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Affordable Insurance Exchanges: More Choices, Competition and Clout

August 18, 2012 - The U.S. Department of Health and Human Resources is rapidly expanding their online resources to help consumers find affordable commercial health insurance. The following is a reprint of a 2011 publication that was updated in April 2012.

An Exchange is a State-based competitive marketplace where individuals and small businesses will be able to purchase affordable private health insurance and have the same insurance choices as Members of Congress.  There is no one-size-fits-all approach, and each State has the opportunity to tailor its Exchange to meet its needs.  Exchanges will serve as a one-stop shop where individuals will get information about their options, be assessed for eligibility for the Exchange, tax credits for private insurance, or programs like the Children’s Health Insurance Program, and enrolled in the plan of their choice.  Small businesses will also have the option to purchase insurance through a program offered by each Exchange.

The main functions of an Exchange, laid out in the Affordable Care Act, include:

  • Certifying, recertifying, and decertifying health plans offering coverage through the Exchange, called qualified health plans;
  • Assigning ratings to each plan offered through the Exchange on the basis of relative quality and price;
  • Providing consumer information on qualified health plans in a standardized format;
  • Creating an electronic calculator to allow consumers to assess the  cost of coverage after application of any advance premium tax credits and cost-sharing reductions;
  • Operating an internet website and toll-free telephone hotline offering comparative information on qualified health plans and allowing consumers to apply for and purchase coverage if eligible;
  • Determining eligibility for the Exchange, tax credits and cost-sharing reductions for private insurance, and other public health coverage programs, and facilitating enrollment of eligible individuals in those programs;
  • Determining exemption from requirements on individuals to carry health insurance, granting approvals to individuals relating to hardship or other exemptions; and
  • Establishing a Navigator program to assist consumers in making choices about their health care options and accessing their new health care coverage, including access to premium tax credits for some consumers.

In addition to these basic functions, the Notice of Proposed Rulemaking (NPRM) proposes that Exchanges implement outreach and education programs and comply with oversight and program integrity requirements.

What is the purpose of this Notice of Proposed Rulemaking (NPRM)?

The Affordable Care Act creates State-based health insurance Exchanges, new competitive marketplaces where consumers and small businesses can purchase private health insurance.   This proposed rule provides further details and guidance on the purpose, scope, and operation of Exchanges and allows an opportunity for all interested parties to comment on the contents of the proposed rule. We anticipate modifying the proposed rule after we receive comments from the public. States have great flexibility in the design of Exchanges, and in order to ensure a process that is simplified, streamlined, and standardized across the country, the NPRM establishes standards for consumer protections for all Exchanges. For example, using the same enrollment periods and application forms will reduce confusion and administrative burden for both consumers and health insurance companies. HHS has consulted extensively with the States and other stakeholders during the preparation of the NPRM, and welcomes comments on the proposed rule. 

Another NPRM that has been released simultaneously with the Exchange NPRM is the Premium Stabilization NPRM.  This proposed rule provides guidelines for the implementation of a number of Affordable Care Act tools designed to stabilize premiums for consumers and protect insurers against risk selection. It, too, is proposed for comment. 

Is this the Final Rule on Exchanges?

No.  Public comments are both welcomed and encouraged and we expect to modify this proposal based on the feedback we receive.  This proposed rule was developed through an extensive process of stakeholder consultation, including a public Request for Comment that was posted in the Federal Register on August 3, 2010. Additional consultation and comments will help strengthen the Exchange policies in the Final Rule. 

What is the Small Business Health Options Program (SHOP)?

The Small Business Health Options Program, or SHOP, provides a way for small employers to offer their employees a choice of health plans like those offered by large employers.  SHOPs give small employers and their employees greater bargaining power, a bigger risk pool, and choices among affordable health plans. Employers can still purchase coverage outside of an Exchange. In SHOP, employers can choose the range of plans they want to offer and decide on a contribution toward the coverage; employees then select the plans that best meets their needs and resources.  Employers can offer plans from several insurance companies, but will receive a single bill and write a single check.

Under the proposed rule, States have flexibility in how they design their SHOP functions. For example, in addition to employee choice, a SHOP can allow an employer to select one or more specific plans for its employees. A State can also merge the small group and individual market risk pools in order to operate its Exchange and SHOP under the same structure, ensuring individuals in the Exchange and workers in small businesses have the same plan options. 

