States can shape exchange details

August 1, 2011

A main theme of new rules for state-based health insurance exchanges is flexibility for states.

WASHINGTON-A main theme of the new rules for state-based health insurance exchanges is flexibility for states to shape exchanges to fit local needs and conditions. Health and Human Services (HHS) Secretary Kathleen Sebelius rolled out proposed rules last month, a key step to transforming the insurance market by 2014.

HHS provides states more leeway for meeting deadlines and for defining basic operations. States can operate exchanges through existing agencies or as independent not-for-profits, which may or may not involve insurance industry leaders-a very contentious issue.

States also will decide whether to list all qualifying plans on the exchange, as preferred by insurers, or to select those that win in a competitive bidding process based on price, provider choice or other criteria. Plans will have to meet standards for marketing, network adequacy and plan service area in order to be deemed "qualified," and America's Health Insurance Plans (AHIP) wants all plans that meet these new standards to be offered in the exchanges.

HHS proposes to strengthen risk adjustment by establishing federal data standards that will allow all plans-both inside and outside the exchanges-to follow common reporting requirements for plans in different states. This will facilitate calculation of payments to insurers that cover higher-risk populations and spread financial risk more evenly.

In addition, a transitional reinsurance program aims to stabilize premiums for the first three years of exchange operations through plan revenue-sharing. The program also creates risk corridors that will operate for two years to share risks between the federal government and health insurers. Plans with costs at least 3% less than projections will remit a portion of those savings to HHS, while plans with costs 3% or greater than projections will receive back a portion of those costs.

These policies aim to encourage insurers to better manage high-cost patients, instead of cherry picking healthier enrollees. Analysts hope that establishing a more transparent, level playing field for insurers will spur competition and lead to lower prices.

PRELIMINARY WORK ONGOING

Many states have been waiting for the regs in order to move forward with exchange programs, and officials hope these proposals will spur implementation. Although almost every state accepted earlier HHS grants to help establish information systems needed for exchanges and other healthcare operations, only a few have adopted laws and policies needed to launch the program.

Massachusetts and Utah have exchanges up and running, and California and nine other states have enacted laws authorizing such activity. Many other states are taking steps that may lead to exchange operations, but others are moving slowly, often due to political opposition to "Obamacare" in general.

Sebelius and her colleagues clearly hope to build support for exchanges and other related reforms by painting the new rules as a way to counter insurance industry abuses.

"For too long, insurance companies have had the upper hand," Sebelius stated. Now the new program will give consumers clout "to get a fair deal" and will force insurers to compete on price and quality, instead of avoiding enrollment of sick people or skimping on care to keep costs down.