American Health Benefit Exchanges

Updated May 17, 2012   

The principle intent of the Affordable Care Act (ACA) was to enable low and moderate income individuals, and small employers to obtain affordable health coverage through state based Exchanges. In 2014, individuals and small business will be able to purchase private health insurance through state-based Exchanges. This document reflects information and guidance issued through statute, rule, or communications from the federal government concerning the activities and options as they related to the development of a health benefit exchange. 

ALERT! Draft Exchange Blueprint Guidance Released by the Department of Health and Human Services (HHS)

May 16, 2012— Regulations implementing the ACA require HHS to approve or conditionally approve state-based exchanges no later than Jan. 1, 2013, for operation in 2014. To receive HHS approval or conditional approval for a state-based exchange or a state partnership exchange, as well as reinsurance and sick adjustment programs, a state must complete and submit an exchange blueprint that documents how its exchange meets or will meet all legal and operational requirements associated with the model it chooses to pursue. As part of its exchange blueprint a state will also demonstrate operational readiness to execute exchange activities. A declaration letter, and a blueprint must be submitted to HHS by Nov. 16, 2012.

Draft Exchange Blueprint Guidance

HHS released a Draft Exchange Blueprint Guidance providing states with the information they need to develop an exchange blueprint. The draft package includes a declaration letter and application for use in the approval process. States must document in their blueprint how they meet, or plan to meet all legal and operational requirements associated with the exchange model they've chosen. The primary decision is whether their exchange will operate as a state-based exchange or a federally-facilitated exchange. In a federally-facilitated exchange (FFE), states may pursue a state-partnership exchange, where a state may administer and operate exchange activities associated with plan management and/or consumer assistance. The blueprint also sets forth the application process for states seeking to enter into a Partnership Exchange. In addition, they released guidance describing how they will consult with stakeholders to implement an FFE, where necessary, how states can partner with HHS to implement selected functions in an FFE, and key policies organized by exchange function. NCSL is developing a web page to provide FFE information as it becomes available. HHS General Guidance on Federally-facilitated  Exchanges.

The Declaration Letter

A state seeking to operate a state-based exchange or participate in a state partnership exchange in plan year 2014 will declare the type of exchange model it intends to pursue through an exchange declaration letter as part of its exchange blueprint. The HHS guidance requires the state letter to be signed by the state's governor, and include a designation of the individual (s) who will serve as the primary point of contact. If a declaration letter is not received by November 16, 2012, HHS will plan to implement a federally-facilitated exchange for the state.

Application Instructions

In addition to a declaration letter, a complete exchange blueprint requires submission of an exchange application which HHS provided in their guidance. The application should be used to document a state's completion or progress towards completion of all exchange requirements, either as a state-based exchange or state partnership exchange.

* Coordinate with Medicaid and CHIP Services (CMCS) on decisions and protocols 
 

HHS Implementation Forums 

HHS will conduct implementation forums in the coming months to work with states and stakeholders on their questions and the work to be done in building exchanges. Regional Implementation Forums will be held on the following dates in these locations:

• Washington, DC July 18
• Chicago August 2
• Denver August 10
• Atlanta August 15

HHS New Release

SECTION 1—Affordable Care Act Exchange Basics

Each state electing to establish an Exchange must adopt the federal standards in law and rule, and have in effect a state law or regulation that implements these standards. If a state elects not to establish an Exchange, the ACA requires the Department of Health and Human Services (HHS) to establish and operate one in that state. This also applies in the event that HHS determines on review that state efforts to establish an Exchange have not made sufficient progress to be fully operational by January 1, 2014. The ACA provides broad authority to the secretary to establish standards and regulations to implement the statutory requirements related to the Exchange.

Qualified Health Plans

Exchanges should be designed to provide qualified individuals and small businesses with access to an insurers’ qualified health plans. Qualified health plans or QHPs are described in the ACA as a type of health plan that is subject to a specified list of requirements related to marketing, choice of providers, plan networks, essential benefits, and other features. QHP issuers will have to be licensed by each state in order to be eligible to provide coverage within their boundaries, and offer at least one QHP at the silver or gold level of coverage.

Levels of Coverage

The ACA generally requires QHPs to provide coverage at one of the following levels: bronze, silver, gold, or platinum. Actuarial value (AV) is a measure of the percentage of expected health care costs a health plan will cover. Plans inside and outside the exchange in the individual and small group markets who offer non-grandfathered healthplans must offer plans that meet distinct levels  of coverage specified in the ACA matching up to one of these "metal tiers" (and premiums must be the same for QHPs inside and outside of the Exchange). Excluding dental-only plans, health insurance issuers must offer a silver plan and a gold plan in the Exchange. Each coverage level will be based on a specified share of the full actuarial value of the essential health benefits. A health insurance issuer that offers coverage in any of these four levels will be required to offer the same level of coverage in a plan specifically designed for individuals under age 21. 
 

