HHS Issues Interim Rules for State Health Insurance Exchanges
On July 11, 2011, the Department of Health and Human Services (HHS) published an interim rule designed to promote the efficient and cost effective implementation of Health Insurance Exchanges1. The 244-page Proposed Rule is quite extensive in breadth of content and length. The Proposed Rule is being released for public review and comment.
Due to the importance of this rule and the many facets it covers, BenefitMall will be publishing several blogs on HealthcareExchange.com in the coming weeks addressing additional issues not covered in this Legislative Alert.
Why does the Health Insurance Exchange assume such an important role in health care reform?
State Health Insurance Exchanges are the key process through which the Obama administration intends to bring about its vision of health care reform. Section 1311(b) and section 1321(b) of the Patient Protection and Affordable Care Act (PPACA) provide that each state has the opportunity to establish a state Health Insurance Exchange(s) that:
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facilitates the purchase of insurance coverage by qualified individuals through qualified health plans (QHPs);
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assists qualified employers in the enrollment of their employees in QHPs; and
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meets other requirements specified in the PPACA.
Section 1321 of the PPACA discusses state flexibility in the operation and enforcement of state Health Insurance Exchanges and related requirements2.
BenefitMall has published several background blogs and legislative alerts on Exchanges, including:
What does the Proposed Rule cover?
As noted in the Proposed Rule, the interim regulation:
- sets forth the federal requirements that states must meet if they elect to establish and operate an Exchange;
- outlines minimum requirements health insurance issuers must meet to participate in an Exchange and offer qualified health plans (QHPs); and
- provides basic standards employers must meet to participate in the Small Business Health Options Program (SHOP)3.
What is HHS attempting to do with the Exchange regulations?
Establishing a state Health Insurance Exchange likely will be a challenging undertaking. The Proposed Rule:
- Is designed to give the participating states more time and flexibility to comply with the state Exchange provisions of PPACA;
- Provides the authority for HHS to provide material federal assistance to bring about state-run Health Insurance Exchanges.
- Establishes a process that allows states to partner with the federal government and rely on the federal government to provide certain components of an Exchange’s operations and infrastructure such as information technology.
HHS also notes, “the intent of this Proposed Rule is to afford States substantial discretion in the design and operation of an Exchange. Greater standardization is proposed where required by the statute or where there are compelling practical, efficiency or consumer protection reasons.4”
Is this the only regulation HHS has issued regarding Exchanges since PPACA was adopted?
No, this is the fourth regulation that has been issued in the past year. As highlighted in the Proposed Rule:
- First, in this series was a Request for Comment relating to Exchanges, published in the Federal Register on August 3, 2010.
- Second, Initial Guidance to States on Exchanges was issued on November 18, 2010.
- Third, a Proposed Rule for the application, review and reporting process for waivers for State innovation was published in the Federal Register on March 14, 2011.
- Fourth, two proposed regulations, including this one, are published in this issue of the Federal Register to implement components of the Exchange and health insurance premium stabilization policies in PPACA5.
What is the overall reaction to the Proposed Rule by respected experts?
Reactions are typically divided between party lines. The Obama Administration highlights how Exchanges will help Americans:
“Exchanges offer Americans competition, choice, and clout,” said HHS Secretary Kathleen Sebelius. “Insurance companies will compete for business on a transparent, level playing field, driving down costs; and Exchanges will give individuals and small businesses the same purchasing power as big businesses and a choice of plans to fit their needs.6”
However others see the Proposed Rule as an inappropriate encroachment on state rights. For example, an editorial published in the Wall Street Journal on July 16 sums up of a number of concerns:
“In principle, an Exchange isn’t the worst idea, and a transparent clearing house might even command bipartisan support…HHS, unsurprisingly, envisions the Exchanges as 50 (or more) new regulatory agencies designed to let politics run health markets, while letting Washington give order to the states. The draft rules command that the structure of every Exchange needs federal approval, much as in Medicaid, which in practice means an HHS veto of market-based innovation. State standards for the ‘certification, recertification, and decertification of health plans’ will also be subject to HHS. This means Washington will dictate rules about which insurers are allowed to sell plans in the Exchange, and thus which insurer will continue to exist as viable commercial concerns. It also looks as if HHS will require the Exchanges to enforce de factor price controls on premiums.7”
In summary, the Exchange concept still has many political dimensions.
