hCentive Health Insurance Exchange Platform

hCen ti v e

Technology Solutions to Simplify Healthcare

A Complete Guide to State Exchanges
All you need to know about the state health insurance platforms

Published by: hCentive
Date: 29 November 2010

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Table of Contents
The Numbers Game

4

Patient Protection and Affordable Care Act

6

Timeline of the Act

7

Small Business Health Options Program (SHOP)

9

Timeline for Changes Impacting Employers

10

State Health Exchanges

10

Functions of a State Exchange

11

Structure of an Exchange

12

Operating an Exchange

12

Benefits of the Exchange

13

Eligibility

13

Timelines

14

Summary

15

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Introduction
Health insurance has been, and continues to be, a highly debated issue in the United States. Every
aspect of the healthcare industry is under question, from the cost of healthcare to its availability. This
paper focuses on the changes mandated by the federally enacted Patient Protection and Affordable
Care Act which calls for dramatic changes in the way health insurance is sold in this country.

The Number Game
The U.S. is well known for its medical advances, but it also has the dubious distinction of being one of
the only developed nations that does not guarantee medical insurance for all its citizens. The U.S.
Census Bureau claims that there are about 50.7 million uninsured Americans, including 8.7 million
children. The U.S. also has the third highest per capita expenditure for public healthcare.
Furthermore, in 2007, nearly half of all personal bankruptcies were attributed to medical debt.

Health Insurance Coverage Status

Private
Medicare

2007

Medicaid

2006
1990

Other Government
Uninsured
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00%
Source: US Census Bureau, Current Population Survey, 2008 Annual and Social Economic Supplement

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In 2000, the United Nation’s World Health Organization (WHO), ranked America’s healthcare system as
the highest in cost, first in responsiveness, 37th in overall performance, and 72nd in overall level of
health (among the 191 member countries of the UN). In addition, the Institute of Medicine of the
United States National Academies points out that around 18,000 unnecessary deaths are caused in the
U.S. every year and that the lack of medical care has resulted in the death of about 100,000 Americans
annually .
Employers still serve as the primary source for health insurance among most Americans, but due to
rising health care costs, many employers have limited or, in some cases, eliminated coverage for their
employees. This and the large number of unemployed have contributed to the rising number of uninsured Americans.

Health Insurance Status (Under 65 Years of Age)
Employer sponsored health
insurance
Non-group health insurance
Not Insured
Medicare
Medicaid
Military Health Care

Source: U.S. Census Bureau, Income Poverty and Health Insurance Coverage in the United States, 2007

These statistics represent some of the reasons for the passage of the Patient Protection and Affordable
Care Act.

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Patient Protection and Affordable Care Act
Health reform was a key issue during the Presidential
elections of 2008. While the Republicans
emphasized having an open-market competition rather than
government controlled, then Senator Barack Obama
campaigned for universal healthcare.
Obama also called for the formation of state based
Exchanges – a sort of market place – where
insurers could compete for consumers based on the
products, prices and services that they offer.
Reform finally culminated with President Obama signing into law on March 23, 2010 the Patient
Protection and Affordable Care Act. This legislation promised to change the business of health
insurance in the U.S. substantially – not just for consumers seeking to buy coverage, but also for
brokers, health insurance carriers, states and the federal government as well.
This law calls for the implementation of various health insurance provisions over a four-year period.
The goal is to make healthcare more accessible and affordable to all individuals irrespective of age,
income or health condition. The Act is an attempt to make health insurance more consumer-friendly
and eliminate any unfair advantages among insurers.
The Act intends to reform individual and group coverage plans and also changes the insurance laws
for health carriers selling medical insurance. The Act will be implemented in the following phases.