Essential Health Benefits

HHS will specify the “essential health benefits (EHBs)” included in the “essential health benefits package” that QHPs will be required to cover (effective beginning in 2014) through rule.
 

In December of 2011, HHS proposes that essential health benefits are defined using a benchmark approach. Section four of this document provides details of this guidance.

Premium Subsidies

Subsidies or premium credits will be available for qualified individuals if they:

To prevent federal dollars going to state benefit mandates, the health reform law requires states to defray the cost of benefits required by state law in excess of essential health benefits. However, as a transition in 2014 and 2015, some of the benchmark options will include health plans in the state’s small group market and state employee health benefit plans.

These benchmarks are generally regulated by the state, and would be subject to state mandates applicable to the small group market. These mandates would be included in the state essential health benefits package if the state elected one of the three largest small group plans in that state as its benchmark.
 

 SECTION 2—NAIC American Health Benefit Exchange Model Act

The ACA directed that HHS work in cooperation with the National Association of Insurance Commissioners (NAIC) and other stakeholder organizations to develop standards for the Exchanges. On November 22, 2010, NAIC adopted a final version of the American Health Benefit Exchange Model Act for this purpose. The model act contains definitions and guidance for general requirements, and duties of the Exchanges. It does not include specific options for governance however. States will be responsible for implementing what will ultimately become the final set of standards along with the insurance market reforms established in the ACA by 2014. If the HHS determines before 2013 that a state will not have an operational Exchange model by 2014, or will not be able to implement the required set of standards, HHS is required to establish and operate an Exchange within the state. States operating an Exchange before 2010 will be presumed to meet the standards, unless they are found to be out of compliance.

NAIC Resources

• NAIC American Health Benefit Exchange Model Act (11/22/10)  
• NAIC American Health Benefit Exchange State Implementation Tracking Chart (10/10/11)
• NAIC White Paper: Financing the Exchange (03/07/11)

SECTION 3—Building an Exchange: State Guidance from HHS
 

Principles and Priorities

The overriding principles and priorities that will guide federal funding and technical support include:

• Establishing a State-based Exchange. A planning process must drive state actions, by legislation or other means to establish an Exchange entity that meets the ACA requirements. In the states that choose, now or at a later point in the process, not to establish an Exchange, HHS will work with the state to establish the Exchange.
• Promoting Efficiency. Exchanges should be structured to have enough flexibility to respond to the local market conditions and take action to facilitate competition among plans on price and quality.
• Avoiding Adverse Selection. A successful Exchange will avoid adverse selection. States have been given the flexibility to provide consistent regulation and out of the Exchange to prevent adverse selection and HHS plans to work with states to maximize that flexibility.
• Streamlined Access and Continuity of Care. State will be required to evaluate and determine eligibility for applicants in Medicaid, the Children's Health Insurance Program (CHIP), and other programs. In order to be successful IT systems must be upgrades as well as other systems to support this process.
• Public Outreach and Stakeholder Involvement. Exchanges will be responsible for an aggressive and multi-faceted outreach to inform the public of their services and coverage options.
• Public Accountability and Transparency. Exchanges will be required to provide public reports on their activities and additional reports using standardized data reporting on price, quality, benefits, consumer choice and other factors that will help evaluate performance. They will also be responsible for providing the public with information on the performance of plans, and an automated comparison functions to inform consumer choice.
• Financial Accountability. The Exchanges will seek to prevent fraud and abuse and streamline enrollment and minimize acquisition expenses, implement policies to prevent waste, fraud and abuse, and to promote financial integrity.

Exchange Functions and Responsibilities

Guidance for Statutory Requirements

The ACA imposes two basic functional requirements upon Exchanges:

1. minimum functions Exchanges must undertake directly or, in some cases, by contract; and
2. oversight responsibilities the Exchanges must exercise in certifying and monitoring the performance of QHPs.

Plans participating in the Exchanges must comply with state insurance laws, and federal requirements in the Public Health Service Act.

Clarification and Policy Guidance

States should consider the following issues as they establish an Exchange.