How does the Proposed Rule address concerns that many states are not implementing Exchanges fast enough to meet upcoming deadlines?
In order to ensure satisfactory progress toward that goal, states were facing a hard deadline of January 1, 2013, by which HHS was required to certify that a respective state had made sufficient progress in establishing a Health Insurance Exchange, and that the Health Insurance Exchange would be able to enroll persons on October 1, 2013 in order to support the open enrollment activities for a January 1, 2014 effective date8.
The Proposed Rule now provides a third option for HHS in that it can issue conditional approval of state Health Insurance Exchanges on the January 1, 2013 deadline that are not ready to meet federal progress standards, but are making satisfactory progress. There was increasing concern among Obama administration policymakers and other proponents of the state Health Insurance Exchange concept that many of the states would not be able to create the infrastructure of a Health Insurance Exchange within the time allowed under the PPACA.
How does the Proposed Rule impact how states run the Exchanges?
The Proposed Rule does not change the basic options for states in terms of how many Exchanges each state sets up. HHS notes:
“The entire geographic area of a State must be covered by one or more Exchanges. A State could meet this requirement by having a combination of a regional Exchange and one or more subsidiary Exchanges although to minimize consumer confusion, only one Exchange may operate in each geographically distinct area. To the extent that more than one Exchange is established in a State, we encourage each Exchange to ensure that consumers understand which Exchange they should utilize to access health insurance coverage.9”
State Health Insurance Exchanges still have to be government agencies or not-for-profit corporations. The Proposed Rule requires that persons who make a profit off of the sale of or provision of health insurance cannot constitute a majority of the Board of Directors of an Exchange10. However, the Proposed Rule does require that persons serving on the Board of Directors should have health insurance experience or health policy experience11. This limited flexibility did not please the consumer advocates who did not want any persons involved in the sale of provision of health insurance on the Boards, but pleased the other persons who were concerned that a Board without persons with this level of experience would face a very steep learning curve before they would have a strong grasp of the complexities of the operations of an Exchange.
How will the federal government certify that a state Exchange meets PPACA’s standards of operations?
States must elect to establish an Exchange by submitting an Exchange Plan to HHS, which constitutes the state’s application for approval of its Exchange12. Each state must receive written approval or conditional approval of its Exchange Plan in order to be approved to commence operations. If approved, the Exchange Plan will constitute an agreement between HHS and the state Health Insurance Exchange to adhere to the contents of the Exchange Plan. As part of the Exchange Plan, each state will be asked to provide detailed information on how it will meet each of the standards promulgated in the Proposed Rule and through other future guidance documents.
The Exchange Plan will include copies of any agreements into which the Exchange has entered to carry out one or more of the Exchange’s responsibilities, as well as additional supporting documentation. A template outlining the required components of the Exchange Plan, subject to the notice and comment process under the Paperwork Reduction Act, will be issued at a later date. States are encouraged to leverage the implementation plans that are required as part of reporting on state Exchange grant awards when preparing to submit an Exchange Plan.
In the Proposed Rule, each state applying for approval of its Exchange Plan will be subject to an assessment to be carried out by HHS to evaluate a state’s operational readiness. HHS will issue additional guidance on the structure for and schedule of these assessments.
What happens if a state no longer wants to operate an Exchange after January 1, 2014?
The Proposed Rule outlines a transition process where the federal government would take over from the state:
“If a State determines that it will no longer operate an Exchange after January 1, 2014, we propose ….that the State must notify HHS of this determination 12 months prior to ceasing its operations. Also, we propose ….that the Exchange must collaborate with HHS on the development and execution of a transition plan and process to facilitate operation of a Federally-facilitated Exchange. We estimate that we will need 12 months to establish a Federally-facilitated Exchange in a State due to the time required to set up the necessary information technology and QHP certification process.13”
How will state Exchanges be required to use "navigators"?
