Health Insurance Exchange Basics

Over the past year, America’s attention has been increasingly focused on the reform of health care and health insurance.  Many options for solving the problem of America's uninsured have been proposed by various writers, commentators and legislators.  Of these options, the one that appears to have the most bi-partisan support is the Health Insurance Exchange.  Exchanges provide the best opportunity for making affordable healthcare insurance available to the greatest number of uninsured Americans with the lowest fiscal impact on governmental entities.

Section 1311 of the recently passed health insurance reform bill (“The Patient Protection & Affordable Care Act” (H.R. 3590) referred to here as “the Act”) creates state-sponsored health insurance exchanges.  The Act requires that each state establish an Exchange no later than January 1, 2014. (Sec. 1311(b)(1))
What is a Health Insurance Exchange?

In their most basic form, Health Insurance Exchanges provide information regarding the available insurance products and other health related items.  In this basic form the Exchange does not determine the levels of coverage that will be made available nor is it involved in issues of pricing, acceptance, renewal, or denials.

On the other extreme of the format spectrum, an Exchange can specify coverage levels, negotiate product pricing, establish rules for participation by carriers, determine eligibility for individual enrollment, enroll individuals in subsidized programs, and manage premium collections and disbursements for all enrolled individuals.  At this level of functionality the Exchange becomes the conduit through which government health insurance subsidies are channeled to carriers.  This level of functionality brings with it a very high cost of operation and creates a complex organizational structure.

Between these two extremes we find the Act’s “American Health Benefit Exchange” which provides consumer education, insurance product information and enrollment, coverage determinations, price negotiations, and determination of rules for carrier, employer, and individual participation.  This “mid-spectrum” structure provides the greatest opportunity for influencing affordability of health insurance while also limiting the fiscal impact on governmental entities.
How will the Exchange Work?

The Act includes many requirements for the function of the Exchange.  Of course, these requirements will only expand when the Secretary of Health and Human Services promulgates the rules for implementing the Act.  However, as it reads now, the Act requires that the Exchange consist of the following components:

• An internet portal that facilitates search, selection, purchase, and enrollment
• A toll-free telephone hotline for responding to consumer inquiries
• A standardized format for presenting health benefits plan options
• A calculator to determine the actual cost of coverage
• Mechanisms for public education
• Procedures for certifying of qualified health plans
• Procedures for rating each qualified health plan
• Procedures for informing individuals of Medicaid eligibility requirements
• Procedures for granting a certification attesting that an individual is exempt from the individual requirement/penalty
• Publish the average administrative costs of the Exchange
• Consult with stakeholders

The Exchange is an online portal that allows insurance shoppers to search for the insurance product that best suits their needs.  The Exchange lists all insurance products available in the shopper’s area, or the shopper can narrow the list to only those products that match search criteria (such as price, copayment amount, etc) specified by the shopper.  When the shopper has made a selection, they can enroll in the insurance plan through the Exchange portal.  If the shopper uses an insurance agent to identify the best plan for them, the agent will receive a commission for selling the policy.

The heart of the Exchange, though, is its marketing.  The Exchange must contract with insurance carriers that are willing to make their plans available through the Exchange.  The offerings will be categorized by the Exchange based on the level of coverage offered.  Without the carriers, the Exchange is just a good idea.
The consumers will be a more difficult marketing effort because the consumers are widely dispersed, have widely different needs and desires, and will likely be resistant to being required to purchase something that they do not want.  Insurance agents will be busy addressing the differences and pre-conceptions.

Who is eligible to participate?

The Act requires Exchanges to be available to individuals, employees of small group employers (those with 100 or fewer employees), Members of Congress & Congressional Staff.  States are allowed to expand this list of eligible consumers.  The expansion could include certain governmental employees, and beginning in 2017, could include the employees of large group employers (those with 101 or more employees.)
When does this take effect?

Some states have already created health insurance Exchanges while other states are in the process of establishing exchanges.  The Federal government will begin making funds available to the states for startup of an Exchange, beginning within 1 year of the President’s signature on the Act.  All states are required to have an Exchange by January 1, 2014.  The Federal funding for the startup and initial operation of an Exchange ends January 1, 2015, at which time the Exchange must be self-supporting.

Conclusion

Whether or not the Act survives the legal challenges being mounted by several state attorneys general and the next Federal election, the Health Insurance Exchange presents a highly effective, cost-conscious mechanism for making affordable health insurance available (and understandable) to all Americans.

Mr. Tuten, a Georgia-licensed attorney, works as an operations, regulatory, and strategy consultant to the health care industry.  His clients have included medical equipment providers, physician practice organizations; managed care organizations; Medicare Advantage HMOs, and; a start-up phase state-sponsored Health Insurance Exchange.  He can be reached at richardtutenjd@gmail.com.