1. Organizational Form. States have the option to establish their Exchange as a governmental agency or nonprofit entity. Within the governmental agency category, the Exchange could be housed within an existing state office, or it could be an independent public authority. Regardless of its organizational form, the Exchange must be publicly accountable, transparent, and have technically competent leadership, with the capacity and authority to meet federal standards, including the discretion to determine whether health plans offered through the exchange are “in the interests of qualified individuals and qualified employers”. Exchanges also must have security procedures and privacy standards necessary to receive tax data and other information needed for enrollment.
2. Operating Model. States have options to operate their Exchange from an “active purchaser” model, in which the Exchange operates as large employers often do in using market leverage and the tools of managed competition to negotiate product offerings with insurers, to an “open marketplace” model, in which the Exchange operates as a clearinghouse that is open to all qualified insurers and relies on market forces to generate product offerings. States should provide comparison shopping tools that promote choice based on price and quality and enable consumers to narrow plan options based on their preferences.
3. Small Business (SHOP) Exchanges. Federal rules will provide a framework for SHOP Exchanges, including options for how employers can provide contributions toward employee coverage that meet standards for small business tax credits.
4. Risk Adjustment. Federal rules in 2011 will outline risk adjustment methods and require all health plans to report demographic, diagnostic, and prescription drug data. Further guidance addressing risk adjustment rules and formulas will be provided in subsequent regulations. As specified by the law, federal rules will apply risk adjustment consistently to all plans in the individual and small group markets, both inside and outside of Exchanges. Federal rules on reinsurance payments will apply to all plans in the individual market, and rules on risk corridors will apply to all qualified health plans in the individual and small group market, as specified in the law.
5. Performance Measures. Standardized public data reporting will be used to evaluate Exchange performance and assure transparency.
6. State Choices. Federal rules will clarify that the following policy areas, among others, are State decisions, although HHS may offer recommendations and technical assistance to States as they make these decisions: 
   — Whether to form the Exchange as a governmental agency or a non-profit entity,
   — Whether to form regional Exchanges or establish interstate coordination for certain functions,
   — Whether to elect the option under the ACA to use 50 employees as the cutoff for small group market plans until 2016, which would limit access to Exchange coverage to employer groups of 50 or less,
   — Whether to require additional benefits in the Exchange beyond the essential health benefits,
   — Whether to establish a competitive bidding process for plans,
   — Whether to extend some or all Exchange-specific regulations to the outside insurance market (beyond what is required in the ACA).
7. State Authority. The federal government will work with the Governor of the State as the chief executive officer unless authority to operate the Exchange has been delegated to a specific authority through state law.  

Federal Support

Forty-eight States and the District of Columbia were awarded their first Exchange planning grants in September 2010. Expenditures necessary in the establishment of an Exchange will be fully funded by HHS until 2015. After January 1, 2015, Exchanges must be financially self sustaining.

The Centers for Medicare and Medicaid Services (CMS)Federal Funding for Medicaid Eligibility Determinations and Enrollment Activities Proposed Rules
CMS released proposed rules November 3, 2010 addressing federal funding for Medicaid eligibility determination and enrollment systems that will be necessary in Exchange screening operations. 42 CFR Part 433 specifically states that Medicaid eligibility determinations are considered to be part of the Medicaid management information system (MMIS) which is potentially eligible to receive enhanced administrative funding from the Federal government. Federal financial participation (FFP) is available at 90 percent of expenditures for the design, development, or installation of mechanized claims processing and information retrieval systems.

The proposed rule would provide an enhanced FFP available at 90 percent for state expenditures for design, development, installation or enhancement of systems through calendar year 2015. An enhanced FFP will also be available at 75 percent for maintenance and operation of systems after 2015, and if a system meets standards prior to 2015 in recognition of state efforts to invest in improvements.
CMS is proposing that states must meet a certain set of standards and conditions to qualify for the enhanced FFP. These standards will build upon the work of the Medicaid Information Technology Architecture (MITA). [MITA framework documents ]. Comments on the proposed rule will be accepted for 60 days.
 

Guidance for Exchange and Medicaid Information Technology (IT) Systems

The Center for Consumer Information and Insurance Oversight (CCIIO) and the Centers for Medicare and Medicaid Services (CMS) have released guidance concerning the design, development, implementation, and operation of technology and systems projects as they relate to the establishment of Health Insurance Exchanges. The guidance  is the first in a series that establishes a framework for developing IT systems that are the subject of the “Early Innovators” grants released October 29, 2010. This guidance was organized to provide information in the following categories:

— Governance (within the federal government)
—Business Architecture (defines goals for exchanges, Medicaid, CHIP, and state subsidy programs) 
—Cost Allocation (describes the mechanisms and considerations for funding and coordinating between sources of funding or responsibilities shared among exchanges and Medicaid)
—Technical Architecture (identifies initial standards and high-level architectural guidance for use in implementing provisions of the ACA relating to exchanges, Medicaid, and CHIP)

States receiving funding under a Cooperative Agreement for Exchange development or under an Advanced Planning Document (APD) under Medicaid for eligibility system development are advised to pay close attention to this guidance. The guidance document should be considered a critical source of information for states and will be used by OCIIO and CMS in reviewing state applications for funding under exchange grants and federal match under Medicaid.

