HHS Issues Proposed Rule on Health Insurance Exchanges

On Monday, the Obama administration on Monday unveiled a proposed regulation for the state-based health insurance exchanges created by the federal health reform law, the New York Times reports (Pear, New York Times, 7/11).

Background on Exchanges

Under the reform law, states by January 2014 must create insurance exchanges that provide coverage options for individuals and small businesses.

States can choose to administer their own exchanges -- for which they must have some infrastructure in place by January 2013 -- or ask the federal government to run the exchanges for them (California Healthline, 6/10).

Details of Proposed Rule

The proposed regulation gives states some leeway in terms of the timeline, allowing them to qualify for "conditional approval" if they are not ready by January 2013, but are on pace to become operational in January 2014 (Kliff [1], Politico, 7/11). In addition, a state could establish and run its own exchange in 2015 or later if it is not ready in 2014 (New York Times, 7/11).

Under the proposal, states would be able to decide which plans qualify for exchanges. States could admit all health plans that meet minimum standards, or they could hold a bidding process and only approve plans with the best benefits and lowest costs. States also would be able to decide if the network of health care providers under a plan offers adequate access for enrollees (McCarthy, National Journal, 7/11).

States also would provide "standardized comparative information" on plan costs and benefits, and rate each plan on quality and cost of care.

Further, the exchanges would help applicants determine if they are eligible for Medicaid or CHIP or if they qualify for federal tax credits to subsidize the cost of coverage. Individuals with annual incomes up to four times the federal poverty level -- about $89,000 for a family of four -- will be eligible for such subsidies (New York Times, 7/11).

Employers that provide coverage through the exchanges would be able to decide pick what level of coverage to offer, but employees would be able to choose a specific plan themselves. Governing boards of the exchanges could include representatives from the insurance industry, but the proposed rule requires the majority of members to be consumer representatives (Reichard et al., CQ HealthBeat, 7/11).

The regulation did not address what benefits insurers would be required to cover and how the federal government would run exchanges (Kliff [1], Politico, 7/11). According to the Times, federal officials said they will issue a separate rule later this year establishing the minimum level of benefits, which is known under the reform law as "essential health benefits."

Reactions

In general, consumer groups, patient advocates and industry lobbyists praised the 244-page regulation for providing states with a considerable amount of flexibility in configuring the exchanges, the Times reports (New York Times, 7/11).

However, that flexibility could irritate some Democrats who had hoped the regulations would give the government a powerful role in pushing insurers to provide more value to consumers (Kliff [1], Politico, 7/11). On the other hand, some Republicans might be upset with the rule for not being "wide open" to any insurer seeking to participate in the exchanges, according to the Times (New York Times, 7/11).

Meanwhile, some industry representatives and state officials were concerned with a provision that could be interpreted to mean that the federal government could play a large role in approving state changes to the exchanges, similar to the federal government's role in Medicaid. In addition, some critics noted that some language in the rule was confusing, leaving its interpretation in question (Kliff [1], Politico, 7/11).

Private Exchanges Could Provide 'Glimpse' of State-Based Exchanges

A pair of insurers based in Michigan and Minnesota next month will launch private health exchanges, which "could provide a glimpse" of what to expect with the state-based exchanges under the overhaul, Politico reports.

The exchanges -- run by Minneapolis-based Medica and Blue Cross Blue Shield of Michigan -- will give enrollees the opportunity to choose their own employer-sponsored health plan. The exchanges are meant to allow individuals and small business to choose coverage from a wide selection of plans.

However, the exchanges are not identical to the ones that will be offered under the reform law. For example, the private exchanges differ in that companies pay a "defined contribution," or a set amount that employees can use to purchase plans, and employees have the option to supplement that funding to get a more expensive plan (Kliff [2], Politico, 7/11).

Proposed Rule Would Minimize Effect of High-Cost Enrollees on Insurers

On Monday, HHS officials also released a second proposed rule intended to minimize the effect on insurers of providing coverage for high-cost, sick enrollees, CQ HealthBeat reports.

The proposal is meant to eliminate incentives for insurers to avoid covering such patients.

The regulation includes three components that would encourage insurers to cover these patients:

• A permanent risk adjustment formula to pay insurers higher rates for patients who are sicker;
• A three-year re-insurance program that establishes a not-for-profit organization to handle temporary payments to insurers that cover these high-cost patients; and
• A three-year risk corridor program to give insurers in the exchange more security by limiting losses and gains.

HHS will accept public comment on the proposal for 75 days (Adams, CQ HealthBeat, 7/11).