Employee Benefits Compliance, Exchanges, Exchanges / Marketplaces / Subsidies, Marketplaces


On July 11, 2011, HHS issued two Notices of Proposed Rulemaking (NPRM) to help States set up and implement Insurance Exchanges (by January 1, 2014) as required under the Patient Protection and Affordable Care Act (PPACA). The first NPRM (the Exchange NPRM) outlines a framework to help States establish Insurance Exchanges, and the second NPRM (the Premium Stabilization NPRM) addresses standards related to reinsurance, risk corridors and risk adjustment, to help stabilize premiums in the new marketplace. This Leavitt Health Care Reform Bulletin summarizes these two NPRMs.
Why Might an Employer Want to Know about Health Insurance Exchanges?
  • Although the states and/or the federal government will be implementing and running the Exchanges, there are several reasons employers might want to know about them:
  • Some employers might be considering whether to stop offering group health coverage and instead have employees buy their health insurance through an Exchange (or a spouse’s employer) – though this entails a potential employer penalty of $2,000 per eligible employee per year (minus the first 30 employees).
  • Some employers might be considering purchasing coverage for their employees through the Small Business Health Options Program (SHOP), the Exchange for small employers.
  • Employers who plan to continue offering group health plans may want to know how the Exchanges will operate and what level of benefits will be offered through them, because this may affect the employer’s benefit package and terms of coverage.
  • It is likely that all employees in 2014 will compare their employer-provided coverage to Exchange coverage, and certain groups for whom the employee share of the cost is higher may be more likely to switch to Exchange coverage (e.g., COBRA-eligibles, dependent children, low-paid employees and early retirees).


PPACA creates state-based health insurance Exchanges, which are competitive marketplaces where individuals and small businesses can purchase private health insurance. It also requires States to establish Exchanges and have them fully operational by January 1, 2014, or the federal government will operate one in any state that does not by 2014. As of 2014, members of Congress and their staffs who want health insurance from the federal government will purchase their health insurance through these exchanges, and so will millions of other Americans.
The Exchanges are one of the key components of Health Care Reform. In the past year, HHS has issued three previous regulations/guidance on Exchanges: the initial Request for Comment on Exchanges (August 3, 2010), Initial Guidance to States on Exchanges (November 18, 2010), and Proposed Rules on Waivers for State Innovation (March 14, 2011). The HHS Fact Sheet issued on July 11 says the Administration plans on releasing additional guidance on a rolling basis and lists five additional subject areas that will be addressed in future regulations. These are listed at the end of this Bulletin.
A Summary of the Exchange NPRM
HCR established a framework for Exchanges but provided that States will have flexibility in how they implement them. The Exchange NPRM includes standards that encourage state flexibility in several areas. Each standard in the bullet-point list below is explained in more detail in the next few sections of this Bulletin.
  • The Federal requirements with which States must comply if they elect to establish and operate an Exchange;
  • Minimum requirements health insurance plans must meet to qualify as “qualified health plans” (QHPs) to be offered through the Exchanges;
  • Requirements Exchanges must meet regarding Enrollment in the Exchanges;
  • The Small Business Health Options Program (SHOP), the Exchange through which small employers can offer their employees private health insurance options.

Federal Standards on States’ Establishment and Operation of Exchanges

Structure of the Exchange: A State can choose to structure its Exchanges as a state agency or a non-profit entity; it can operate one Exchange for the entire state, several different Exchanges each covering separate non-overlapping regions of the state, or a State can partner with another state or states and form a regional Exchange.

Exchange Functions: States have substantial flexibility in determining how to perform the following functions: 1) Certifying, recertifying and decertifying plans as “qualified health plans” (QHPs) to be offered in the Exchange; 2) Operating a website to help consumers compare QHPs; 3) Operating a toll-free hotline for consumer support, providing funding for “Navigators” (entities to help consumers understand QHPs and financial assistance that may be available, and to enroll in the most appropriate benefit option), and conducting outreach and education to consumers; and 4) Facilitating enrollment of consumers in QHPs or in public health plans (such as Medicaid and State Children’s Health Insurance Programs, SCHIP).

