Health Insurance Exchange

Thursday, December 17, 2009

The Affordable Health Care for America Act directs that a “Health Insurance Exchange” be created within Health Choices Administration under the oversight of Commissioner. The role of the Exchange to provide affordable access to quality health insurance and includes provisions for a “public health insurance option”. (As we know, the public option may not be included in the reconciled House and Senate bills.) Assuming that it is included in the final bills, the Commissioner will set the standard for health care, i.e., the reference or essential health care benefits package, negotiate with health care insurance carriers, facilitate enrollment of members and employers, and create risking pooling methods.

Who is eligible to enroll via the Exchange? Anyone who is NOT enrolled in a qualified health care plan or who otherwise has “acceptable coverage”, including legal dependents. Employers are considered eligible to enroll if they fall into one of three categories: smallest (1-25 ees), smaller (26-50 ees), and small (51-100 ees). After 2 years following enactment, the Commissioner may define employers with greater than 100 employees as “Exchange-eligible employers”. The plan is to phase in these categories over the first, second, and third years following the enactment date, starting with the smallest employers. Since we are over half way through the month, it seems unlikely the Senate can finalize and pass their version of health care for a January 1, 2010 effective date.

Who is exempted from Exchange plans? Individuals enrolled in a qualified “group” health care plan, Medicare/Medicaid members, individuals covered by the Child Insurance Health Insurance Plan (CHIP), members of the military, VA participants, and individuals covered by an approved state high-risk pool. It is therefore possible that individuals could move into and out of edibility status over time as their personal circumstances change. Consider the active employee who becomes eligible for Medicare or the child of an employee who is approved for CHIP.

Will Exchange eligible employers be required to make a financial contrition towards the cost of a qualified health care plan? Yes, for full time employees, 72.5% for individual and 65% for family coverage of the lowest cost qualified health benefits plan offered. The contribution for part time employees, will be a proportion based on the employee’s weekly hours and the full time threshold hours set by the Commissioner and the Secretaries of Labor, Health and Human Services, and Treasury. Will Exchange eligible employers be required to make a contribution for employees who are covered as a spouse by another employer’s plan? No, however, if the employee declines coverage in the employer’s Exchange plan and then enrolls in an individual Exchange plan, the employer will be financially responsible.

This later point seems to be in contradiction to the language of the Act that speaks to automatic enrollment of Exchange eligible employees. If it works like auto enrollment in 401(k) plans, at the employee’s plan entry date, the employee is automatically enrolled with a default contribution and investment option. However, the employee is provided an opportunity to cancel/chnage prior to commencement of the actual deductions. Why would the employee be allowed to decline the employer’s plan and opt for individual coverage? It must be in the name of choice. Under traditional insurance underwriting rules, an employer sponsored plan generally must meet minimum contribution and participation levels. Allowing individuals to selectively decline enrollment would undermine those underwriting rules. Will this create an opportunity for adverse selection to occur among and between employer Exchange group plan and individual Exchange plans? Do the traditional underwriting rules and adverse selection even apply under the concept of “universal coverage”?