Health Insurance Exchanges

The Guide To

healthcaretrendsinstitute.org

2

A G

uid

e t

o H

eA

ltH

insu

rA

nc

e e

xc

HA

nG

es

Introduction

The Patient Protection and Affordable Care Act, also known as Healthcare Reform, or simply the ACA, is a complex piece of legislation with more than 900 pages and 450 provisions. The law is designed to provide affordable, quality health coverage to the more than 47 million American citizens estimated to be without health insurance in 2012, according to the Kaiser Commission on Medicaid and the Uninsured. Beginning in 2010 and extending into 2020, legislative guidelines are being followed for its massive implementation.

One of the key provisions for 2013 is the creation of health insurance exchanges. This paper explores the design of public exchanges for individuals and families and each state’s role in expanding coverage to its residents. A U.S. Map of Exchanges highlights every state’s participation and chosen exchange model.

The expansion of coverage under the ACA has also brought new opportunities for providing coverage to employees. Small companies have the option of using the newly created online Small Business Health Options Program (SHOP) while larger employers can now consider the benefits of using private exchanges. Three private exchange models are identified and discussed as well as the impact of companies adopting this type of benefit platform.

Finally, this paper will conclude with a look at the future trends for purchasing health plans through the exchanges as well as a discussion on the initial impact these exchanges are having on the insurance landscape.

One of the key

provisions for 2013 is

the creation of health

insurance exchanges.

Accessible Healthcarefor the Uninsured

3

A G

uid

e t

o H

eA

ltH

insu

rA

nc

e e

xc

HA

nG

es

ACA Overview

With the passage of the Patient Protection and Affordable Care Act (ACA), health insurance is being extended to 37 million Americans by 2023 through two major mechanisms – the expansion of Medicaid and the public exchanges.

One of the biggest features of healthcare reform is the creation of public insurance exchanges or insurance marketplaces, which began accepting enrollees on Tuesday, October 1 for coverage beginning January 1, 2014. By 7 a.m., more than 1 million people had visited the healthcare.gov website, according to President Barack Obama in a press briefing.

The public exchange opened as debates in Congress over its funding, which include subsidies to those citizens who qualify, caused the government to suspend its operations. But the marketplace still opened and was visited by over a million people, many of whom were looking to get health insurance for the first time. With insurers unable to deny anyone coverage based on previous health conditions, this was a new opportunity for many Americans to purchase health insurance. According to the Congressional Budget Office: Estimate of the Effects of the Affordable Care Act on Health Insurance Coverage, May 2013, 37 million people will find coverage through public exchanges and the expansion of Medicaid by 2023.

What is a Health Exchange?

So what is a health exchange? A health exchange is a web-based portal that connects individuals and/or employees who wish to purchase health insurance with insurance carriers. The exchange or online marketplace provides decision-making tools and support to help users make informed decisions.

There are two types of exchanges, public and private. Private health exchanges have been around for a number of years and were the precursor to the much-anticipated public exchanges. The model for public exchanges was envisioned to work similarly to how consumers purchased other online goods and services, like when shopping on Amazon.com or Expedia.com.

37 million individuals

will find coverage

through public

exchanges and the

expansion of Medicare

by 2023.

37 Million Americans2 Major Mechanisms

4

A G

uid

e t

o H

eA

ltH

insu

rA

nc

e e

xc

HA

nG

es

What is a Public Exchange or Marketplace?

There are three types of public exchanges: Federal, State and State-Partnerships.

Prior to the opening of the marketplaces, states chose how they wanted to participate—whether they would utilize the federally-managed healthcare.gov exchange, develop their own exchange, or use a combination of federal and state resources. With respect to health plan design and pric-ing, states have some flexibility as to what is covered and, as has always been the case, states have jurisdiction over premium rates.

Individuals can now access their state’s marketplace to compare their coverage options side-by-side, learn about subsidies or cost-reductions that may be available to them, and enroll for coverage. In addition to viewing health plan details—including benefits and rates—they can access a number of tools to help them select the most appropriate coverage. They may use cost calculators, benefit comparisons, or work with a trained representative via live online chat or toll-free hotline. If applicable, they may also connect with their state’s Medicaid or Children’s Health Insurance Program (CHIP) or certify if they are exempt from the ACA’s individual mandate.