The Proposed Rule still mandates that a state Health Insurance Exchange provide grants to navigators. The new rules propose requirements for the types of entities that will be eligible to apply to a state Health Insurance Exchange for navigator grants. Navigators must demonstrate to the state Health Insurance Exchange that the navigator entity has existing relationships, or could readily establish relationships with employers and employees, consumers (including uninsured and underinsured consumers), or self-employed individuals likely to be eligible to enroll in a qualified health plan through the state Health Insurance Exchange14.
Most importantly, the Proposed Rule mandates that that a navigator must meet any licensing, certification or other standards prescribed by the state or the state Health Insurance Exchange15. This will allow a state or a state Health Insurance Exchange to enforce existing licensure standards, certification standards, or regulations for selling or assisting with enrollment in health plans and to establish new standards or licensing requirements tailored to navigators. The Proposed Rule does not address the possibility or probability of potential conflict between state statutes and rules regulating the licensure of insurance producers and the status of navigators who are approved by a state Health Insurance Exchange.
What types of Exchange models can states use?
There is considerable debate among health care policymakers as to the best approach for a state Health Insurance Exchange to undertake to provide the optimal mix of access to health insurers versus cost-effective premiums and coverages. The two existing Exchanges in Utah and Massachusetts reflect this dichotomy. Many single payor advocates and “consumer” groups favor the managed marketplace model in which there are fewer options but have the opportunity to have strongly negotiated benefits/premiums. Other advocates prefer the “All Comer” approach which gives the consumer the widest possible choice of benefits/premiums.
The Proposed Rule is very flexible on this important issue, and does not dictate which model should be followed. This is a definite victory for the broker community in that it leaves the decision to the states in which the broker community has strong, local input, and in which the All Comer approach can offer the widest possible options for coverage. The health insurance industry also supports the approach of leaving the key Exchange decisions to states, because they know local health care markets best.
What is the geographic footprint that Exchanges must cover?
The Proposed Rule mandates that all geographic areas of a state must be covered by a Health Insurance Exchange. The Proposed Rule also continues to allow for a regional compact for a regional Exchange so long as all of the geographic areas of a state are covered by a Health Insurance Exchange.
What ever happened to the Small Business Health Options (SHOP) concept?
The Proposed Rule allows small employers the flexibility of choosing a Health Insurance Exchange plan for its employees or allowing employees to choose their own plans. HHS notes:
“(P)articipation in a SHOP is strictly voluntary for small employers. Like the Exchange generally, the SHOP will improve access to information about plan benefits, quality, and premiums. It gives small businesses the types of choices and purchasing power that large businesses typically enjoy. Purchasing employer-sponsored coverage through the SHOP will also qualify certain small employers to receive a small business tax credit for up to 50 percent of the employer’s premium contributions toward employee coverage…16”
How will health plans be governed under the Proposed Rule?
The overlay of PPACA, including the Proposed Rule, does create some confusion about which regulatory agencies have jurisdiction in a given circumstance. For example, there are provisions in the Proposed Rule that would appear to give state health Exchanges oversight responsibilities for approving health insurance premium increases which would duplicate the statutory responsibilities of many state Insurance Commissioners and cause further confusion in the market17. However, provisions also appear to give HHS the authority to approve changes in state Health Insurance Exchanges similar to the authority HHS has over state Medicaid plan amendments18.
The Proposed Rule does not address some critical operational issues such as what health benefits they will be required to offer. They also do not address marketing rules, or the extent and nature of what constitutes an adequate health care provider panel.
Does the Proposed Rule elaborate on the federal Exchange concept?
Not in great detail. The Proposed Rule does not address what the federal Exchanges will look like if a state refuses to implement a state Health Insurance Exchange. However, the regulation did reinforce that the federal government will in-fact run an Exchange in each state where a state does not move forward. Section 1321(c)(1) of PPACA requires the Secretary of HHS to establish and operate such Exchange within states that either:
- Do not elect to establish an Exchange, or
- As determined by the Secretary on or before January 1, 2013, will not have an Exchange operable by
January 1, 2014.
