to affordable coverage
  • New incentives encourage more primary healthcare providers to work in underserved areas
  • Insurance companies must justify unreasonable rate hikes
  • Medicaid will be expanded to accommodate more people from low-income brackets
  • Rural healthcare providers are paid to ensure that they continue serving these communities


EFFECTIVE BY 2011:
  • Seniors who fall in the coverage gap receive a discount of 50% on Medicare Part D prescription drugs
  • Free preventive services provided to seniors
  • The Department of Health and Human Services (HHS) must submit a national strategy to improve the quality of healthcare in government sponsored programs like Medicaid, Medicare and CHIP
  • The Community Care Transition Program must ensure that high risk Medicare benefi ciaries do not undergo unnecessary readmissions
  • Community Health Centers are constructed and expanded.
  • Insurance companies must spend 80% (80% for small group and individual markets and 85% for large groups) of their premium dollars on healthcare services


EFFECTIVE BY 2012:
  • A Hospital Value-Based Purchasing Program is established that offers financial incentives to hospitals to improve the quality of care
  • Physicians are incentivized to join Accountable Care Organization
  • Electronic health records are created to reduce paperwork and administrative costs CLASS, a voluntary long-term care insurance program will provide cash bene ts to disabled adults


EFFECTIVE BY 2013:
  • More funding to state Medicaid programs to provide preventive services
  • Primary care physicians will be paid 100% of Medicare payment rates
  • Additional funding to ensure children not eligible for Medicaid are covered


EFFECTIVE BY 2014:
  • Health insurers can't discriminate on the basis of pre-existing health conditions or gender of the beneficiary
  • No annual dollar limits on the amount of coverage an individual might receive
  • Individuals participating in clinical trials will be ensured coverage
  • Tax credits are provided to lower income individuals applying for medical insurance
  • Each state must create Exchanges for individuals to shop easily for health insurance
  • Small businesses providing coverage to workers will receive increased tax credits
  • Individuals and families that can afford insurance will be encouraged to buy their own insurance
  • Workers can use the employer's insurance fund to receive affordable coverage for themselves


EFFECTIVE BY 2015:
  • The payment of physicians will depend on quality and not volume. This will encourage physicians to focus on providing quality healthcare


Small Business Health Options Program (SHOP)
The reform legislation also calls for the creation of the Small Business Health Options Program (SHOP) that would act very similar to exchanges, but is designed primarily for small employers. Both the exchanges and SHOP would act very much like Expedia or Travelocity but for consumers and small employers buying health insurance.

SHOP will prohibit health insurance companies from underwriting or pricing insurance based on health status, gender or claim experience. The SHOP pool must comply with the ratings rules and minimum benefit packages set for the program.

The SHOP provides tax credits for small business owners to make healthcare coverage affordable. To obtain these credits, the employer has to pay a minimum of 60% of the premium. The tax credits available are:
  • $1000 for each employee who receives self-only coverage
  • $2000 for every employee who receives family coverage
  • $1,500 for each employee who receives health insurance coverage for 2 adults or 1 adult and 1 or more children through the employer


Bonus tax credits will be provided to those employers who exceed the 60% threshold and contribute more towards their employee health insurance:
  • $200 for each employee who receives self-only health insurance coverage$2000 for $400 for each employee who receives family health insurance coverage through the employer
  • $300 for each employee who receives health insurance coverage for 2 adults or 1 adult and 1 or more children through the employer
However all tax credits depend on the number of workers employed by the fi rm: 10 or fewer full-time employees    100%
More than 10 but not more than 20 full-time employees    80%
More than 20 but not more than 30 full-time employees    60%
More than 30 but not more than 40 full-time employees    40%
More than 40 but not more than 50 full-time employees    20%
More than 50 full-time employees    0%


SHOP program tax credits are also subject to the percentage of year factor, determined by the number of months during the taxable year in which the employer paid or incurred quali ed employee health insurance expenses.

Timeline for Changes Impacting Employers
2011: Penalty for incorrect spending within Flexible Savings Account will increase from 10% to 20%

2013: Medicare tax will increase to 2.35% for individuals earning above $200,000 and for couples earning more than $2,50,000

Contribution to Flexible Savings Account will be limited to $2500 per year

For those with annual income of more than $200,00O, hospital tax will increase by 0.9 percentage points

2014: Companies with more than 50 employees will have to provide coverage at work or pay penalty of $2,000 per employee

Americans without any form of medical insurance must pay an annual ne of $95. This amount will increase in subsequent years

2016: States will have to open SHOP to facilitate bulk buying of health insurance by small business employers.

Both Exchanges and SHOP will be administered by individual states. The federal government will only administer an Exchange or a SHOP if a state refuses to create one.


State Health Exchanges
A state health Exchange is an insurance market place. An Exchange is a multi-carrier shop and an information kiosk. The Affordable Care Act requires state Exchanges to provide health insurance information in a manner that is easy to comprehend for consumers.


Functions of a State Exchange
In addition to being a market place for insurance products, Exchanges will have five crucial functions:
  • Foster competition among insurers to ensure that the consumers get the best rates and services. All the costs and services would be listed in a manner that will make comparison across plans easy.
  • Exchanges also are required to provide transparent and authentic information about plans, premiums, coverage, benefits, and the like.
  • For those who do not have access to any sort of assistance, Exchanges will facilitate enrollment in plans and the payment of premiums. They will serve as portals where applicants can check their eligibility for plans and subsidies.
  • By purchasing health plans from Exchanges, individuals can retain their coverage even when between jobs.


