Regardless of whether or not the Supreme Court strikes down the individual mandate or the entire 2010 health reform law in June, state-based health insurance exchanges are a good idea and, if established, should benefit many working Americans who are too well-off to qualify for Medicaid but unable to otherwise afford health insurance coverage on their own. This post and two to follow over the next week are excerpts from an unpublished paper that I recently authored on this topic.
One of the key elements of the insurance coverage expansion contained in the Affordable Care Act (ACA) is the establishment of health benefits exchanges operated by individual states, groups of states, or the federal government, by January 1, 2014. These exchanges will offer competitive and/or subsidized insurance options for individuals whose employers do not provide insurance, as well as offer plans to small businesses (up to 100 employees) at reasonable rates. Prior to the ACA, Massachusetts and Utah had both operated state insurance exchanges with varying degrees of success. By outlining only basic requirements for the functions of the exchanges, the ACA left many important questions regarding their design unanswered. Some states appear to be pursuing a “wait and see” strategy, hoping that the U.S. Supreme Court will strike down the ACA prior to the January 2013 deadline for showing sufficient progress toward establishing an exchange or ceding control to the federal government. Others are at various stages of the planning process; as of January 2012, 13 states had formally established their exchanges through legislation or executive orders. Maryland and California are at the vanguard of this group.
The ACA mandated the creation of state-based exchanges for individuals (American Health Benefit Exchanges) and businesses with up to 100 employees (Small Business Health Options Program [SHOP] Exchanges), which may be separate markets or merged into a single exchange. Beginning in 2017, states may allow businesses with more than 100 employees to purchase coverage through the exchanges. Only U.S. citizens and legal immigrants will be permitted access to coverage through the exchanges. Individual and small group plans will include four tiers of coverage: bronze (60% of benefit costs), silver (70% of benefit costs), gold (80% of benefit costs), and platinum (90% of benefit costs). A catastrophic plan will be available for individuals up to age 30 and other persons who are financially exempt from the insurance purchase mandate. Carriers must guarantee insurance issue and only vary ratings based on age, premium rating area, family
composition, and tobacco use. Exchanges will be responsible for establishing enrollment procedures and determining eligibility for tax credits.
States may decide to locate exchanges within a government agency, in a quasi-governmental body, or an independent nonprofit organization. Although greater government control probably makes it easier for the exchanges to respond to the policy needs of their states (especially in exchanges that are designed as “active purchasers” of insurance rather than simple clearinghouses for any insurer that wants to participate), it also increases the risk of political interference favoring particular insurers. To date, most states have chosen the quasi-governmental model. For example, although it is governed by an 11-member Board of Directors that includes several state health officials, the Massachusetts Connector is by statute outside of the control of the executive branch of government.
California established a 5-member independent governing board for its exchange, consisting of its Secretary of Health and Human Services and four members appointed by the Governor and the state legislature. To avoid conflicts of interest, board members may not be health care providers or employees of health care facilities or insurance companies. To improve its responsiveness to the market, the exchange is exempted from most state administrative regulations on personnel and contracting. Similarly, Maryland’s quasi-governmental exchange is supervised by a 9-member board, including 3 state health officials and 6 appointed members. Conflict-of-interest provisions are similar to California’s.