However, HHS adds in the Proposed Rule, “We believe that ‘fully operational’ means that an Exchange is capable of beginning operations by October 1, 2013 to support the initial open enrollment period proposed in Section 155.410.19”
Concerns have been raised recently that HHS would have to step in and establish the Health Insurance Exchanges in the states that were not going to meet the deadline. For many valid reasons, HHS does not want to be in the position of operating Health Insurance Exchanges in states20. However, the federal government will likely play a key role in establishing many of the ground rules on how Exchanges operate, and will likely run the Exchange system in those states that choose not to move forward.
In light of the Proposed Rule, where are states today in terms of their progress in implementing an Exchange?
Ten states currently have legislation signed by their governors into law authorizing the establishment of a state Health Insurance Exchange21. Most states have hosted hearings about the Exchange concepts and have set up advisory committees or boards. For background on state activities, see the BenefitMall blogs and legislative alerts referenced above.
However, many states have not moved forward on the establishment of a Health Insurance Exchange. The states of Florida, South Carolina and Louisiana have pledged to refuse to accept federal assistance to establish a state Health Insurance Exchange22. To date, a total of 15 states have had Health Insurance Exchange enabling legislation die in their respective state legislatures23. In a number of states, efforts to create Exchanges continue to run up against strong resistance from Republican legislators who oppose PPACA.
What are some final thoughts about the Proposed Rule?
By leaving a great deal of flexibility in PPACA and the Proposed Rule about how states can operate Exchanges, it almost guarantees that these issues will be hammered out on a state-by-state basis. However, the federal government will ensure a high degree of standardization within all state Exchanges, and will override any state-based Exchange system if a state takes a path that conflicts with PPACA or the Proposed Rule. HHS also will implement state-based Exchanges in those jurisdictions that will not or cannot operationalize a state Health Insurance Exchange.
The pace of Exchange implementation will need to be significantly increased in most states in order to meet the upcoming deadlines and to become fully operational before 2014.
We will continue to keep you up to date on these and other developments in our ever evolving marketplace.
To view past Legislative Alerts, visit the News and Events tab at www.BenefitMall.com, or go to www.HealthcareExchange.com.
The views expressed in this Legislative Alert do not necessarily reflect the official policy, position, or opinions of BenefitMall. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.
1. See Proposed Rule at “Patient Protection and Affordable Care Act; Establishment of Exchanges and Qualified Health Plans” (45 CFR Parts 155 and 156, July 11, 2011) at http://www.ofr.gov/OFRUpload/OFRData/2011-17610_PI.pdf (Proposed Rule).
2. See Proposed Rule
3. See Proposed Rule at page 6.
4. Ibid.
5. Ibid.
6. http://www.hhs.gov/news/press/2011pres/07/20110711a.html.
7. See “Exchange You Can’t Believe In,” Wall Street Journal, July 16, 2011, page A12.
8. http://online.wsj.com/article/SB10001424052702304584404576440323034867608.html
9. See Proposed Rule at pages 21-22.
10. http://thehill.com/blogs/healthwatch/health-reform-implementation/170827-health-department-plays-up-flexibility-in-states-new-insurance-Exchange-rules
11. Ibid.
12. The provisions of the new rule that detail the approval process for a state Health Insurance Exchange can be found on page 22 and 23 beginning at paragraph (c)(1). See http://ofr.gov/OFRUpload/OFRData/2011-17610_PI.pdf
13. See Proposed Rule at page 25.
14. See also PPACA’s section 1311(i)(2)(A).
15. See also PPACA’s section 1311(i)(4)(A).
16. See Proposed Rule at pages 77-78.
17. See Proposed Rule at page 3.
18. Ibid.
19. See Proposed Rule at page 21.
20. http://www.politico.com/news/stories/0711/58743_Page2.html
21. http://thehill.com/blogs/healthwatch/health-reform-implementation/169761-states-lag-in-implementing-health-insurance-Exchanges
22. http://www.politico.com/news/stories/0711/58743_Page2.html
23. Ibid