Exchanges must adhere to the following regulations:


  • Inspect policies to ensure that they adhere to the standards set by the government and are in the best interest of the consumers
  • Have no power to decide premiums but can ask insurers to justify rate hikes. If they are unsatisfied with a carrier's explanation, they have the right to not display that carrier's products.
  • The Exchanges will provide resources so that people who do not have access to the Internet can get information through mail and community announcements.
  • Must use standard forms, definitions and marketing materials. Individuals should have the option to enroll online, over the phone, by mail or in person.
  • States must operate call centers to ensure efficient customer service.


The Exchanges will have five categories of health plans depending on the expenses. Other than providing the essential health bene ts, the following diff erent benefi t categories will also include a:
  • Bronze Plan: 60% of the costs with HSA out-of-pocket limits
  • Silver Plan: 70% of the costs with HSA out-of-pocket limit
  • Gold Plan: 80% of the costs with the HSA out-of pocket limit
  • Platinum Plan: 90% of the costs with the HSA limit
  • Catastrophic Plan: For those below the age of 30 and are exempted from the mandatory purchase of health policy.


Though the Act leaves it to the states to decide upon the form and medium of the Exchanges, most states, barring a few, will eventually govern their own health insurance Exchanges.


Structure of an Exchange
The Act directs every state to have a state-based health insurance Exchange as health insurance rules vary from state-to-state. A state Exchange will also give a greater sense of ownership to its citizens. The Exchanges will be funded by federal dollars. The Act also has provisions calling for the federal government to create and administer an Exchange if any state refuses to do so. There is a possibility that, at some later date, all state health insurance Exchanges will be integrated into a single national Exchange. This would reduce the administrative costs associated with the Exchanges. A national Exchange also would ensure that consumers are not deprived of coverage even when they change their state of residence.


Operating an Exchange

Administrating a state based Exchanges that operate on federal dollars and adhere to both federal and state regulations will require collaboration by federal and state governments.
  • Since Exchanges will be funded largely by the federal government, each state's Exchange will be audited by federal agencies to ensure compliance with federal health insurance regulations.
  • Since states will administer the Exchanges, it is important that state governments and their respective insurance departments form an Exchange Board to oversee operations. The e ective management of the Exchanges will ensure that consumers reap the maximum bene ts when purchasing health insurance.


Benefits of the Exchange

Advocates of the Act and its mandated Exchanges point to the following bene ts:
  • Standardized benefi ts make comparisons across plans easier.
  • Provides for access to federal subsidies and information about eligibility for government sponsored programs
  • Consumers can retain their employee sponsored coverage even when they change jobs
  • Allows convenient access to the cheapest plans Beneficiaries do not have to worry about the authenticity of their coverage, as only those plans that comply with the Affordable Care Act and are sold by insurance companies that have the license to do so, will be exhibited on the Exchanges.
  • Employers will enjoy more flexibility and choices while providing group coverage to their employees
  • Affordable plans and non-denial to any applicant will ensure that more people have access to medical coverage.


Eligibility
Not everyone can sell or purchase a plan through an Exchange. Both buyers and sellers must meet certain eligibility criteria before they can operate on an Exchange platform.
For Buyers: Initially, Exchanges will be limited to unemployed individuals, those self-employed or employers with fewer than 100 employees. Health insurance insurers: Only those health insurance companies with acceptable rates, who spend no less than 80% of their premium dollars on health care expenses for their members and who comply with the federal guidelines will qualify to showcase their products on an Exchange platform. Exchanges will provide consumers with a broad selection of health insurance options. However, with increased options comes, in some cases, confusion. It will be important that states also provide support – including call centers -- for consumers participating in the Exchanges.


Timelines
Though Exchanges don't become fully operational until January 1, 2014, implementation has already begun. The following outlines the mandated implementation plan


  • 2010
  • States develop informal databases capturing the issues that will a ffect the formation of Exchanges and the drafting of grant applications.
  • The Department of Health & Human Services (HHS) establishes interoperable standards and protocols for enrollment in the HHS program


  • 2011
  • States begin to apply for federal grants for: A) HIT enrollment standards & protocols and; B) development of health benefi t Exchanges
  • Develop strategic plans to integrate the Affordable Act within the realms of the Exchanges
  • Grants from the HHS become available for planning and developing standards for compiling and providing enrollees with summary of benefi ts


  • 2012
  • Establish Health Benefi t Exchanges
  • Develop, issue, and review RFPs for IT and infrastructure
  • States seek and receive final approval from HHS for Health Bene t Exchanges
  • Develop and implement 'plans of operations'
  • Select audit firms to assess system of internal controls, key processes and systems
  • Select vendors for outreach, marketing, advertising and develop strategy and materials
  • Develop and issue RFPs for
    • Navigators
    • Call Centers
    • Financial systems/ Subsidy Reconciliation
  • State implements federal eligibility and subsidy determination guidelines


  • 2013
  • IT/Website developed and implemented
  • HHS approves that a state is willing and able to implement the Exchange by January 1, 2014
  • Begin development of QHP (Qualified Health Plan) RFP speci cations
  • HHS to provide loans to assist Co-Ops
  • Select QHP and begin implementation
  • Marketing and outreach campaign
  • Full Enrollment Systems Testing
  • Begin selling health plans


  • 2014
  • Health Benefi t Exchange becomes fully operational


Summary
The state based health insurance Exchanges are one of the most important aspects of the healthcare reforms of 2010. The Act sets certain guidelines that every Exchange has to adhere to and yet leaves enough flexibility for states to accommodate their individual preferences and regulations. More importantly, the Act provides a platform for consumers to cost e ectively and more easily purchase health insurance.
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