Exchange Type

Federal

State

State-Federal Partnership

5

A G

uid

e t

o H

eA

ltH

insu

rA

nc

e e

xc

HA

nG

es

Qualified Health Plans (QHP) on the Public Exchanges

All of the health plans introduced in the federal and state exchanges today are offered by private companies who have qualified for participation. The goal of these Qualified Health Plans (QHP) is to give individuals the scope of coverage they’d be likely to receive under a large group plan in their state. Organized into four categories differentiated by monthly premium and cost-sharing (what the policyholder pays out-of-pocket, such as copays and deductibles), each plan covers a different percentage of medical costs:

• Bronze—pays 60% • Silver—pays 70% • Gold—pays 80% • Platinum—pays 90%

While the plans are set apart by their cost-sharing structures, all are required to provide coverage in 10 essential health benefit categories:

• Maternity and newborn care• Rehabilitative and habilitative services and devices• Pediatric services, including oral and vision care• Mental health and substance use disorder services, including

behavioral health treatment• Preventive and wellness services• Hospitalization• Laboratory services• Prescription drugs• Ambulatory patient services• Emergency services

The ACA also sets forth another set of requirements that all insurers must meet whether they’re selling through employers or to individuals on exchanges. It mandates:

• Children can stay on a parent’s health plan until the age of 26• There is no lifetime maximum on essential medical benefits• Insurers cannot deny coverage based on a preexisting condition• Insurers cannot drop your coverage or raise your premiums

due to an illness• Annual out-of-pocket medical and prescription costs will be

capped at $6,400 for individuals and $12,800 for families

Individuals have until March 31, 2014 to obtain insurance on the public exchange unless they have a qualifying event, which will enable them to apply for coverage after that date.

Bronze – pays 60%

Silver – pays 70%

Gold – pays 80%

Platinum – pays 90%

Individuals have until

March 31, 2014 to

get insurance on the

public exchange.

6

A G

uid

e t

o H

eA

ltH

insu

rA

nc

e e

xc

HA

nG

es

The State of Exchanges

Americans are expected to begin purchasing health insur-ance through newly created marketplaces known as exchanges

12 million

Will have incomes at or below Federal Poverty Level ($46,100 for a family of four), however this number is expected to drop to 35% in 2021

60%

16% of individual exchange population will have incomes above 300% of Federal Poverty Level, this portion rises to 35% in 2021

75% of public exchange enrollees will be newly insured

in 2014Indicated a willingness to pay a higher price for additional insurance features such as dental or vision coverage

47% of consumers surveyed

State insurance exchanges are projected to translate into a $205 billion market opportunity for the health sector

within the first 7 years of operation

Employers have a $2,000 fine per full-time employee for dropping coverage, under the ACA (Affordable Care Act)

dropping coverage

ALL ABOVE DATA TAKEN FROM, “Health Insurance Exchanges” by Ceci Connolly and Jeff Gitlin, March 17th, 2013, AHA Health Forum, Trustee Magazine

Entering exchange market are employed full-time

60% of Adults

Are expected to come from just 5 states40% of total individual exchange enrollees

The size of the exchange market is expected to more than double by 2021, marking the single largest expansion of health coverage in the USA since the creation of Medicare in 1965

May range from a low of 11 million in 2014 to a high of 32 million in 2021

A guide to how health insurance exchanges work, who is using them, and what it means for consumers in 2014

Will receive subsidies in 2014

90%

Slated to receive individual coverage have a median age of 33 and report being in good health

25 million

california texas Florida New York Illinois

Do not have a college degree compared to 60% of today’s private insurance market

75% of exchange population

Exchange enrollment in the shop & individual exchanges

The State of Exchanges

www.HealthcareTrendsInstitute.org Copyright 2013. Healthcare Trends Institute. ©

7

A G

uid

e t

o H

eA

ltH

insu

rA

nc

e e

xc

HA

nG

es

What is the SHOP Exchange?

The ACA also created an online exchange for small businesses, which will offer business owners QHPs. As of October 1, companies with 50 or fewer full-time employees could begin looking for health insurance on the small business health insurance marketplace. The Small Business Health Options Program or SHOP is similar to the public insurance exchange available for individuals and families.

While small companies are not required to offer health coverage under the ACA, the SHOP is designed to present employers with affordable QHP options for their employees. Employers should visit healthcare.gov to see what’s available to them, as well as get help from the federal call center to fully understand the process.

The SHOP platform for purchasing health insurance allows employers to select a defined (or fixed) contribution amount for their employees to use towards a health plan. Initially employers using SHOP were supposed to be given a choice of plans from different insurers. However, in 2014 there will only be one exchange-based plan available for all employees.

Unlike the individual insurance marketplace where there is no fixed open enrollment period, small businesses can enroll in SHOP on a rolling monthly basis. This is beneficial to companies as delays have caused certain web features and online enrollment to be unavailable until November 1, 2013. In October, employers can begin the enrollment process online and apply for coverage using a paper application. Another option is to wait to enroll fully online until November, which still allows time for coverage to begin by January 1, 2014.

