Health Care Reform (6): Implementing Insurance 'Exchanges'

This is the sixth in an ongoing series of posts examining the Affordable Care Act, including previous posts on the Temporary High Risk Pool and tax credits for small businesses.  You can also visit the health care reform page on our website for more resources and information.  If you have thoughts on health care reform, we encourage you to comment below or contribute a guest blog.

One of the most important provisions of the federal health care reform law, officially known as the Affordable Care Act (ACA), is the requirement that states establish private insurance marketplaces, or ‘Exchanges’, to sell plans to individuals and small groups in their state.  Health insurance exchanges were written into the law to ensure that these particularly vulnerable segments of the market – individuals and small groups – could obtain affordable coverage.  What is unique about these segments?  Well, consider how insurance works for a large group employer:  every employee is covered regardless of medical history and all employees pay roughly the same premiums.  This is possible, and perhaps more importantly profitable, because the risk of covering the sicker/costlier employees is offset by the ease of covering healthier/cheaper employees.

Now consider how insurance works in the individual and small group market:  currently, when you shop for insurance for yourself, or a handful of employees, you pay a much higher premium and have fewer plan options.  Why?  The insurance company does not have that larger pool of people to spread out the risk that you or your employees will be the sick/costly type.  This is exactly the problem exchanges are designed to remedy.  Exchanges enable individual and small group consumers in a state to pool their buying power and create a marketplace to negotiate with insurers for higher quality lower cost coverage, just like a large employer.

Exchanges, available in 2014, will provide information to consumers about each participating plan’s benefits, pricing, and eligibility.  It’s important to note that most of the plans offered on the Exchanges will be sold and administered by private insurers – the state’s role is to host and regulate the marketplace. Participation in the insurance exchange is voluntary; consumers can still choose to buy directly from an insurance company, through a broker, or through their employer, when available.  However, for those income-eligible for premium subsidies, the online Exchanges are expected to serve as the primary venue for determining eligibility and accessing those subsidies to buy insurance.

The states have significant discretion in setting standards for a plan’s inclusion in the online Exchanges, although the federal government has set minimum requirements.  For instance, insurance policies must cover ‘essential health benefits’, defined by the ACA to include at least the following:

ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.

The ACA also requires that Exchanges be equipped with consumer-friendly features like a web portal, a toll-free assistance hotline, and an online coverage cost calculator.  Insurers must offer specified tiers of coverage presented in a standardized way to maximize comparability.  The Department of Health and Human Services explains how this requirement builds on existing online private insurance infrastructure:

All or virtually all of the information needed for the web portal is standard information that is already made available to individuals, insurance agents, or existing IT contractors with pricing engines and other entities that sell or otherwise provide health insurance to individuals and small groups. For example, information on deductibles, coverage, cost-sharing, and catastrophic protection limits is routinely available on all or virtually all insurance available to individuals or small groups. Nothing in this rule requires preparation of entirely new information. In essence, we simply require that relatively comprehensive information be provided in standardized formats so that plan comparisons can be automated in ways that present comparable information in comparable levels of detail to facilitate consumer understanding of available choices.

The Oklahoma Department of Mental Health & Substance Abuse Services received a $1 million dollar planning grant to begin developing Oklahoma’s Exchange.  The second Oklahoma Health Insurance Exchange public stakeholder meeting was held in late January in Oklahoma City.  The Exchange Project Managers are soliciting participation from stakeholders and have set up seven work groups, each tasked with a different aspect of exchange planning, including Governance & Administrative Structure; Enrollment; Eligibility Process & Infrastructure; Information Technology (IT); Carrier & Plan Selection; Financial Management & Premium Development, and Education and Marketing.

Considerably more funding for developing the Exchange may be on its way – Oklahoma is in contention to be one of five states that will receive an Early Innovators Grant, a grant to reward states that demonstrate leadership in developing cutting-edge technologies for insurance eligibility and enrollment.  The Oklahoma Health Care Authority (OHCA) has requested $54 million for a two-year project – the Oklahoma Health Infrastructure and Exchange Project (OHIEP) – to invest in developing the states health insurance technology infrastructure.

Even as legal and political challenges have left the future course of health care reform implementation in question, Oklahoma, like most states, seems determined to press ahead with putting a health insurance Exchange in place.  In addition to the grants received and work being done on Exchanges by OHCA, Senator Bill Brown (R) has introduced SB 960, “to create a health insurance exchange to facilitate the purchase of individual and small group health coverage within the state.”  In large part, Oklahoma policymakers are motivated by the knowledge that if states do not create their own exchanges, the ACA enables the federal government to step in and run a non-compliant state’s Exchange for them. Oklahoma policymakers seem committed to retaining control over the important policy choices involved in designing and operating the exchanges – even if that means that the hostile rhetoric about the new law coming from some elected officials ends up at odds with the real and important implementation work that is underway at the administrative level.