California first to OK insurance exchange outlined under health system reform

Other states are moving in that direction with health reform implementation task forces.

By — Posted Oct. 18, 2010

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California has become the first state to create a health insurance marketplace as envisioned under the national health reform law.

"Every state is going to have to have some sort of legislative action on this," said Kansas Insurance Commissioner Sandy Praeger, chair of the Health Insurance and Managed Care Committee for the National Assn. of Insurance Commissioners.

The main purpose of health benefit exchanges is to make coverage more accessible and help make the process of obtaining it easier, according to a summary by the nonpartisan California Legislative Analyst's Office. The exchanges must be operational by Jan. 1, 2014. The U.S. Dept. of Health and Human Services must certify state exchange plans by Jan. 1, 2013.

The insurance exchanges, a creation of the Patient Protection and Affordable Care Act, will serve as a portal to connect individuals with Medicaid, individual market and small group coverage to start, based on their income level. Individuals who earn up to 133% of the federal poverty level will be eligible for Medicaid. People earning between 133% and 400% of poverty will be eligible for private coverage subsidized on a sliding scale. The exchanges can offer large group coverage in 2017.

If states do not create an insurance exchange, the federal government will offer one in the state. But states strongly should consider building their own exchanges, Praeger said. This will help preserve local health insurance competition and allow the exchange to respond to changes in the local insurance market.

Many states have created health reform implementation task forces to offer advice on building health insurance exchanges, among other health reform tasks. Even some states suing the federal government to repeal the health reform law -- such as Virginia -- are studying health reform implementation, including benefit exchanges. States already should be thinking about how they're going to integrate Medicaid and private insurance in the exchanges, or they will fall behind, Praeger said.

The health reform law's benefit exchanges are based on a model adopted by Massachusetts in 2006. Utah followed suit by opening its own insurance exchange last year, although it is still being refined. Neither state's exchange has been submitted for federal certification.

California became the first state to adopt a health insurance exchange as outlined in the health reform law in part because the Legislature was still in session to adopt a fiscal year 2011 budget after other state legislatures had adjourned. California Gov. Arnold Schwarzenegger signed the legislation on Sept. 30.

The health reform law outlines key roles for benefit exchanges. Among other things, the exchanges will certify that the health plans offered meet the federal law's standards. The plans must have adequate provider networks, marketing practices that don't discourage less healthy people from applying, and use standardized information formats, for example. The exchanges are required to operate a Web portal and toll-free phone number to advise consumers on their coverage options and plan costs.

The exchanges must identify employers to be penalized for not offering coverage to their employees and individuals who are exempt from the health reform law's insurance mandate, which takes effect in 2014.

Some states already have laid foundations to adopt insurance exchanges. At least 17 states -- including California -- considered health reform legislation between 2006 and 2009 that would have created exchanges, said Laura Tobler, a health policy analyst with the National Conference of State Legislatures.

Startup costs will be paid by the federal government. HHS awarded planning grants of up to $1 million per state on Sept. 30, for a total of nearly $49 million. The exchanges must be self-sufficient by January 2015.

Physicians' role

Physicians will want to communicate health plans' performance to their local insurance exchange leaders, Praeger said. Are the health plans providing the full range of services, or have they limited access to physicians or other health professionals?

Doctors will "want to make sure they weigh in if they think there's a company in their market that hasn't treated them fairly," she said.

The American Medical Association is working with federal and state policymakers to implement health benefit exchanges, said AMA President Cecil B. Wilson, MD. The Association partnered with the National Assn. of Insurance Commissioners to offer a model health benefit exchange bill. The AMA and California bills could serve as starting points for many state lawmakers working on insurance exchange legislation, said Martha Saenz, a research analyst for the National Conference of State Legislatures' Health Program.

The insurance exchanges will offer four levels of private plans, similar to Massachusetts' exchange: bronze, silver, gold and platinum. Each corresponds to the percentage of medical claims paid on average by a health plan, ranging from 60% to 90% respectively.

States will have some flexibility in setting up insurance exchanges, Praeger said. They can allow a state agency to run it or create a private nonprofit to do so, as Massachusetts and California did. The California benefit exchange will be run by a five-member board, which is expected to meet for the first time around March 2011, said Sandra Shewry, MPH, principal health care reform implementation adviser to the California Health and Human Services Agency.

States have flexibility in the size of the insurance market served by benefit exchanges. They could require all individual and small group plans to be certified by their benefit exchange, or they could allow these plans to be sold outside the exchange. The state exchanges will begin by offering individual and small group plans to businesses with fewer than 100 employees but could expand to large group plans in 2017, according to the California Legislative Analyst's Office analysis. States also can operate regional exchanges.

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Getting a jump on exchanges

New marketplaces for health insurance will not operate until 2014, but many states already are talking about how to design health benefit exchanges.

2010-11: States create commissions and task forces to advise lawmakers on implementing health insurance exchanges and the national health reform law in general.

2011-12: State legislatures convene and adopt bills to create exchanges.

2013: The Dept. of Health and Human Services certifies that individual states are prepared to run their own exchanges by Jan. 1. If not, HHS will run the exchanges.

2014: The state exchanges open on Jan. 1, as the key parts of the health reform law take effect.

2014-16: The individual penalty for not having qualified health insurance is phased in.

Source: "Health Insurance Exchanges and the Affordable Care Act: Key Policy Issues" Commonwealth Fund, July (link)

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