Expectation of States

Provisions in the ACA place much of the burden of structuring and implementing Health Benefit Exchanges on states. The exchanges must be fully operational by January 1, 2014, and they are expected to be self-sustaining by January 2015. The Congressional Budget Office (CBO) has estimated that approximately 30 million people would purchase their own coverage through the new insurance exchanges by 2019, and there would be roughly 15 million more enrollees in Medicaid and CHIP than is projected under current law. State legislatures will participate in determining what form their exchange will take, or if their state will establish an exchange. Legislators must also determine how an exchange will be governed, under an existing government agency, create a new government entity, or through contract with a nongovernmental nonprofit entity created by the state. Another critical piece of implementation in 2014 is the expansion of Medicaid to include all individuals with an income at or below 133 percent of the federal poverty level (FPL). The two systems must be interoperable to allow for eligibility determinations for Medicaid, CHIP, or premium tax credits. The ACA specifies that an exchange must do the following:

1. implement procedures to certify, recertify and decertify QHPs;
2. provide for the operation of a toll-free hotline;
3. maintain a website through which individuals can view standardized comparative information on plans;
4. assign a rating to each exchange plan based on criteria developed by the Secretary;
5. use a standardized format for presenting exchange plan options;
6. inform individuals of eligibility requirements for Medicaid, CHIP or any other state or local program and, if through the screening process the exchange determines they are eligible for one of those programs, enroll them;
7. provide for a calculator to determine the actual cost of coverage to individuals after taking into account any premium credits and cost-sharing subsidies;
8. certify whether individuals are exempt from the individual mandate excise tax and transfer the list of such individuals to the Treasury Secretary;
9. provide to employers the name of the employees who dropped the employer’s coverage and received premium tax credits because the employer’s plan was unaffordable or did not provide the required minimum actuarial value; and
10. to establish a Navigator program.

Office of the National Coordinator: System Interoperability

Section 1561 of the ACA directed that interoperable and secure standards and protocols be developed to facilitate enrollment of individuals in federal and state health and human services programs. Initial recommendations were approved August 30, 2010 and they were adopted by HHS on September 17, 2010. The core of these recommendations is the belief that consumers will be best served by a health and human services eligibility and enrollment process that is transparent, accommodates a wide range of user skills, integrates private and public insurance options, connects consumers with multiple health and human services, and provides strong privacy and security protections. State Exchanges will be responsible for screening enrollees for eligibility in health and human services programs requiring a transfer of a great deal of data for verification and screening. Definitions of data elements must be in agreement to make the transfer possible and enrollment data collected for the exchanges must provide the elements necessary to make screening for health and human services programs complete.

States will need to fully evaluate their systems capabilities to determine whether upgrades are required or if systems need to be replaced in order to handle this massive amount of information exchange. Legislators must consider the cost of these system changes not only for the purchase of new technology, but also the personnel required to carry out these changes.

The Office of the National Coordinator (ONC) has made some initial recommendations for these standards and protocols in the following document:

1. Recommendations [PDF - 50 KB]  
2. Appendix A: Consumer Usability [PDF - 37 KB]
3. Appendix B: Core Data Analysis [PDF - 241 KB] 
4. Appendix C: Verification Interfaces [PDF - 46 KB]
5. Appendix D: Business Rules [PDF - 45 KB]
6. Appendix E: Transmission of Enrollment Information [PDF - 25 KB]
7. Appendix F: Privacy and Security [PDF - 29 KB]

Health IT Supporting Resource

National Information Exchange Model (NIEM)

SECTION 4—Federally Facilitated Exchanges: Progress Report

In states that elect not to establish an exchange, the ACA requires the HHS to establish and operate one for the citizens of that state. This would also apply in the event HHS determines that despite state efforts to establish an exchange, the exchange has not made sufficient progress to become fully operational by January 1, 2014. HHS has begun laying the groundwork to establish what will become a federally facilitated exchange in 2014. Contracts to build and support the IT systems, state exchange implementation support, eligibility and enrollment strategy and planning, and the eligibility appeals process are under way.

Quality Software Services Inc. (QSSI) has been awarded the contract to build and support the operations of a federal data service hub that will provide data verification to support eligibility processes for all exchanges, Medicaid and the Children’s Health Insurance Program.

CGI Group Inc. will work with CCIIO to build and support the IT systems for the federal exchange. CGI will also design, develop and implement the CCIIO Rate and Benefits Information System (RBIS) that will collect rate and benefit data from health insurance providers to be used by consumers to review in a comparison format.

