Health Insurance Exchanges: The Year Ahead

The New Year will be critical for one of the health care reform law’s most significant provisions: the creation of health insurance exchanges. These new virtual marketplaces allow consumers and small business to comparison shop for health insurance, increasing coordination and simplifying access to affordable health insurance.

Last year, uncertainty surrounding the presidential elections and a lawsuit to challenge the Affordable Care Act’s constitutionality slowed progress on exchanges. This year, following the Supreme Court’s decision to uphold the law and President Barack Obama’s re-election, the federal government and states must move fast to complete a long and daunting to-do list to get exchanges ready. The pressure is definitely on for exchanges to meet the October 1, 2013 deadline for open enrollment and the January 1, 2014 date for full-scale operations.

The law requires individuals to obtain health insurance and employers to offer it. Many of the newly insured will likely turn to these new exchanges, the only way to get premium subsidies, and over 27 million individuals and employees of small firms are expected to use exchanges for coverage by 2020, says the Congressional Budget Office.

Where is Implementation Now?

Until now, many states have been focused on how to structure their exchanges. The ACA calls for the creation of exchanges for both individuals and small businesses with up to 100 employees and states can either operate separate exchanges for the two markets or merge them. States must decide whether to take full charge through the state-based exchange model, enter a partnership with the federal government, or opt for a federally-facilitated exchange run by Health and Human Services (HHS). States in the partnership model may switch to a state-based exchange while states in the federally-facilitated exchange may change to either a partnership or state-based exchange in the future.

As of December 2012, 17 states had applied to run their own exchanges. They must contract with health plans, handle consumer outreach and assistance, and determine eligibility for public programs and premium subsidies. With so few states opting to pursue state-based exchanges, the federal government now faces formidable work running or helping run exchanges in a large majority of states.

As of December 2012, seven states had applied or declared their intent to apply for the state-federal partnership model. The main functions states may choose to perform under the partnership model relate to managing and monitoring qualified health plans and conducting consumer outreach and assistance; the federal government will handle tasks associated with assessing eligibility for Medicaid and premium subsidies. States have until February 15, 2013 to apply for the partnership model.

As of December 2012, more than 20 states had declared their intent to participate in the federally-facilitated exchange. A handful of states are still undecided and if they do not apply for the partnership model, they will default to the federal exchange.

All exchanges have the same requirements and functionality regardless of their structure, but state-based exchanges are more likely to reflect local environments. States that create exchanges need to work through such issues as setting standards for the qualified health plans in the exchange. They may adopt very different models, ranging from a “clearinghouse” that simply certifies minimum standards for participation and welcomes all interested participants to an “active purchaser” that negotiates with plans on enrollees’ behalf. Some states, such as California, view the exchange as an opportunity to drive low-cost, high-quality care and are setting rules to influence market behavior. By contrast, the federally-facilitated exchange will adopt a clearinghouse approach.

The Year Ahead

Even states that launched their planning efforts early have massive amounts of work to do in 2013 to prepare for full operations starting next January. Key tasks include: 

• Build information technology infrastructure: Linkages between the exchange, state and federal systems, and qualified health plans are essential to ensure smooth eligibility determination and enrollment processes. Several states received “Early Innovator” grants to jump-start the development of exchange IT systems under the condition that they share progress and products with other interested states. The federal government is creating a centralized “Data Services Hub” to connect multiple sources of federal data to make eligibility assessment easier; testing is expected to be complete by spring 2013. 
• Define coverage for Essential Health Benefits: Beginning in 2014, all coverage offered inside and outside exchanges must include a list of ten mandated health benefits, services such as ambulatory care and emergency services. Each state can define its own “benchmark” plan, choosing from plans with the largest enrollment in the state and supplementing the plan as needed to ensure that all the “essential health benefits” are offered. As of December 2012, about half the states had selected a benchmark plan, a key requirement to move forward with product development. The ACA also calls for the creation of four major “metal” tiers for plans offered on the exchange based on cost-sharing and benefit levels. Those levels are defined in terms of “actuarial value”—60% for bronze, 70% for silver, 80% for gold, and 90% for platinum. Bronze is the minimum coverage level that satisfies the individual mandate; products in this category must cover 60% of the cost of care, on average, while enrollees pay the other 40% through cost-sharing such as deductibles, copays, and coinsurance. 
• Certify Qualified Health Plans: Plans must be qualified to participate in the exchange and licensed by the state where they are offered, include essential health benefits, offer at least one silver and one gold plan, and charge the same premium for a given product both inside and outside the exchange. 
• Coordinate with public health insurance programs: Exchanges must determine eligibility for and coordinate enrollment in low-income health programs, such as Medicaid and CHIP. States also need to prepare for the movement of enrollees between Medicaid and the exchange as household income changes. 
• Administer premium subsidies, including eligibility determination: Enrollees who are ineligible for public programs but who have household income between 100-400% of the federal poverty level ($23,050 to $92,200 for a family of four in 2012) can receive tax credits on a sliding scale that cap their premium contributions at between 2 and 9.5 percent of household income. The exchange will send information on eligibility for tax credits to the Department of the Treasury. 
• Consumer information and outreach: Each exchange needs to create a consumer-friendly website that displays information about health plan options in a standardized format to compare price and quality as well as an electronic calculator to allow purchasers to see out-of-pocket costs after premium tax credits are applied. Exchanges must also develop call centers and may launch major outreach and awareness initiatives. 
• Create the Navigator program: People will need to be trained to help new participants navigate the enrollment process and dispense information like an insurance broker currently does in the commercial market, including information about premiums benefit design, tax credits, and network options for qualified health plans.

Key Issues to Watch

Two of the greatest challenges to watch in the design and implementation of exchanges include:

Communicating complex information to consumers:
It is difficult to overstate the challenge of communicating effectively with the many and varied people likely to appear at the exchange’s virtual door. The information itself is complex—various plans, multiple benefit levels, and new eligibility criteria for Medicaid and premium subsidies. Prospective enrollees need to choose whether to obtain coverage through the private non-group market or through the exchange, understand their options and align their choices with their values and preferences.

Yet, many new enrollees will be previously uninsured people unfamiliar with complex insurance coverage and will likely be poorer, less educated, and more racially and ethnically diverse than the commercially insured population. These newcomers to the insurance market will probably also include young adults who see little need for health insurance even though law now requires it, high-risk individuals with pre-existing conditions, and low and moderate-income single adults and families whose household income exceeds the state Medicaid threshold but find monthly premiums unaffordable. To meet the challenges ahead, exchanges must provide added support and make sure it is culturally and linguistically appropriate.

Measuring, monitoring and managing performance:
Providing exchanges with timely, accurate, easily accessible information on key performance metrics will allow these new entities to track and report their progress toward meeting major new responsibilities. To that end, the Centers for Medicare & Medicaid Services has commissioned a quality rating system and an exchange enrollee satisfaction survey to facilitate comparison of qualified health plans within an exchange and across exchanges in different geographic areas with distinct approaches to structure and governance. Such information is intended to help consumers assess their options, help exchanges enhance their effectiveness, and assist regulators with oversight responsibilities.

The natural experiment that is unfolding with the launching of state-based exchanges, partnership exchanges, and a massive federally-facilitated exchange presents an opportunity to learn from all states’ implementation and to assess the differential effects of exchange structures on cost, quality, patient experience, and other key outcomes.

This year should certainly be a fascinating one for health care as that experiment evolves. Exchanges have the potential to not only expand coverage but also transform it: increasing consumer involvement in healthcare might in turn lead to higher-quality, more efficient care for Americans for years to come.