State administrators are charged with making many key decisions under the law, including how to structure exchanges and set rules governing plans available through an exchange. Their choices will have a major effect on whether exchanges provide quality, affordable options to individuals and small businesses alike.
Jost believes that successful exchanges should be selective when it comes to certifying plans, require justification for premium increases and offer standard information to make comparisons between benefits, costs and quality easier for consumers.
What Are Exchanges?
Health insurance exchanges will offer individuals and small-businesses an easy and accessible platform for comparing plans that fit their needs and budgets. They will enable enrollment into private coverage as well as eligibility determination for public programs like Medicaid and CHIP while administering federal premium subsidies and cost-sharing reductions, making shopping simpler by side-by-side plan benefits and costs comparison, quality ratings, and other details.
The Affordable Care Act gives States the option to set up state or regional insurance exchanges. State legislatures, in collaboration with the National Association of Insurance Commissioners and other groups, have begun crafting legislation on which their exchange laws will be based. Under current law, non-profit entities may operate their exchanges or they could become part of existing governmental agencies.
Decisions surrounding the operating model of an exchange will have profound ramifications for its success. Exchanges that operate as active purchasers can use market leverage to negotiate for better products and prices from insurers, while also having greater control over quality risk pools they serve and capacity to avoid adverse selection. Nonetheless, to be truly effective an exchange may need to begin by adopting less selective purchasing models before encouraging participation through consumer outreach and other efforts.
One important consideration in how states regulate their exchanges is regulation by state authorities. Under the Affordable Care Act (ACA), regulatory structures that support exchange operation and administration while accommodating differences in local markets and conditions must be put in place. Furthermore, an exchange may set its own standards for health plans sold in the marketplace (even outside its exchange) while penalties could be assessed against health plans which do not comply with regulations on offer via its exchanges.
Furthermore, the Affordable Care Act permits multiple approaches for financing an exchange – such as user fees or assessments separate from state budget – as well as creating either one national exchange or multiple regional ones that combine and expand markets to increase risk pools.
Who Can Enroll Through Exchanges?
The Affordable Care Act lays out specific criteria for what must be offered through exchanges, as well as enrollment and eligibility verification processes, but states have considerable flexibility when it comes to choosing how these products will operate in practice – particularly how selective an exchange may be in accepting health plans that qualify to participate.
State laws will influence some aspects of this, such as how to establish private and public exchanges. But overall structure, relationships with federal agencies and other entities, and overall structure also play a part in how selective exchanges will be.
Utah and Massachusetts have established two statewide exchanges thus far, each taking different approaches when selecting health plans that qualify for participation on their exchange. Massachusetts’ Connector requires insurers to compete for inclusion by providing plan data and pricing information, with plans that meet criteria being given a Seal of Approval from them before being offered on the Connector exchange.
Utah’s exchange has adopted a much less active approach in selecting participating health plans. Instead, the state contracted with an external vendor to operate and run their system and has prioritized gathering data on performance and costs as a primary focus compared with purchasing policies directly.
As each state determines how it will run its exchange, these policy choices will ultimately dictate how these health exchanges work and provide benefits for both individuals and small businesses. Exchanges will play an essential role in addressing key issues such as adverse selection (the overenrollment of high-risk, high-cost individuals that drive up costs and cost sharing for all enrollees), making insurance easy to understand and shop for, reducing administrative costs in small group and individual markets, and decreasing administrative expenses in both. Exchanges could provide considerable advantages to individual and small-business markets alike by adding stability, consumer choice, and affordable health coverage options at competitive prices for high-quality private health coverage options.
How Will Exchanges Work?
Health insurance exchanges serve as marketplaces where individuals and small businesses can find and purchase health plans. Under the health reform law, exchanges must facilitate enrollment into health plans and establish eligibility for public programs such as Medicaid and CHIP as well as federal premium and cost sharing subsidies based on household income. States that opt to operate exchanges can customize its governance, design, marketing, administration and technology to fit their state’s particular strengths and circumstances. There are certain fundamental decisions that need to be made, which ultimately will decide if an exchange succeeds in creating its intended market.
Exchanges offer the potential to inject consumer choice and competition into individual and small-group health insurance markets, improving quality, affordability, and stability. To reach their goals however, exchanges must make decisions regarding governance structure, organizational form, financing methods and engaging with their local communities.
One of the most consequential decisions to be made when setting up an exchange will be how selective it will be in selecting health plans that qualify to participate and in avoiding incentives that encourage adverse selection (when unhealthy individuals purchase health insurance in excess). There will also be key policy choices regarding whether an exchange encourages or discourages sales of unsubsidized, “mini-med” plans that don’t comply with minimum essential benefits standards.
The health reform law establishes requirements that an exchange must implement to inform its community of its activities and services, such as undertaking comprehensive public outreach efforts and stakeholder engagement initiatives. An effective exchange will gain legitimacy and capacity through partnerships with a range of local stakeholders, including consumer advocates, regional/national insurers, community-based insurers, and potential new market entrants. An exchange must also ensure a seamless transition between public and private markets by offering year-long coverage waivers that allow employees to maintain existing employer-sponsored plans until they can be exchanged through an exchange.
What Are the Benefits of Enrolling Through Exchanges?
One key decision that will impact how successful exchanges are will be how selectively they certify plans. Depending on their state’s approach, some exchanges may take an active purchasing approach, seeking to maximize value for consumers by selecting only plans with high comparative actuarial values; other states’ selection process might be less focused on cost and quality considerations; either way, successful exchanges must remain highly visible while engaging a wide array of stakeholders, including consumer advocates, national insurers, community-based insurers, potential new market entrants;
One key determinant of an exchange’s success will be how much competition it fosters. A healthy competitive environment not only increases choice for individuals but can help decrease costs and premiums through more stable risk pools. Under federal law, all certified health plans must meet minimum standards that must be met in order to be offered on an exchange. These standards include associating benefit tiers with relative actuarial values to allow consumers to make more informed choices while improving understanding of available coverage options.
Additionally, each exchange must create a user-friendly website with detailed information on plan benefits, costs and quality in order to give individuals and small businesses the tools necessary to evaluate their options, select an ideal plan that meets their individual needs, enroll via an exchange with confidence.
Legislation allows states to structure their exchanges in different ways, such as Utah or Massachusetts; whether as a governmental agency, independent public authority, for-profit entity, or any combination thereof – but no matter the organization structure chosen, legislation requires that their exchange be publicly accountable, transparent, technically competent and financially self-sufficient so as to meet federal certification and oversight of Qualified Health Plans (QHPs).
One of the major challenges faced by exchanges will be how to mitigate adverse selection. This feared phenomenon occurs when excessive enrollment of high-risk, high-cost individuals increases risks and costs disproportionately, potentially leading to a “death spiral” of rapidly rising premiums. One solution would be offering federal tax credits to individuals earning below the poverty level so as to spread risk across a diverse pool of demographic groups.
