Rules give shape to health insurance exchanges

March 12, 2012

The final shape for a key part of the health law — the state-based marketplaces where people will shop for insurance coverage — became clearer Monday in rules issued by the Obama administration.

Under the long-awaited rules, states will have broad flexibility to design their insurance marketplaces, which are set to begin operation in 2014. Some states are working to set up their marketplaces, called exchanges, while others have declined to move forward until the Supreme Court makes its decision on the constitutionality of the federal health law.

Responding to thousands of comments on earlier proposals, the administration made some changes, including setting a requirement that governing boards have at least one voting consumer representative. Earlier rules allowing up to half of the other members to have ties to the insurance industry stayed the same.

That disappoints consumer advocates, who would have preferred the governing boards “be dominated by consumers,” said Timothy Jost, who speaks as a consumer representative before the National Association of Insurance Commissioners and is a professor at the Washington and Lee University School of Law. But Jost said he is pleased the final rules require at least one consumer representative. “It at least gives a toe-hold,” he said.

The exchanges are seen as a key element in the health law, offering one-stop shops for individuals and small businesses looking to purchase health insurance. They will also help determine applicants’ eligibility for programs such as Medicaid, and for federal subsidies to help them purchase insurance. More than 21 million people will purchase coverage through the exchanges by 2016, according to Congressional Budget Office projections.

The Obama administration touted the 646-page set of rules as granting states great flexibility on how they design their exchanges, on the types of organizations – nonprofit or public agency – that will oversee them, and on whether to partner with the federal government to operate parts of it.

Monday’s announcement also included some “interim” rules, which could be tweaked after a 45-day public-comment period. These cover issues such as how quickly states must determine whether an applicant is eligible for Medicaid or the Children’s Health Insurance Program, and the role insurance brokers will play in helping low- and middle-income people apply for federal subsidies to buy coverage.

Administration officials said the new rules differ from preliminary regulations in several ways. Earlier guidance had proposed that each exchange be responsible for determining which applicants are eligible for insurance subsidies. The final rule gives states the option to allow the Department of Health and Human Services to conduct eligibility review. To determine who is eligible for Medicaid or the Children’s Health Insurance Plan, states can choose their own Medicaid agencies. It also says states cannot allow insurance agents to determine an applicant’s eligibility for subsidies or Medicaid, which remain government functions. But agents, including those who work for Web-based private exchanges, can assist those applicants in sorting through their health-plan options.

The rules appear to strike a balance between responding to the feedback about earlier proposals and providing more details “so states can move forward,” said Patti Boozang, managing director at Manatt Health Solutions, a law and consulting firm based in New York.

The rules do not explain how the federal government would set up exchanges in states that are unable or unwilling to develop their own marketplaces, with those details promised in future rules. In January, the Obama administration released a report saying that about 28 states are “on their way” toward establishing exchanges. “There’s no new information on how that would work, what the partnership model would look like or what states would have to pay – and that’s all information many states have anxiously awaited,” Boozang said.

Karen Ignagni, president and chief executive of America’s Health Insurance Plans, a trade group, said her organization would be reviewing the rule and offering feedback.

“Exchanges will work best if they are true marketplaces that maximize choice and competition so that individuals, families, and small businesses can purchase plans that are right for them,” she said in a prepared statement. “Consumers will be best served if a state exchange adopts an efficient, cost-effective approach that leverages existing health-plan resources, utilizes federal resources or guidance where sensible, and relies on the exchange itself to administer key functions.”

The law says the exchanges will start taking applications in Oct. 1, 2013. Policies purchased through them would take effect Jan. 1, 2014. States that are allowed to operate their own exchanges must have approval or conditional approval from HHS by Jan. 1, 2013, according to the rules.

In a nod to the fact that some states won’t be able to meet that deadline, the final rules say HHS can grant conditional approval to states that show they are likely to be fully operational by October 2013.

Kaiser Health News is an editorially independent news service of the Kaiser Family Foundation, a nonpartisan health-care policy organization that is not affiliated with Kaiser Permanente.

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