Booz Allen Hamilton was awarded three separate contracts by CMS to provide state exchange implementation support, eligibility and enrollment strategy and planning, and for the development of the exchange eligibility appeals process.

SECTION 5—Essential Health Benefits

On December 16, 2011, HHS issued a bulletin outlining proposed policies that will give states more flexibility and freedom to implement the ACA. The bulletin describes a proposal that HHS intends to pursue in rulemaking to define essential health benefits and requested comments by January 31, 2012. NCSL submitted comments in a memorandum to CMS Acting Administrator Marilyn Tavenner.

Essential Health Benefits (EHBs)

The ACA ensures access to quality, affordable health insurance. To achieve this goal, the law ensures health plans offered in the individual and small group markets, both inside and outside of the Affordable Insurance Exchanges (AIE), offer a comprehensive package of items and services, known as “essential health benefits.” EHBs must include items and services within at least the following ten categories:

1. Ambulatory patient services
2. Emergency services
3. Hospitalization
4. Maternity and newborn care
5. Mental health and substance use disorder services, including behavioral health treatment
6. Prescription drugs
7. Rehabilitative and habilitative services and devices
8. Laboratory services
9. Preventive and wellness services and chronic disease management, and
10. Pediatric services, including oral and vision care

Intended Approach: Comprehensive and Flexible

HHS proposes that EHBs should be defined by using a benchmark approach. Under this proposal states would have the flexibility to select a benchmark plan that reflects the scope of services offered by a “typical employer plan.” This approach would give states the flexibility to select a plan that would best meet individual needs.
 

If a state chooses not to select a benchmark, HHS intends to propose that the default benchmark will be the small group plan with the largest enrollment in the state.

The benefits and services included in the benchmark health insurance plan selected by a state would be the EHB package. Plans could modify coverage within a benefit category so long as they do not reduce the value of coverage.

To prevent federal dollars going to state benefit mandates, the health reform law required states to defray the cost of the benefit or benefits required by state law outside of the EHBs for individuals enrolled in a plan offered through an Exchange. However, as a transition in 2014 and 2015, some of the benchmark options will include health plans in the state’s small group market and state employee health benefit plans.

These benchmarks are generally regulated by the state and would be subject to state mandates applicable to the small group market. These mandates would be included in the state EHB package if the state elected one of the three largest small group plans in that state as its benchmark.

State Small Group Products Report (NEW!)

January 25, 2012. The Center for Consumer Information and Insurance Oversight (CCIIO) published a report of the small group products with the three largest enrollments by state. States that are creating an exchange will be allowed to select an existing health plan licensed in their state to serve as a “benchmark” for the items and services that will form the essential health benefits package in their exchange. States may choose a benchmark from among the following types of health insurance plans:

1. The largest plan by enrollment in any of the three largest small group insurance products in the state’s small group market,
2. Any of the largest three state employee health benefit plans by enrollment,
3. Any of the largest three national FEHBP plan options by enrollment, or the largest insured commercial non-Medicaid Health Maintenance Organization (HMO) operating in the state.

The information on this report reflects data collected by HealthCare.gov based on June 30, 2011 enrollment. This report has been provided for informational purposes only and is not to be considered as an endorsement by HHS. For clarification purposes, HHS is using the term “product” when they’re referring to a specific “plan” such as Blue Cross Blue Shield (BCBS) Standard Option, and the term “issuer” when they refer to the “carrier” such as BCBS. The report also contains the links to the three largest national federal employee health benefit plan (FEHBP) by enrollment.

CCIIO link: http://cciio.cms.gov/resources/files/Files2/01272012/top_three_plans_by_enrollment_508_20120125.pdf 

Coverage

EHBs must include coverage of services and items in all 10 statutory categories. Based on HHS research, it is believed that these benchmarks will cover most of the EHBs outlined by the ACA.
These categories include preventive care, emergency services, maternity care, hospital and physician services, and prescription drugs. If a state selects a benchmark plan that does not cover all 10 categories of care, the state will have the option to examine other insurance plans, including the Federal Employee Health Benefits Plan, to determine the type of benefits that must be included in the EHB package.

Allowing Plans Flexibility to Innovate and Consumers Greater Choice

To meet the EHB coverage standard, HHS intends to require that a health plan offer benefits that are “substantially equal” to the benchmark plan selected by the state, and modified as necessary to reflect the 10 coverage categories. Health plans also would have flexibility to adjust benefits, including both the specific services covered and any quantitative limits, provided they continue to offer coverage for all 10 statutory EHB categories and the coverage has the same value. Permitting flexibility will provide greater choice to consumers, promoting plan innovation through coverage and design options, while ensuring that plans providing EHBs offer a certain level of benefits.