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Timeline of the Act
EFFECTIVE BY 2010:
No discrimination permitted against children with
pre-existing medical conditions
Insurance companies cannot drop people from
coverage unless there is a serious case of fraud
There would be no lifetime limit on insurance
coverage
Annual limits on insurance coverage would be
regulated
Insurance companies must set up a consumer appeals board
Information on health insurance must be provided online
Qualified small businesses will get tax credits if they provide coverage at work
Seniors hitting the prescription drug coverage “donut hole” (the coverage gap in drug spending
in which seniors pay 100% of the costs) are given a one-time rebate check of $250
Preventive healthcare such as mammograms and flu vaccines will be available free of cost
$15 Billion will be allocated to the Prevention and Public Health Fund to encourage Americans
to live healthy lifestyles
Adults with pre-existing medical conditions can access affordable healthcare through a high risk
pool program
Children can stay on their parents’ coverage until the age of 26
A $5 billion federal fund will ensure that early retirees have access to affordable coverage
New incentives encourage more primary healthcare providers to work in underserved areas
Insurance companies must justify unreasonable rate hikes
Medicaid will be expanded to accommodate more people from low-income brackets
Rural healthcare providers are paid to ensure that they continue serving these communities
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EFFECTIVE BY 2011:
Seniors who fall in the coverage gap receive a discount of 50% on Medicare Part D prescription
drugs
Free preventive services provided to seniors
The Department of Health and Human Services (HHS) must submit a national strategy to
improve the quality of healthcare in government sponsored programs like Medicaid, Medicare
and CHIP
The Community Care Transition Program must ensure that high risk Medicare beneficiaries do
not undergo unnecessary readmissions
Community Health Centers are constructed and expanded.
Insurance companies must spend 80% (80% for small group and individual markets and 85% for
large groups) of their premium dollars on healthcare services

EFFECTIVE BY 2012:
A Hospital Value-Based Purchasing Program is established that offers financial incentives to
hospitals to improve the quality of care
Physicians are incentivized to join Accountable Care Organization
Electronic health records are created to reduce paperwork and administrative costs
CLASS, a voluntary long-term care insurance program will provide cash benefits to disabled
adults

EFFECTIVE BY 2013:
More funding to state Medicaid programs to provide preventive services
Primary care physicians will be paid 100% of Medicare payment rates
Additional funding to ensure children not eligible for Medicaid are covered

EFFECTIVE BY 2014:
Health insurers can’t discriminate on the basis of pre-existing health conditions or gender of the
beneficiary
No annual dollar limits on the amount of coverage an individual might receive
Individuals participating in clinical trials will be ensured coverage

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Tax credits are provided to lower income individuals applying for medical insurance
Each state must create Exchanges for individuals to shop easily for health insurance
Small businesses providing coverage to workers will receive increased tax credits
Individuals and families that can afford insurance will be encouraged to buy their own insurance
Workers can use the employer’s insurance fund to receive affordable coverage for themselves

EFFECTIVE BY 2015:
The payment of physicians will depend on quality and not volume. This will encourage physicians to focus on providing quality healthcare

Small Business Health Options Program (SHOP)
The reform legislation also calls for the creation of
the Small Business Health Options Program
(SHOP) that would act very similar to exchanges,
but is designed primarily for small employers.
Both the exchanges and SHOP would act very
much like Expedia or Travelocity but for
consumers and small employers buying health
insurance.
SHOP will prohibit health insurance companies from underwriting or pricing insurance based on
health status, gender or claim experience1. The SHOP pool must comply with the ratings rules and
minimum benefit packages set for the program.
The SHOP provides tax credits for small business owners to make healthcare coverage affordable.
To obtain these credits, the employer has to pay a minimum of 60% of the premium. The tax credits
available are:
$1000 for each employee who receives self-only coverage
$2000 for every employee who receives family coverage
$1,500 for each employee who receives health insurance coverage for 2 adults or 1 adult and 1
or more children through the employer

8

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Bonus tax credits will be provided to those employers who exceed the 60% threshold and contribute
more towards their employee health insurance:
$200 for each employee who receives self-only health insurance coverage$2000 for $400 for
each employee who receives family health insurance coverage through the employer
$300 for each employee who receives health insurance coverage for 2 adults or 1 adult and 1 or
more children through the employer
However all tax credits depend on the number of workers employed by the firm:
10 or fewer full-time employees