The Affordable Care Act also establishes a Small Business Tax Credit that will help make offering health coverage more affordable for small businesses that qualify. These tax credits are available now to all eligible small businesses; after 2014 the tax credits increase to up to 50% of the employer’s contribution and will be targeted to coverage purchased through the SHOP.

What are the standards for Exchange websites?

The Secretary of HHS is required to provide a model Exchange website template and CMS is currently evaluating the possibility of satisfying the plan comparison requirements of this website template using  An Exchange website must be up-to-date, and be capable of the following functions:

  • Providing standardized comparative information on qualified health plans offered through the Exchange to assist consumers in making health insurance choices:
  • Including a search function to enable consumers to easily identify information about their health plan options;
  • Including contact information for Navigators and information about services they provide as well as other consumer assistance services, including the telephone number of the Exchange call center;
  • Displaying information in a manner that is accessible to individuals with limited English proficiency, disabilities, or low literacy levels; ; and
  • Allowing eligible individuals the option to apply and enroll in a qualified health plan; and
  • Assisting applicants in determining whether they are eligible to purchase coverage through an Exchange, receive advance premium tax credits and cost-sharing reductions, or to be covered by Medicaid, CHIP, and the Basic Health Program, if applicable.

How does an Exchange decide which health plans to allow into an Exchange?

An Exchange must “certify” a health plan before it can be sold through the Exchange as a “qualified health plan.”  Certification has two components.  First, an Exchange determines that the health plan meets the minimum standards outlined in the NPRM.  The minimum standards encompass several different areas including marketing, network adequacy, and health plan service area.  In some cases, the Exchange can choose how to implement these standards beyond the minimum outlined in the NPRM.

Second, the Exchange determines whether offering a given health plan through the Exchange is in the interest of individuals and small businesses.  The Exchange may adopt a variety of models for plan selection, from certifying any plans that meet minimum criteria to taking a more active role in selecting plans according to additional standards like affordability and quality. Each Exchange will develop standards for qualified health plans that will address the specific needs of the population that the Exchange serves and the current market conditions in the insurance market.

How is a State Exchange approved by HHS?

By law, the Secretary of HHS must determine whether a State Exchange will be operational by January 1, 2014.  To meet this requirement, CMS is proposing an approval process that is designed to preserve State flexibility while also ensuring that Exchanges can meet the standards established in the Affordable Care Act and the Exchange proposed rule. 

Under the proposed process, States submit an Exchange Plan demonstrating how the Exchange they are proposing meets the minimum standards and passes a “readiness assessment” to demonstration its operational capabilities. While further standards for the Exchange Plan are still being developed, the Affordable Care Act and these initial NPRMs lay the groundwork for the Exchange Plan. Among them are the ability to carry out the minimum functions of an Exchange consistent with the NPRM (e.g., establishing and operating a toll-free call center and internet website, certifying qualified health plans), the ability to administer the premium tax credits, an agreement to implement the transitional reinsurance program, and an assurance that the entire geographic area of the State is covered by an Exchange.

Each State applying for approval of its Exchange will undergo a readiness assessment to be carried out by CMS after the State submits its proposed Exchange Plan.  This assessment will evaluate whether the Exchange can perform its baseline functions and can open for enrollment on October 1, 2013. 

Will there be an Exchange Plan template that States can use?

Yes.  HHS plans to issue a template outlining the required components of the Exchange Plan proposal. 

What is the deadline to get my State’s Exchange Approved?

In order to be operational on January 1, 2014, a State must receive approval of its Exchange Plan from HHS by January 1, 2013.  HHS proposes to allow conditional approvals for Exchange Plans that are on schedule to meet their readiness test in time to open for enrollment in the fall (described below).  If approval, or conditional approval, is not received by January 1, 2013, a State may still choose to establish an Exchange for 2015 or later years.  A State Exchange Plan must be approved no later than twelve months prior to the first date of effective coverage. 

What is the difference between “approval” and “conditional approval” of an Exchange Plan?

Through a review process, HHS will assess State readiness and review the State’s Exchange Plan; if the Exchange is determined to meet Federal standards and is ready to be operational in time for open enrollment on October 1, 2013 the plan will be approved. HHS may issue a conditional approval of a State Exchange if it determines that it is likely to be fully operational by open enrollment. If conditional approval is issued, HHS would conduct additional assessments of the State’s progress to determine if the State is meeting required operational benchmarks.

