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Introduction

Well-functioning Health Benefit Exchanges (Exchanges) may determine the success of federal health care reform in meeting its goals to improve access to health coverage, enhance the value of health insurance, and moderate the cost of health care. Across the country, state governments will play the pivotal role in operating the Exchanges, facilitating the expansion of Medicaid, and implementing market-altering changes to the rules governing commercial health insurance.

The American Health Benefits Exchange (for individuals) and the Small Business Health Options (SHOP) Exchange (for small employers) will serve as central points of access to commercial health insurance for millions of individuals and hundreds of thousands of small employers. In some states, enrollment in the Exchange may exceed the number of people currently covered by their Medicaid program.

By January 2014, individuals and small employers will be able to shop for insurance from a range of health plans offered through the Exchanges. Lower- and middle-income individuals earning up to four times the Federal Poverty Level (FPL) – more than $88,000 for a family of four in calendar year 2010 – may be eligible for premium subsidies for commercial health plans. Small employers with lower-income workers that provide employer-sponsored insurance (ESI) may be eligible for premium subsidies for up to two years.

People who today cannot afford health insurance or are denied coverage due to poor health will soon be able to purchase insurance. In addition to premium subsidies, the health plans will limit point-of-service cost sharing (i.e., co-payments, co-insurance, deductibles) and cap members’ out-of-pocket expenses.

Though the Patient Protection and Affordable Care Act (ACA) sets broad parameters for the Exchanges and federal regulations will provide further guidance, states are allowed some flexibility in developing their own Exchange. As a result, they will need to make a number of key decisions.

This issue brief delves into some of the details of the health insurance Exchange, as defined by the ACA, and highlights a number of key issues for states to consider, including:

• Governance structure and administration;
• Key functions and responsibilities;
• Operation of the Exchange alongside the state’s commercial health insurance markets;
• Rules governing carrier participation in the Exchange;
• Risk selection, inside and outside the Exchange;
• The interaction between the Exchange and the state’s Medicaid and CHIP programs;
• The type and level of customer service that the Exchange will need to provide; and
• Whether states should establish their own Exchange or defer that responsibility to the federal government.

Although much remains to be determined with regard to the set up of the Exchanges, state officials will need to begin planning and establishing the infrastructure and the policies required for the successful implementation of health reform and the operation of state-based Exchanges. Figuring out how best to position the Exchange in 50 state health insurance markets and the District of Columbia will require an unprecedented amount of collaboration between states and the federal government, across state agencies, among stakeholders, and throughout the health insurance industry.

This brief provides policymakers and interested parties with a framework to help states plan for and establish state-based Exchanges. While this brief can help states develop a roadmap to implementation, they will need to actively monitor and participate in the myriad policy and regulatory decisions to be issued by the federal government. As federal policies are established and regulations are promulgated, states will need to adapt and modify their plans in order to successfully establish their Exchange.

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About Bob Carey

Bob Carey brings more than 15 years of public sector and state health insurance program experience to his role as a senior advisor at PCG, having helped Massachusetts to design and implement new health insurance programs pursuant to the state’s landmark health reform law of 2006. At PCG, he is principally responsible for providing strategic consulting and technical assistance to states in the implementation of the federal health reform law and the establishment of state-based health insurance exchanges.

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