100%

More than 10 but not more than 20 full-time employees

80%


60%


40%


20%

More than 50 full-time employees

0%

SHOP program tax credits are also subject to the percentage of year factor, determined by the
number of months during the taxable year in which the employer paid or incurred qualified employee
health insurance expenses.2

Timeline for Changes Impacting Employers
2011: Penalty for incorrect spending within Flexible Savings
Account will increase from 10% to 20%
2013: Medicare tax will increase to 2.35% for individuals earning
above $200,000 and for couples earning more than $250,000
Contribution to Flexible Savings Account will be limited to $2500
per year
For those with annual income of more than $200,00O, hospital tax
will increase by 0.9 percentage points
2014: Companies with more than 50 employees will have to provide coverage at work or pay penalty of $2,000 per employee

9

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Americans without any form of medical insurance must pay an annual fine of $95. This amount will
increase in subsequent years
2016: : States will have to open SHOP to facilitate bulk buying of health insurance by small business
employers.
Both Exchanges and SHOP will be administered by individual states. The federal government will
only administer an Exchange or a SHOP if a state refuses to create one.

State Health Exchanges
A state health Exchange is an insurance market place.
An Exchange is a multi-carrier shop and an
information kiosk. The Affordable Care Act requires
state Exchanges to provide health insurance
information in a manner that is easy to comprehend
for consumers.

10

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Functions of a State Exchange
In addition to being a market place for insurance products, Exchanges will have five crucial
functions:
1. Foster competition among insurers to ensure that
the consumers get the best rates and services. All
the costs and services would be listed in a manner
that will make comparison across plans easy.
2. Exchanges also are required to provide transparent
and authentic information about plans,
premiums, coverage, benefits, and the like.
3. For those who do not have access to any sort of assistance, Exchanges will facilitate enrollment in
plans and the payment of premiums. They will serve as portals where applicants can check their
eligibility for plans and subsidies.
4. By purchasing health plans from Exchanges, individuals can retain their coverage even when
between jobs.

Exchanges must adhere to the following regulations:
Inspect policies to ensure that they adhere to the standards set by the government and are in the
best interest of the consumers
Have no power to decide premiums but can ask carriers to justify rate hikes. If they are unsatisfied
with a carrier’s explanation, they have the right to not display that carrier’s products.
The Exchanges will provide resources so that people who do not have access to the Internet can
get information through mail and community announcements.
Must use standard forms, definitions and marketing materials. Individuals should have the option
to enroll online, over the phone, by mail or in person.
States must operate call centers to ensure efficient customer service.

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The Exchanges will have five categories of health plans depending on the expenses. Other than
providing the essential health benefits, the following different benefit categories will also include a:
1. Bronze Plan: 60% of the costs with HSA out-of-pocket limits
2. Silver Plan: 70% of the costs with HSA out-of-pocket limit
3. Gold Plan: 80% of the costs with the HSA out-of pocket limit
4. Platinum Plan: 90% of the costs with the HSA limit
5. Catastrophic Plan: For those below the age of 30 and are exempted from the mandatory purchase
of health policy.
Though the Act leaves it to the states to decide upon the form and medium of the Exchanges, most
states, barring a few, will eventually govern their own health insurance Exchanges.