The SHOP program was designed to change the way employers purchase health insurance. As an incentive, qualifying businesses with fewer than 25 full-time employees that participate in the exchanges will receive another benefit—they may claim the Small Business Health Care Tax Credit for up to 50 percent of the cost of providing coverage.

SHOP ExchangeSmall Business

Health Option Plan

8

A G

uid

e t

o H

eA

ltH

insu

rA

nc

e e

xc

HA

nG

es

What is a Private Exchange?

In many ways, private exchanges are similar to the public exchanges, as the latter was patterned after them. Some private exchanges have been in existence for at least 20 years according to Kaiser Health News. With the ACA creating new opportunities in the health insurance market, other private exchanges have established, many identifying as “corporate exchanges.” As of October 1, 2013, private and public exchanges have began operating alongside each other.

A critical difference often noted between public and private exchanges is that private exchanges are not able to take advantage of federal subsidies. However, this is not true for all private exchanges. Under a rule proposed by the Obama administration in June, consumers will be able to purchase a QHP and receive a federal premium assistance tax credit or health law subsidy from the insurance company itself rather than from the public exchange. It will be up to insurers to pursue providing QHPs directly from their own websites. This coverage would be for eligible individuals and their families who have no access to employer-sponsored coverage.

Additionally, private exchanges like eHealth and GetInsured will be integrated with the federal systems, allowing consumers in the 36 states where individuals use the federal public exchange to use these sites to apply for coverage and tax credits to beginning January 1, 2014.

As noted above, individual policies are going through the biggest transformation as guaranteed issue provisions are implemented and subsidies are calculated. Therefore, most of the conversations around private exchanges are based on employer-sponsored or group insurance, resulting in three main types of private exchange models.

Private Exchange Models

In the single-carrier/insurer exchange, an individual insurer offers various plan choices to individuals or employees. Employers may help choose plan design options for their employees, but there are not multiple insurers to choose from. BlueKC, started by Blue Cross Blue Shield of Kansas City, is an example of this type of exchange for small employers.

In the multi-carrier/third-party exchange, consumers choose from numerous plan designs from multiple insurers. Insurers compete on providing plans with various price points, provider networks, and customer service support. While many of these exchanges were originally started by technology companies, today, large brokers and benefit firms are examples of companies engaging in or creating this type of exchange and they may be for-profit or nonprofit. The term corporate exchange has been coined under

Insurers compete on

providing plans with

various price points,

provider networks,

and customer service

support.

9

A G

uid

e t

o H

eA

ltH

insu

rA

nc

e e

xc

HA

nG

es

this model as well. A recent entry into this marketplace is AON Hewitt’s new exchange for large employers, which was designed to be ACA-compliant, but not ACA dependent, meaning all the plans available for employees to choose from meet the QHPs requirements.

In the hybrid exchange, consumers can choose from multiple insurers. Some exchanges, like Ehealthinsurance.com and GetInsured.com may offer federal QHPs with subsidies for eligible individuals, as well as insurers’ traditional health plan offerings.

The multi-carrier, or corporate exchange programs, want to be based on group insurance contracts that finance the benefit plans on a fully-insured basis. The employer is the plan sponsor for medical benefits and the plan fiduciary, determining the fixed premium payments paid on a per employee basis. However, when using private exchanges, usually the exchange manager negotiates directly with the participating health insurers and determines what health plans and benefit options are offered to the employees.

This is an important aspect or shift for employers when adopting a private exchange—moving from using a defined benefit approach to a defined contribution platform. Currently most employers define the benefits for employees and then contract with the health insurers to deliver the coverage.

The multi-carrier or corporate exchange programs typically use a defined contribution model, where employers give employees a specific dollar amount toward health coverage. The employees visit the private exchange selected by their employer and choose from the multiple health plans by multiple insurers available on that exchange. The employee has the option to contribute more for additional coverage or other health options.

While employees using a private exchange cannot take advantage of federal subsidies, they can still pay for their share of the premium on a pre-tax basis. This is true if their employer uses the SHOP exchange as well. Also, if their employer moves to a defined contribution plan and they choose a more benefit-rich plan or other health options, they can still use pre-tax dollars to cover the difference.

Private exchanges selling group insurance do not need to meet ACA reinsurance or QHP guidelines. However, as noted above some private exchanges are already understanding the value of being compliant. Large businesses with 100 or more employees will be required to provide health insurance to full-time workers as of 2015 or face a $2,000 fine per employee. While many companies already comply with this mandate, using a corporate exchange that is offering federal QHPs may make strategic sense.

