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A key provision of the 2010 health care reform law requiring states to create and maintain health care “exchanges” has many business leaders and HR professionals wondering just what these exchanges will look like and how they might work.
The idea behind the exchanges is to create marketplaces where health insurance providers compete for customers on equal terms. Supporters of the idea claim that competition in the exchanges among insurance providers will help to lower premium costs and make health plans more affordable—especially to low- and middle-income families.
The exchanges will be open to anyone without employer-provided coverage who wants to purchase a health insurance plan. Families with annual incomes between $30,000 and $88,000 (four times the national poverty rate) will be eligible for premium subsidies from the federal government for plans purchased through the exchanges. Families of four with incomes less than $30,000 per year will become eligible for Medicaid under the new law.
The law requires that states create Small Business Health Options Programs, or “SHOP exchanges,” that will “assist qualified small employers in facilitating the enrollment of their employees in qualified health plans offered in the small group market of the state.” Definitions of which employers and health plans will be “qualified” will be developed in the regulatory process.
The idea of state-run health care exchanges had been bandied about Capitol Hill for several years, and it had garnered bipartisan support. However, the details of exactly how states will establish and maintain the exchanges remain sketchy. States have some time to sort out the details, because the law requires state-run exchanges to be operational by Jan. 1, 2014.
If a state doesn’t have an exchange running by that date, U.S. Department of Health and Human Services (HHS) would create and maintain an exchange for the state. Officials with HHS will be required to develop rules and regulations that states must follow in establishing their health care exchanges. The law requires that an exchange “must be a governmental or nonprofit entity that is established by the state government.”
The Massachusetts “health care connector” might be a model for the exchanges, according to some who have been following the national health care debate. The connector is an independent state agency that is designed to help Massachusetts residents find health insurance coverage and avoid tax penalties for failing to secure coverage. State residents can investigate coverage options and obtain quotes on the costs of a wide variety of health care options.
The Massachusetts program includes a “business express” exchange that allows employers to shop for health care benefits.
The nationwide reform law signed by President Barack Obama on March 23, 2010, says state exchanges created before 2010 must insure “a specified percentage of the state’s population” and must meet federal standards and regulations.
The Congressional Budget Office estimated that the state-operated health exchanges could lower administrative costs for health insurance companies by as much as 5 percent and therefore help reduce health insurance premium costs. The SHOP exchanges for small businesses will be included in the state-run markets and will offer employers with 100 or fewer employees access to low-cost health plans. Small companies will be able to join forces to increase their purchasing power and to negotiate lower premium rates from insurance providers.
The reform law will allow businesses with more than 100 employees to participate in the SHOP exchanges beginning in 2017. In addition, the law creates a tax credit for businesses with fewer than 25 employees and with average wages under $50,000. The credit will be available to help these very small businesses offset the cost of providing health care benefits to their employees.
“New state-based insurance exchanges will provide structured marketplaces, where small businesses and people without employer coverage may select health plans that will have to meet new standards for comprehensive coverage and consumer information,” Sara Collins and Karen Davis with The Commonwealth Fund wrote in their blog on health care reform.
The new market regulations will benefit small businesses that have suffered from rising health care costs and the recession, according to Davis and Collins. The exchanges will help reduce the costs that small businesses “incur in searching for health insurance,” they added.
Bill Leonard is senior writer forSHRM.
Viewpoint: Group Policies vs. Subsidized Individual Coverage—The Impact of Exchanges, SHRM Online Benefits Discipline, April 2010
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