Proposed regs provide basic frameworks for state and small business exchanges under health reform

Two new regulations proposed by the Department of Health and Human Services (HHS) set basic standards for health benefits exchanges established under the Patient Protection and Affordable Care Act. Basically, these rules do the following:

1. Set standards for establishing state-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges, performing the basic functions of an Exchange, and certifying health plans for participation in the Exchange; and 
2. Provide guidelines to help protect insurers against risk selection and market uncertainty, through three programs, which begin in 2014: a temporary reinsurance program and a risk corridor program, both of which give insurers payment stability as insurance market reforms begin, and an ongoing risk adjustment program that will make payments to health insurance issuers that cover higher-risk populations to more evenly spread the financial risk borne by issuers.

Here's a brief explanation of the proposed rules on standards for the Exchanges.

Framework for Exchanges. The proposed Exchange rule establishes state flexibility in a number of ways. For example, each state can structure its Exchange in its own way: (1) as a nonprofit entity established by the state, (2) as an independent public agency, or (3) as part of an existing state agency. In addition, a state can choose to operate its Exchange in partnership with other states through a regional Exchange or it can operate subsidiary Exchanges that cover areas within the state. Any combination of these options can be approved by the HHS. Exchanges that are run by independent agencies or nonprofits must have governance principles that ensure freedom from conflicts of interest and promotion of ethical and financial disclosure standards.

Exchanges will perform a variety of functions, including:

• certify health plans as Qualified Health Plans (QHPs) to be offered in the Exchange; 
• operate a website to facilitate comparisons among qualified health plans for consumers; 
• operate a toll-free hotline for consumer support, provide grant funding to entities for consumer assistance, called "Navigators," and conduct outreach and education to consumers regarding Exchanges; and 
• facilitate enrollment of consumers in Exchange-qualified health plans.

The proposed rules provide states with substantial flexibility in determining how to perform these functions.


Exchange plans must be approved by the HHS no later than January 1, 2013. The proposed rule allows for conditional approval if the state is advanced in its preparation but cannot demonstrate complete readiness by the January 1, 2013 date. The proposed rule also allows states that are not ready for 2014 to apply to operate the Exchange for 2015 or any subsequent year. The HHS will continue working with states to support their progress.
 
Qualified Health Plans. Health Benefit Exchanges must offer affordable health plans that provide high quality, coverage like that of a typical employer plan. Health plans offered through the Exchange must be certified as Qualified Health Plans (QHPs). To be certified, health plans must meet minimum standards proposed in this proposed rule but primarily set out in the law. The proposed rule gives states considerable flexibility in establishing standards for health plans offered in their Exchanges. For example, Exchanges have flexibility on the following:
 

• Number and type of health plan choices: The proposed rule allows Exchanges to work with local health insurers on structuring qualified health plan choices that are in the best interest of their enrollees. This could mean that any health plan that meets the standards can participate, that health plan issuers with successful competitive bids can participate, or anywhere in between. It also gives Exchanges flexibility on accreditation deadlines, allowing new and innovative health plans to sell through the Exchange as they gain accreditation.
• Standards for health plans: Rather than proposing a national standard, the proposed rule allows Exchanges, working with state insurance departments, to set the standards to ensure that consumers have a choice of health care providers within each qualified health plan. As with network adequacy standards, marketing standards would be set by states and Exchanges in the proposed rule. This allows health plans to align their Exchange marketing with other commercial practices in a state.

Small Business Health Options Program (SHOP). Beginning in 2014, Exchanges will operate a SHOP, a program that offers small employers and their employees new choices. Through the SHOP, employers can choose the level of coverage they will offer (bronze, silver, gold or platinum plans), define their contribution toward their employees' coverage, and then offer the employees choices of multiple insurers and plans. Employees choose among the plans that fit their needs and their budget. Employers can offer coverage from multiple insurers, just like larger companies and government employee plans, but get a single bill and write a single check.

The proposed rules provide states and their Exchanges flexibility in structuring SHOP exchanges, as to the size of small businesses that can participate in SHOP and as to the structure of choices for small businesses.

Starting in 2014, small employers purchasing coverage through SHOP may be eligible for a tax credit of up to 50 percent of their premium payments, if they have 25 or fewer employees, pay employees an average annual wage of less than $50,000, offer all full time employees coverage, and pay at least 50 percent of the premium. Employees offered affordable and minimum value health insurance by their employer are not eligible for advance payments of tax credits to reduce premiums for coverage purchased through the individual Exchange.

Navigators. Exchanges also will build partnerships with and award grants to entities known as "Navigators," which will do such things as (1) distributing fair and impartial information about enrollment in qualified health plans, premium tax credits, and cost-sharing reductions and (2) assisting consumers in selecting qualified health plans.

States that operate an Exchange will award grants to Navigators. The proposed rule allows states to choose at least two from the list of potential Navigator organizations and decide how to fund and design the program.