How does a State become part of a Regional Exchange and can a State have more than one Exchange?

The Affordable Care Act provides for the operation of an Exchange across more than one State if each State permits such operation and the Secretary approves such an Exchange.  The term “regional Exchange” means an Exchange that operates in two or more States, which do not need to be contiguous (e.g., Alaska and Washington State).

Each State that elects to establish an Exchange must ensure that the entire geographic area of the State is covered by an Exchange.  States have flexibility in meeting this requirement. For example, a State may choose to participate in a regional Exchange that is comprised of a metropolitan area that spans more than one State.  States may also have more than one Exchange so long as they do not overlap (e.g., for the northern and southern part of the State).  Each State participating in an Exchange must ensure that the each geographic area of the State is covered by one Exchange

What will the Exchange governance structure look like?

An Exchange must be a governmental agency or non-profit entity that is established by the State.  States have flexibility in the design of the structure for their Exchanges.  An Exchange could be an existing State executive branch agency or an independent agency; an existing non-profit that was established by a State; or a new non-profit organization or corporation established by the State.  Under any scenario, the management structure of the Exchange must be accountable for Exchange oversight and performance.  We propose that, when not run by an executive branch agency, an Exchange should be administered under a formal, publicly-adopted operating charter or by-laws, hold regular public meetings, and offer opportunity for public comment on Exchange policies and procedures.  Its governance principles should include ethical and conflict of interest standards, and disclosure of financial interests for board members.

The proposed rule gives States discretion on Exchange governing board membership.  The Exchange governing board members should have relevant experience in health benefits administration, health care finance, health plan purchasing, health care delivery system administration, or health policy issues related to the small group and individual markets and the uninsured.  To ensure it represent consumer interests, the voting majority cannot be made up of representatives of health insurance issuers, agents, or brokers, or any other individual licensed to sell health insurance. 

What if my State already has an exchange?

Some States have already established operational health insurance exchanges that are currently providing access to health insurance coverage to certain individuals in their States.  These State exchanges were established prior to passage of the Affordable Care Act.  Going forward, States with existing exchanges will undergo a process to determine if they meet the standards set forth in the Affordable Care Act and the Exchange NPRM.  The States will work with HHS on any areas of concern.

Can a State still establish a State-based Exchange if it is not ready for either approval or conditional approval in 2013?

Yes.  Any State without an operational Exchange in 2014 is given flexibility to work in partnership with the Federal government to continue developing its own Exchange and to establish a State-based Exchange in any subsequent year after a one-year transition period

How will the State-Federal partnership work for States that don’t elect to setup their own Exchanges?

States have the flexibility to establish an Exchange that best meets the needs of their residents. States can elect to establish and operate their own Exchange; or, States can choose to have the federal government facilitate an Exchange on their behalf.  

States will be able to supplement the Exchange components they have ready with services offered by private sector contractors.  These private sector contractors will offer a menu of Exchange options that States can take advantage of as they consider the best approach to offering an Exchange in their State.  This new menu of options will further the Department’s collaboration with States by making available services that Exchanges need to run their business, such as eligibility and enrollment, financial management, and health plan management. These options will also support how the State Exchange approval process in 2012 will work.

How does this NPRM make Exchanges consumer-oriented?

Exchanges are designed for consumers, offering State-based competitive marketplaces where individuals and small businesses will be able to purchase private health insurance and have the same affordable insurance choices as Members of Congress.  They will make it easy for consumers and small businesses to compare health plans, get answers to questions, find out if they are eligible tax credits for private insurance or health programs like the Children’s Health Insurance Program (CHIP), and enroll in a health insurance plan that meets their needs.  The law builds into Exchanges a number of features to achieve this outcome, such as websites and toll-free numbers to access information on plan choices and comparisons; protections to ensure fair marketing and enrollment practices by health plans; a simple, seamless process for applying and enrolling in health plans; and appeals rights in case something goes wrong with Exchanges or health plans.