Updating the Approach

The department intends to propose that benchmarks will be updated in the future, and that state mandates outside the definition of EHBs may not be included in future years. The Bulletin also notes that updating the benchmark will allow benefits to reflect the most up-to-date medical and market practices.

How We Got Here: The Process?

While the law calls on the department to provide details regarding EHBs, this has been a team effort. As required by the ACA, in April, the Department of Labor provided a report to HHS on employer-sponsored health insurance coverage. This report (PDF - 362 KB) detailed the benefits typically covered by employers’ detailed the benefits typically covered by employers. At the request of HHS, the Institute of Medicine (IOM) provided its recommendations on a process for defining and updating the benefits that should be included in the EHB package.

It is important to note that the ACA distinguishes between a health plan’s covered services, and the plan’s “cost-sharing features”, such as deductibles, copayments, and coinsurance. The cost-sharing features will be addressed in separate rules and will determine the actuarial value of the plan, expressed as a “metal level” as specified in statute: bronze at 60 percent actuarial value, silver at 70 percent actuarial value, gold at 80 percent actuarial value, and platinum at 90 percent actuarial value.

Although the HHS release only represents an intended regulatory approach, public input on this paper is encouraged—comments can be sent on essential health benefits, are due by January 31, 2012, and can be sent to: EssentialHealthBenefits@cms.hhs.gov . 
 

Answers for State Questions from CMS
On November 29, 2011 CMS published guidance in response to several of the reemerging state questions that focus on the establishment of a health benefit exchange under the ACA. Here are some of the highlights:
 

1. Costs to States
   —Grant funding will be awarded to States through the end of 2014 and are eligible for activities to establish an Exchange, to build State functions necessary to establish a Partnership Exchange with the Federal government, or to support State activities to build interfaces with a Federally-facilitated exchange.
   —State Exchanges that don’t become fully certified on January 1, 2013 can continue to qualify for and receive a grant award, subject to the Funding Opportunity Announcement (FOA) eligibility criteria.
   — State Medicaid and CHIP programs will not have to contribute to administrative expenses for eligibility determinations under a Federally-facilitated exchange, but will have to transfer information and cases to the exchange. Costs for maintaining interfaces will remain much as they are currently.
2. Basic Health Program Funding
   — Planning grants may be used to support research and explore coverage options including the option for a Basic Health Program. 
   — HHS will rely on the State for advice and recommendations regarding provider network adequacy standards under the Exchange.
   — HHS plans to make efforts to harmonize Exchange policy with the existing State programs and Laws wherever possible.
3. Federally-facilitated Exchange and State Department of Insurance Responsibilities
   — Qualified Health Plans (QHPs) offered through a Federally-facilitated exchange will have to meet State licensure and solvency requirements.
   — States will maintain responsibility for health plans licensed and offered in the State.
   — HHS will rely on the State for advice and recommendations regarding provider network adequacy standards under the Exchange.
   — HHS plans to make efforts to harmonize Exchange policy with the existing State programs and Laws wherever possible.
4. Eligibility under a Federally-facilitated Exchange or a State-based Exchange
   — Federally-facilitated Exchange
   — Under a Federally-facilitated exchange States may retain authority over final Medicaid eligibility determinations.
   — If a State does not choose to retain Medicaid and CHIP eligibility determinations in the Federally-facilitated exchange the exchange will make these determinations using State eligibility rules and standards.
   — State-based Exchanges
   — If a State-based exchange does not wish to operate all the eligibility functions the guidance offers some new options including allowing a State-based Exchange to use Federally-managed services to make determinations for advanced payments of premium tax credits, cost-sharing reductions and exemptions from the individual responsibility requirement.
5. Quality Certification Requirements
   — HHS recommends that States consider using quality information to certify QHPs, including when to require issuer accreditation and how to assess the quality of plans seeking to participate in Exchanges.
   — States will also need to determine what quality information will be made available to consumers.
6. Advance Payments of the Premium Tax Credit in the Federally-facilitated Exchange
   —States have been questioning whether individuals who are enrolled in coverage through a Federally-facilitated Exchange will have access to premium assistance programs. The administration makes clear through this guidance that individuals enrolled in coverage through a Federally-facilitated Exchange will be eligible for tax credits, including advance payments.

These and several other issues are discussed in more detail in the guidance document available at http://cciio.cms.gov/resources/files/Files2/11282011/exchange_q_and_a.pdf.pdf .

Building an Essential Benefits Package

The ACA directed the HHS to work in cooperation with the Institutes of Medicine (IOM) and the Department of Labor to develop a core set of benefits, or Essential benefits package, that must be offered by the plans in order to be considered as a "qualified health plan" effective beginning in 2014. If a state exchange requires certain health benefits that exceed the essential benefits package established by HHS, they will be responsible for defraying the cost of additional benefits in relation to premium and cost-sharing assistance for enrollees with incomes up to 400 percent of the FPL.