Insurers in the private exchange world will have to decide to create their own single-carrier exchange or choose to participate in a multi- carrier/third-party marketplace. As companies move employees into a defined contribution plan, private exchanges will have to create an environment of direct-to-consumer selling. To succeed, these exchanges will need to communicate clearly with employees, provide multiple plans to choose from, and effectively manage risk.

This is an important

aspect or shift for

employers when

adopting a private

exchange - moving

from using a defined

benefit approach to a

defined contribution

platform.

Private exchanges

selling group insurance

do not need to meet

ACA reinsurance or

QHP guidelines.

10

A G

uid

e t

o H

eA

ltH

insu

rA

nc

e e

xc

HA

nG

es

Future Trends

Insurance exchanges have the potential to dramatically change the health insurance landscape by providing individuals and employees with greater choices and prompting insurers to sell in a more retail/consumer-oriented manner.

The public exchanges are offering individuals QHPs from insurers competing on price and quality versus risk selection. Among the expected or hoped-for long-term results of introducing a consumer-driven public exchange are increased competition and lower rates, making coverage more accessible and affordable for everyone. Time will tell how many people will use the exchanges and how the economics of healthcare may shift, but as of today, the Congressional Budget Office estimates that 24 million people will get coverage through exchanges in the next 10 years—suggesting tremendous growth with a powerful impact on our healthcare system.

The SHOP exchange evolution may transpire over a longer period of time as it remains voluntary for businesses with 50 or less employees to provide coverage to their workers. As more plans become available on the SHOP exchange and small businesses see the value of the tax credit to their bottom line, employers may take a more pro-active approach to providing health insurance through this mechanism.

Private exchanges offer large employers a new approach to providing health coverage for their employees. Exchanges are a new avenue that employers will need to explore and fully understand in order to make informed decisions for their companies. Recent studies indicate that this is a trend many have begun to carefully consider. Reported last year, an Aon Hewitt study of 562 organizations nationwide indicated that 94% of respondents are committed to financially supporting health benefit coverage for their employees moving forward, and 44% believe a private exchange model will be the preferred approach to offering health benefits to employees in the next three to five years. Another survey completed last spring by J.D. Power & Associates shows that 47% of employer respondents definitely or probably will switch to a defined contribution plan in the future.

Private exchanges have the potential for enormous growth in the coming years. It will require the exchange managers to provide plans that not only offer competitive pricing, but also offer the networks and service that will entice new members and retain existing ones. As with any new product launch, there will be glitches to work out, but private exchanges have much to gain throughout this development process.

Sources:

Aon Hewitt Corporate Health Exchange Survey: The Time is Now, Rethinking Health Care Coverage, 2012

J.D. Power and Associates 2012 Employer Health Plan StudySM

24 million people

will get coverage

through exchanges

in next 10 years.

47% of employer

respondents definitely

or probably will

switch to a defined

contribution plan in

the future.

11

A G

uid

e t

o H

eA

ltH

insu

rA

nc

e e

xc

HA

nG

es

About the Healthcare Trends Institute

The Healthcare Trends Institute is an educational platform to help employers, third-party administrators, health plans, brokers, banks, payroll providers, consumers, and other stakeholders keep up with the rapidly changing healthcare benefits industry. It covers a range of topics related to the administration and management of healthcare benefits. To ensure all content and programs achieve the highest level of quality and relevancy, the Institute is guided by an Editorial Advisory Board comprising subject-matter experts that represent diverse aspects and perspectives within the healthcare benefits industry. More information is available at www.healthcaretrendsinstitute.org

Tiffany Wirth,Executive Director

Healthcare Trends Institute

4324 20th Avenue, SW, Ste.

200, Fargo, ND 58103

P 701.499.7215

E info@HealthcareTrendsInstitute.org

SPOnSOrEd By:

The Healthcare Trends Institute is sponsored by Evolution1, the nation’s largest electronic payment, on-premise and

cloud computing healthcare solution. But we don’t do it alone. Our network of 500 Partner organizations enables us

to deliver our industry-leading solution to 80,000 employer groups and 9.5 million consumers across the country.

Together we take the complexity out of defined contribution, HSAs, HrAs, FSAs, VEBAs, PrAs, wellness plans and transit

plans. Created with users in mind, our solutions provide a single end-to-end intuitive user experience that reduces costs,

saves time and ultimately simplifies the business of healthcare. In keeping with its mission of simplifying the business

of healthcare, Evolution1 launched the Healthcare Trends Institute to provide accurate and up-to-date information

on the issues surrounding healthcare and employee benefits today.