Structure of an Exchange
The Act directs every state to have a state-based health
insurance Exchange as health insurance rules vary from
state-to-state. A state Exchange will also give a greater
sense of ownership to its citizens.
The Exchanges will be funded by federal dollars. The Act
also has provisions calling for the federal government to
create and administer an Exchange if any state refuses to
do so.
There is a possibility that, at some later date, all state
health insurance Exchanges will be integrated into a
single national Exchange. This would reduce the administrative costs associated with the Exchanges.
A national Exchange also would ensure that consumers are not deprived of coverage even when they
change their state of residence.
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Operating an Exchange
Administrating a state based Exchanges that operate on federal dollars and adhere to both federal
and state regulations will require collaboration by federal and state governments.
Since Exchanges will be funded largely by the
federal government, each state’s Exchange will be
audited by federal agencies to ensure compliance
with federal health insurance regulations.
Since states will administer the Exchanges, it is
important that state governments and their
respective insurance departments form an
Exchange Board to oversee operations.
The effective management of the Exchanges will
ensure that consumers reap the maximum benefits
when purchasing health insurance.

Benefits of the Exchange
Advocates of the Act and its mandated Exchanges point to the following benefits:
Standardized benefits make comparisons across
plans easier.
Provides for access to federal subsidies and information about eligibility for government sponsored
programs
Consumers can retain their employee sponsored
coverage even when they change jobs
Allows convenient access to the cheapest plans
Beneficiaries do not have to worry about the authenticity of their coverage, as only those plans that
comply with the Affordable Care Act and are sold by insurance companies that have the license to
do so, will be exhibited on the Exchanges.
Employers will enjoy more flexibility and choices while providing group coverage to their
employees
Affordable plans and non-denial to any applicant will ensure that more people have access to
medical coverage.

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Eligibility
Not everyone can sell or purchase a plan through an
Exchange. Both buyers and sellers must meet certain
eligibility criteria before they can operate on an
Exchange platform.
For Buyers: Initially, Exchanges will be limited to
unemployed individuals, those self-employed or
employers with fewer than 100 employees.
Health insurance carriers: Only those health
insurance companies with acceptable rates, who
spend no less than 80% of their premium dollars on
health care expenses for their members and who
comply with the federal guidelines will qualify to
showcase their products on an Exchange platform.
Exchanges will provide consumers with a broad selection of health insurance options. However, with
increased options comes, in some cases, confusion. It will be important that states also provide
support – including call centers -- for consumers participating in the Exchanges.

Timelines
Though Exchanges don’t become fully
operational until January 1, 2014,
implementation has already begun. The following
outlines the mandated implementation plan

2010
States develop informal databases capturing the issues that will affect the formation of Exchanges
and the drafting of grant applications.
The Department of Health & Human Services (HHS) establishes interoperable standards and
protocols for enrollment in the HHS program

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2011
States begin to apply for federal grants for: A) HIT enrollment standards & protocols and; B) development of health benefit Exchanges
Develop strategic plans to integrate the Affordable Act within the realms of the Exchanges
Grants from the HHS become available for planning and developing standards for compiling and
providing enrollees with summary of benefits

2012
Establish Health Benefit Exchanges
Develop, issue, and review RFPs for IT and infrastructure
States seek and receive final approval from HHS for Health Benefit Exchanges
Develop and implement ‘plans of operations’
Select audit firms to assess system of internal controls, key processes and systems
Select vendors for outreach, marketing, advertising and develop strategy and materials
Develop and issue RFPs for
a) Navigators
b) Call Centers
c) Financial systems/ Subsidy Reconciliation
State implements federal eligibility and subsidy determination guidelines

2013
IT/ Website developed and implemented
HHS approves that a state is willing and able to implement the Exchange by January 1, 2014
Begin development of QHP (Qualified Health Plan) RFP specifications
HHS to provide loans to assist Co-Ops
Select QHP and begin implementation

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Marketing and outreach campaign
Full Enrollment Systems Testing
Begin selling health plans

2014
Health Benefit Exchange becomes fully operational

Summary
The state based health insurance Exchanges are one of the most important aspects of the healthcare
reforms of 2010. The Act sets certain guidelines that every Exchange has to adhere to and yet leaves
enough flexibility for states to accommodate their individual preferences and regulations. More
importantly, the Act provides a platform for consumers to cost effectively and more easily purchase
health insurance.

For Further Reading & Questions:
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16
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