The NPRM also includes additional consumer protections.  For example, it proposes that Exchanges must: have governance be oriented toward consumer interests; post robust information on choices on their websites; provide consumers notices about their health coverage choices in plain and accessible language; protect privacy; and offer a choice of Navigators.   It also proposes that qualified health plans must: offer enrollment when individuals experience changes like losing affordable job-based coverage or moving; have service areas that are not cherry picked to avoid high-cost or minority populations; and post a provider directory that includes information on which providers are no longer accepting new patients.  In addition, the NPRM proposes that Exchanges have a seamless, simple system, using a standard and short application, for an individual to apply for and become enrolled in a health plan – ideally in one session on the internet or on the phone. 

What is the Navigator Program?

The Affordable Care Act requires the Exchange to establish a Navigator program that informs individuals and small employers about the availability of qualified health plans within the Exchange and facilitates enrollment of qualified individuals into such health plans.  Since the Exchange will determine eligibility for advanced premium tax credits, cost-sharing reductions, Medicaid, CHIP, and the Basic Health Program as applicable, the role of the Navigators also includes outreach and education efforts, and assistance applying for coverage in such programs.  Having Navigators assist in both processes will help ensure a coordinated enrollment process and one that promotes streamlined access to coverage.  The NPRM includes a list of the minimum set of activities of a Navigator.

The Affordable Care Act identifies entities that may be eligible to serve as Navigators. We propose that the Exchange include at least two of the types of entities listed in the participation requirements for the Navigator program. The proposal also allows the Exchange to require Navigators to have expertise working with specific populations such as low-income populations or other target groups such as American Indians/Alaska Natives, people with disabilities, or individuals with limited English proficiency. To ensure that Navigators provide unbiased and accurate information, we propose in the NPRM that Navigators may not have current conflicts of interests or receive compensation from health insurance issuers for facilitating enrollment of individuals, employers, or employees in qualified health plans. Agents and brokers may serve as Navigators, provided that all Navigator standards proposed in the NPRM are met.

What role will agents and brokers play in the Exchange? Will they still help individuals and small businesses find and apply for health insurance?

Under the Exchange proposed rule, Exchanges will have flexibility to determine what role agents and brokers will play in the Exchange. The Exchange may choose to allow agents and brokers to assist consumers with applications for advance payments of the premium tax credit and cost-sharing reductions and enroll individuals, employers, and employees in qualified health plans. States will maintain their current role licensing and overseeing agents and brokers. In many States, we expect that agents and brokers will play a role working with individuals and small groups in the Exchange.

How will the Exchange be funded?

The Affordable Care Act provides funding to States that establish Exchanges for planning and establishment activities through 2014 and provides that the Exchange must be self-sustaining by January 1, 2015; the statute explicitly lists assessments and user fees on participating issuers as one means of securing operational funding for Exchanges. States may also use broad-based funding (e.g., general State revenues), consistent with other State or Federal laws. To ensure transparency, each Exchange must publish on its website information about its collection of payments and its administrative costs.    

What is not covered in this NPRM and when will additional NPRMs be published?

There are a number of subjects in the Affordable Care Act that the Administration will to address in separate rulemaking, including (but are not limited to) the following:

  • The process for eligibility determinations for Exchanges, premium tax credits, cost-sharing reductions, and other public programs along with appeals for those determinations;
  • Standards with respect to ongoing Federal oversight of Exchanges and actions necessary to ensure their financial integrity, including program integrity requirements;
  • Benefit design standards for qualified health plans, including essential health benefits and calculations of actuarial value;
  • Quality data reporting requirements; and
  • Standards outlining the Exchange process for issuing certificates of exemption from the individual responsibility requirement.

The Administration plans on releasing proposed rules, requests for information, and guidance on a rolling basis to ensure robust public input and timely guidance for States, health plans, consumers, and other stakeholders.

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This web site is independently owned and managed by Tony Novak operating under the trademarks "Freedom Benefits", "OnlineAdviser" and "OnlineNavigator". Opinions expressed are the sole responsibility of the author and do not represent the opinion of any other person, company or entity mentioned. Tony Novak is not an agent, broker, producer or navigator for any federal or state health insurance exchange but may provide uncompensated advice, reviews and referrals to these official resources. Novak is compensated as an accountant, adviser, affiliate consultant, marketer, reviewer, endorser, producer, lead generator or referrer to some of the other commercial companies listed on this site. Information is from sources believed to be reliable but cannot be guaranteed.