IOM Recommendations in Determining the Essential Benefits Package

The IOM at the request of HHS Secretary Sebelius, conducting a study to make recommendations on the criteria and methods for determining and updating the “essential health benefits” packages offered through QHPs participating in state exchanges. On October 7, 2011, the IOM released their recommendations as criteria and methods to be used by HHS in determining and updating the essential health benefits packages offered through qualified health plans. The ACA outlines the general categories of coverage that QHPs are required to provide, but details of the essential health benefits will ultimately be provided through rule. These general categories include:

1. ambulatory patient services;
2. emergency services;
3. hospitalization;
4. maternity and newborn care;
5. mental health and substance use disorder services including behavioral health treatment;
6. prescription drugs;
7. rehabilitative and habilitative services and devices;
8. laboratory services;
9. preventive and wellness services and chronic disease management; and
10. Pediatric services including oral and vision care.

Highlights of the IOM Report

• Defining the Initial EHB Package
  In considering how to determine the initial EHB package, the committee was struck by two compelling facts: (1) if the purpose of the ACA was to provide access to health insurance coverage, that coverage had to be affordable; and (2) the more expansive the benefit package was, the more it was likely to cost and the less affordable it was would be. How to balance the competing goals of comprehensive coverage and affordability was key. They chose to first focus on defining the EHB package as reflecting the scope and design of the average small employer package today, modified to include the 10 required categories. Once developed the model would be assessed by criteria and a defined cost target recommended. Four policy domains—economics, ethics, population-based health, and evidence-based practice—will guide the secretary in determining the EHB package in general. From these four policy foundations IOM has recommended criteria to guide: (1) the aggregate EHB package; (2) specific EHB inclusions and exclusions; and (3) methods for defining and updating the EHB.
  
  Recognizing that cost is a predominate factor in the success of the exchanges, IOM determined that the cost of the initial EHB package should be compared to a premium target defined as what a small employer would have paid on average in 2014. Modification of the package should be made to meet the estimated premium in the future. IOM also recommended that states operating their own exchanges be able to design a variation of the EHB model if they meet certain standards. The report also recommends creating a framework and infrastructure to collect and analyze data concerning the implementation of the initial EHB; a National Benefits Advisory Council to act in an advisory capacity with the secretary concerning updates of the EHB package. Additional recommendations would encourage the use of evidence-based initiatives, and the development of a cost containment strategy to reduce the growth of health care spending.
   
• Who is Covered by the Essential Health Benefits?
  The EHB will determine the minimum benefit packages offered to individuals and small employers purchasing insurance through the exchange, certain Medicaid expansion plans or benchmark and benchmark equivalent plans, and state basic insurance plans. IOM estimates that 68 million people will obtain insurance that must meet the EHB requirement.
   
• How Did the Report Address State Mandates?
  The report emphasizes that a state mandated benefits must be considered when thinking about what is an essential benefit. The term “state-mandated health benefits” (also referred to simply as “mandates,” “state mandates,” or “mandated benefit laws”) refers to state laws that require health insurance contracts to cover specific treatments or services or medically necessary care provided by a specific type of provider. Prior to the passage of ACA, states were the primary regulators of the content of health insurance policies. The committee was asked to consider what role, if any, existing state mandates should play in defining essential health benefits. ACA obligates each state to subsidize the benefits it mandates above and beyond EHB requirements.
   
• Applicability of State Mandates
  Although all states have some mandates in place, they differ dramatically with respect to the total number in each state. Estimates of the number of existing mandates vary significantly, in part because they vary in terms of what they define as a “mandate” and also whether they count multiple laws requiring the same type of coverage in different market segments as distinct mandates. The Council for Affordable Health Insurance found an average of 42 mandates per state, with a high of 69 in Rhode Island and a low of 13 in Idaho (Bunce and Wieske, 2010).
  
  State mandates do not apply to every type of health insurance arrangement. Importantly, they do not apply to any employer-provided health plans that are self-insured by the employer. Given the high rates of self-insurance among larger employers, the result is that more than half (59 percent) of the individuals with employer-provided coverage are covered by plans that are not subject to state regulation, including state mandates (KFF and HRET, 2010) and the proportion is higher among very large firms (MacDonald, 2009). Whether mandates apply to state Medicaid programs, or other state programs designed to provide coverage to low-income individuals, depends on the particular statute enacting the mandate. Legislatures may include such programs within a mandate, but often they do not (Hyman, 2000). Typically the greatest impact of mandates is on privately financed health insurance sold through the individual and small group markets within a state. Additionally, the FEHBP national fee-for-service plans do not have to incorporate state mandates, but can pick up state mandates as a negotiated benefit.
   
