Benefits Business

Health care overhaul tied to exchanges

Pending the legal challenge, a study of the new law's framework

By Len Strazewski

Even as the U.S. Supreme Court reviews the two-year old Affordable Care Act and the mandate that would require everyone to have personal or employer-based health insurance, the federal government continues to tout the law's value and implement more provisions, including the guidelines for state insurance exchanges.

The High Court review, triggered by a lawsuit filed by 26 state attorneys general, began to receive testimony in late March, beginning with arguments by Florida that claim the coverage mandate amounts to an unlegislated tax on citizens. But just days before the High Court began to hear that testimony, Health and Human Services Secretary Kathleen Sebelius identified a list of victories for the law.

"New data shows that more than 5.1 million seniors and people with disabilities on Medicare saved over $3.2 billion on prescription drugs because of the health care law. That's about $635 per person in average savings and money back in the pockets of America's seniors," she announced.

"Because of the Affordable Care Act, 45.1 million women—including 20.4 million women with private health insurance and 24.7 million women with Medicare—can receive recommended preventive services without having to pay a co-pay or deductible. Important preventive services, like mammograms and Pap smears, are free. And in 2014, insurance companies can no longer charge women higher premiums just because they're women." And, she said, the law is helping young adults. Because of the law, 2.5 million more young people have health insurance coverage.

     "It's reducing premiums and lowering costs. Your insurance company can no longer raise your premiums by double digits without justification. And the law helps you get the most from your premium dollar: The health care law requires that premium dollars must be spent primarily on health care, not administrative costs like overhead or CEO salaries. So far, an estimated 74.8 million people have been protected by this new requirement."

The law, she added, also eliminated lifetime dollar limits on coverage for more than 105 million Americans and restrictions on coverage for individuals with pre-existing conditions.

The next step for the law is access—the establishment of state-operated exchanges which could either be additional markets for agents and brokers seeking to place coverage for individuals and small businesses or direct competition that would drive employers away from group employee benefits and employee benefit agents and brokers.

The rules, released in Mid-March, allow for a flexible operating framework which can be adopted and modified by individual state legislation. However, the law also mandates some purposes for all exchanges. Specifically, the rules call for:

—States to create exchanges with their own legislation but submit plans for approval by 2013 for going operational by January 1, 2014. States can structure the exchanges as nonprofit entities or as public agencies and can operate cooperatively with other state exchanges. However, if a state chooses not to create an exchange, the Department of Health and Human Services can elect to operate an exchange in that state anyway.

—Exchanges to direct insurers to establish qualified health plans that can participate in exchanges. The nature of "qualified" will be up to the states, but insurers must be willing to publish their cost information for such categories as prescription drugs as part of the process. The exchanges may also facilitate a "competitive" process that allows for some variation in price and plan design.

—Exchanges to operate Web sites and toll-free hotlines to provide consumer support and provide grant funding for consumer advocates to be called "navigators" to help consumers use the exchanges and conduct public education plans to raise awareness about qualified health plans.

—Exchanges to set eligibility requirements for consumers seeking to join qualified health plans and be eligible for federal aid, such as premium tax credits and subsidies.

—Exchanges must also coordinate with other state and federal health aid programs such as Medicaid to ensure individuals can access appropriate programs for which they qualify.

—Creation of Small Business Health Options (SHOP) to offer choices of health insurance to small businesses. States can determine the size and eligibility of small businesses until 2016. After that, eligible businesses must have 100 employees or fewer to participate. The participating employers will be eligible for a tax credit of up to 50% of premium if they have 25 or fewer employees and pay half or more of the premium for employees.

The rules also call for states to set their own standards for access by agents and brokers who can assist consumers and employers and place them in qualified health plans. States may choose not to certify agents and brokers, but if they do, they must comply with other state laws that regulate agents and brokers. The rules do not specify compensation practices, but they do allow agents and brokers to receive grants as "navigators."

Beginning with Washington and New Jersey, states have been introducing their own establishing legislation. By the end of March, more than 10 states had passed exchange laws. Florida publically refused to address the issue, pending outcome of the Supreme Court review.

How will the exchanges be received, if they survive legal tests? Much of the public is waiting for the marketing alternative, according to a recent survey conducted by consumer researchers J.D. Power & Associates in Westlake Village California. The J.D. Power & Associates 2012 U.S. Member Health Plan Study measures member satisfaction in 141 health plans in 17 regions. The latest report is based on surveys from 32,000 plan participants polled in November 2011 and January 2012.

About four of 10 health plan participants surveyed said they would shop for coverage through a health insurance exchange. More than half of respondents who purchase individual coverage said they are likely to use a state exchange to renew or purchase new coverage.

"Health insurance exchanges are meant to appeal to individuals who must buy coverage on their own, yet the level of interest among those who obtain health insurance at work could have important implications for the future of employer-sponsored coverage," says Rick Millard, senior director of the health care practice at J.D. Power. "Satisfaction among some health plan members may be low enough that an alternative, direct retail model could become more attractive than traditional wholesale purchasing by employers."

The study also identified interest in a "voucher" model of employer coverage by which employers would provide some payment employees could use to purchase individual coverage through exchanges. About 41% of respondents with employer-based coverage said they would use this approach to health benefits if it were available.

"The private exchange model could further erode reliance on obtaining health insurance at work," Millard said. "Creating new channels for purchasing insurance could trigger more changes. It could mean more attention paid to direct purchasers and also make higher levels of satisfaction critically important for health plans that strive to acquire and retain members."

The author

Len Strazewski has been covering employee benefits issues for more than 30 years. He has an M.S. in Industrial Relations from Loyola University in Chicago.