The Affordable Care Act (ACA) directs all Americans, with only a few exceptions, to obtain healthcare insurance coverage for 2014 and beyond. More than half of the population will meet this responsibility by enrolling in a health insurance benefit offered through their employers. Tens of millions of other Americans already purchase their own private insurance, or receive coverage through government programs such as Medicaid and Medicare, putting them in compliance with the law’s individual mandate.
But the remaining population – most new to this type of product – will be expected to individually navigate their health insurance enrollment later this year, or face a tax in 2014.
Acknowledging the affordability issue, the ACA provides tax credits toward coverage premiums for those with family incomes between 100% and 400% of the federal poverty level (FPL). Additionally, those between 100% and 250% of FPL are also eligible for cost sharing subsidies. Insurance premiums will be tax deductible for all individuals purchasing coverage through an exchange, subject to the excess of 10% of adjusted gross income rule.
With this carrot and stick approach, this legislation will push, nudge, cajole and entice an estimated 50 million previously uninsured people into the healthcare insurance marketplace beginning in the Fall of 2013.
So how will these folks find, and enroll in, appropriate healthcare coverage?
To provide a clear and structured environment for the sale and purchase of medical insurance, the ACA compels creation of healthcare policy marketplaces called exchanges. All qualified individuals and small businesses will be able to purchase private health insurance through these exchanges.
The product choices offered through the exchange
Exchanges will determine eligibility and enroll individuals in appropriate healthcare coverage plans. Only Qualified Health Plans (QHPs), providing comprehensive coverage and meeting all applicable private market reforms specified in the ACA, will be certified to be sold in exchanges.
The four levels of health insurance plans within an exchange will be expressed as “Metal Plans”, Bronze (58% to 62% actuarial value), Silver (68% to 72% actuarial value), Gold (78% to 82% actuarial value), and Platinum (88% to 92% actuarial value). Additionally, a catastrophic plan option may be available for individuals under 30 years of age, or otherwise eligible due to financial hardship.
Most exchange plans will, at minimum, provide coverage for these ten essential health benefits: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services including behavioral health treatment, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, and pediatric services including oral care and vision.
The ACA limits the amount of cost-sharing that exchange plans generally may impose on enrolled individuals. These cost sharing limits prohibit any deductible applicable to preventive health services; deductibles, in small group health plans, that are greater than $2,000 for self-only coverage, or $4,000 for any other coverage in 2014 (annually adjusted thereafter); and annual cost-sharing limits that exceed existing limits specified in the tax code, relating to certain high deductible health plans (HDHPs, Health Savings Account eligible, mirroring current HSA limits).
There are still gaps in our understanding of the plans that are to be available for enrollment on exchanges. In the coming months we hope to see exactly what the plans offered will look like, which major health insurance carriers will participate in the state exchanges where they do business and, very importantly, what the pricing will be.
Structuring and operating the exchanges
Exchanges may be established either by individual states as a state exchange, or by the Secretary of Health and Human Services (HHS) as a federally-facilitated exchange. State exchanges may operate independently or enter into contracts with other states. A federally-facilitated exchange may be operated solely by the federal government, or by the federal government in conjunction with a state, as a partnership. The ACA provides federal funding for all options.
To date, 17 states and D.C. have received conditional approval from HHS to operate state exchanges, and seven states appear to be pursuing partnership exchanges, with the remaining states indicating they will operate federally-facilitated exchanges. Regionally, Ohio and Indiana have opted for a federally-facilitated exchange, while Kentucky will run its own state exchange.
A state such as Kentucky, operating its own exchange, has a number of operational decisions to make. The organizational structure can be established as either a governmental agency or a nonprofit entity, and must establish a governing board and standards of conduct. It must offer a health insurance marketplace for both individuals and small businesses, but can choose to merge these into one exchange or establish separate entities (an American Health Benefit Exchange for individuals, and a Small Business Health Options Program, called a SHOP Exchange, for businesses). The exchange could include one or more subsidiary exchanges as long as each serves a geographically distinct area and meets certain size requirements. The state must also decide if it will contract with certain entities to carry out one or more operational responsibilities, or run every aspect of the exchange itself.
The ACA gives various federal agencies, primarily HHS, responsibility for standardizing, to some degree, the various exchanges across the nation. Responsibilities include disseminating the exchange regulations, developing criteria and systems, and awarding grants to states to help them create and implement exchanges.
One responsibility of every exchange will be notifying an employer if an employee has been found eligible for advance payment of premium credits or cost-sharing subsidies (because this circumstance would indicate an employer had not offered adequate and affordable medical benefits to its employees, resulting in a tax penalty for the company). The exchange must identify the employee, indicate the employee’s eligibility, explain that the employer may be subject to penalty, and notify the employer of the right to appeal the determination.
The exchange shopping experience
According to HHS, the federally-facilitated exchange will operate through a website and a toll-free phone hotline. State exchanges must make their marketplace available to consumers via call center, but it’s up to the states to create additional avenues of communication, such as Web access. It’s generally assumed that most states will indeed choose to operate a website.
The first Open Enrollment for participation in an exchange will be held beginning October 1, 2013 through March 31, 2014. It is required that employers notify employees of the initial exchange open enrollment, but the notification deadline has been postponed until later summer of 2013. Subsequent open enrollment periods will be held from October 15th through December 7th of each ensuing year. Individuals would need to document a “qualifying event” in order to enroll in an exchange outside of an open enrollment period.
Small businesses will be able to purchase healthcare coverage through a SHOP exchange. For 2014 and 2015, states may define small business as either fewer than 100 or fewer than 50 employees. In 2016, all states will define small business as fewer than 100 employees. Businesses of 100 employees and larger may be allowed to purchase coverage through the SHOP exchange beginning in 2017. A small business’s health insurance premiums remain tax deductible both inside and outside of the exchange.
This article is the fourth in a series authored by Clark Schaefer Hackett and The Scheller Bradford Group to provide guidance on implementation of The Affordable Care Act (“ACA”). Read the first article here, the second article here, the third article here, and review these definitions that are crucial to understanding the ACA.