• Options Considered by the Committee
  The committee considered several different options, discussed below.
  1. Incorporate all existing state mandates into the definition of “essential health benefits” that apply to a particular state.
  2. Incorporate mandates that exist in a majority or supermajority of states into the definition of essential health benefits that applies in all states.
  3. Do not explicitly incorporate existing state mandates into the essential health benefits framework, but rather subject coverage for all types of treatments and services to the same framework, principles, criteria, and methods used to determine essential health benefits generally.
   
• Conclusion
  Because state mandates are not typically subjected to a rigorous evidence-based review or cost analysis, cornerstones of the committee’s criteria, the committee does not believe that state-mandated benefits should receive any special treatment in the definition of the EHB and should be subject to the same evaluative method (see Recommendation 1 in Chapter 5). This interpretation is consistent with the language in ACA regarding state mandates; that is, Congress did not require their inclusion

 SECTION 6—Key Dates in the Implementation of the American Health Benefit Exchange

 
Key Dates in the Implementation of the American Health Benefit Exchanges

Additional Information

 NCSL Submits Comments on Key Affordable Care Act (ACA) Regulations

NCSL submitted comments to the Department of Health and Human Services expressing state concerns regarding two sets of final and interim final health care rules implementing key provisions in the ACA. The comment periods ended on May 7 for rules governing the Medicaid program and eligibility changes under the ACA, and May 11 for rules guiding the establishment of exchanges and Qualified Health Plans (QHPs), and exchange standards for employers.

42 CFR Parts 431, 435, and 457—Medicaid Program; Eligibility Changes under the ACA

NCSL Comments

42 CFR Parts 155, 156, and 157—Patient Protection and Affordable Care Act; Establishment of Exchanges and Qualified Health Plans; Exchange Standards for Employers

The ACA provides states with an opportunity to establish an exchange through which individuals can purchase affordbale insurance coverage.The exchanges will provide competitive marketplaces for individuals and small employers to directly compare available private health insurance options on the basis of price, quality, and other factors. The exchanges will become operational by January 1, 2014, and will help enhance competition in the health insurance market, improve choice of affordable health insurance, and give small business the same purchasing clout as large business. The final rule incorporates two proposed rules, the July 15, 2011 rule titled “Establishment of Exchanges and Qualified Health Plans” (Exchange establishment proposed rule), and the August 17, 2011 rule titled “Exchange Functions in the Individual Market: Eligibility Determinations and Exchange Standards for Employers” (Exchange eligibility proposed rule). While originally published as separate rulemaking, the provisions contained in these proposed rules are integrally linked, and together encompass the key functions of Exchanges related to eligibility, enrollment, and plan participation and management. In addition, several sections in this final rule are being issued as interim final rules and HHS is are soliciting comment on those sections.

The final rule:

(1) Sets forth the minimum federal standards that states must meet if they elect to establish and operate an Exchange, including the standards related to individual and employer eligibility for and enrollment in the Exchange and insurance affordability programs;
(2) Outlines minimum standards that health insurance issuers must meet to participate in an Exchange and offer qualified health plans (QHPs); and
(3) Provides basic standards that employers must meet to participate in the Small Business Health Options Program (SHOP).

NCSL comments submitted May 11continue to advocate for state flexibility in structuring exchange governing boards and urges HHS to give that same flexibility to states in forming their navigator programs. It raises concern over the issue of deeming multi-state plans as certified by the states and exempts them from complyance with state laws. Interim final rule comments address agents and brokers, the eligibility process, and verification of eligibility process.

Federal Government Information and Resources

• The Center for Consumer Information and Insurance Oversight (CCIIO)(Affordable Insurance Exchange site), http://cciio.cms.gov/programs/exchanges/index.html —CCIIO oversees the implementation of the ACA provisions related to private health insurance inclusive of the American Health Benefit Exchanges.
• HealthCare.gov, http://www.healthcare.gov / — Information for consumers.
• CMS.gov— Affordable Care Act in Action at CMS page, http://www.cms.gov/home/aca.asp  
• NCSL Web Page—Federal Guidance and Regulation of State Health Benefit Exchanges, http://www.ncsl.org/issues-research/health/federal-guidance-and-regulatory-actions.aspx  

NCSL State Federal Relations Staff Contacts

Joy Johnson Wilson, NCSL Federal Affairs Counsel, Health Policy Director at joy.wilson@ncsl.org or Rachel B. Morgan RN, BSN, NCSL Health Committee Director, at rachel.morgan@ncsl.org.