Timeframe for HHS Approval of Exchanges: Since Exchanges must be fully operational by January 1, 2014 (and must be able to begin open enrollment on October 1, 2013), they must receive HHS approval no later than January 1, 2013. The proposed rule allows for “conditional approval” if HHS is not certain the State will be completely ready by January 1, 2013, but the State has made considerable progress in its preparation. Additionally, states that will not be ready to operate their Exchanges by January 2014 can apply for approval as of January 1, 2015 or any subsequent year.

Minimum Requirements for “Qualified Health Plans” (QHPs)

QHPs must meet minimum standards (such as network adequacy, marketing, and health plan service area) established by law, but the proposed rule gives States flexibility to impose additional requirements. It also allows Exchanges to decide whether to operate as a “clearinghouse” (in which any health plan that meets the standards can participate) or as an “active purchaser” (in which the Exchange selectively contracts only with certain QHPs based on factors such as plan design, quality or value).

Enrollment Requirements

Exchanges will use a streamlined simple enrollment system that is standardized across the country. For example, all states must use the same enrollment periods and application forms. Additionally, HHS is required to provide a model Exchange website template, which States can use or can add to. An Exchange website must meet certain standards, such as providing standardized comparative information on QHPs as well as contact information for Navigators and for the Exchange call center; helping individuals determine whether the are eligible for Exchange coverage, tax credits and cost-sharing reductions, Medicaid, CHIP and other public health programs; and allowing eligible individuals to apply and enroll in coverage.

The NPRM proposes an initial open enrollment period from October 1, 2013 through February 28, 2014; however, only those individuals who enroll by December 22, 2013 will be guaranteed to start coverage as of January 1, 2014. For future years, the NPRM proposes an open enrollment period of October 15 through December 7, but it also requests comments on whether November 1 through December 15 is preferable. Additionally, the NPRM requires that Exchanges allow mid-year enrollment for individuals who lose job-based coverage, move from out-of-state, or have other similar circumstances that would require mid-year enrollment.

The Small Business Health Options Program (SHOP)

The Small Business Health Options Program (SHOP) is the Exchange that “small” employers (up to 50 or 100) may elect to use to provide health insurance to their employees. The HCR law gives states discretion to define “small” employer as up to 50 or up to 100 employees in 2014 and 2015. In 2016 and later, employers with up to 100 employees can participate in the Exchanges, and beginning in 2017 each State Exchange can elect to allow large employers to purchase coverage in the Exchange also. The proposed rule gives states additional flexibility in how to design their SHOP. For example, a state can elect to allow each employee in the SHOP to select coverage from any insurance plan offered through the SHOP, or the state can allow each employer to select one or more specific plans for its employees. Additionally, a state can offer the Exchange and the SHOP separately, or it can merge them and offer the same health plans to individuals and to employees of small employers.

PPACA also established a Small Business Tax Credit for small employers who offer and contribute toward health coverage for their employees. Beginning in 2014, the tax credit increases from 35% to 50% of the employer’s contribution, and will only be available to employers who purchase coverage through the SHOP.

What is NOT covered in this NPRM?

As noted previously, the HHS Fact Sheet issued along with the two NPRMs says the Administration plans on releasing additional guidance in the future on the following areas that are not addressed in the NPRM:

  • The process for eligibility determinations for Exchanges, premium tax credits, cost-sharing reductions, and other public programs; and appeals for those determinations.
  • Standards for ongoing Federal oversight of Exchanges and for ensuring their financial integrity.
  • Benefit design standards for “qualified health plans” (QHPs), including what are “essential health benefits” and how actuarial value will be calculated.
  • Quality data reporting requirements.
  • Standards by which Exchanges will determine who is exempt from the “individual responsibility” requirement and will issue certificates of exemption.
The Premium Stabilization NPRM

PPACA included three risk-mitigation tools to help offset market uncertainty and risk selection in order to stabilize premiums in the newly-established Exchanges, and to equitably spread the financial risk across plans and carriers for high-cost enrollees. These three tools are: 1) a temporary reinsurance program, 2) a risk corridor program, and 3) a permanent risk adjustment program. The Premium Stabilization NPRM gives States flexibility in designing and administering these programs. For example, a State can operate the reinsurance program even if it does not establish an Exchange, or a State can modify the payment rules or tailor the risk adjustment program.

Next Steps For Employers

There is no need for employers to take any immediate action about State Health Insurance Exchanges. During 2011-2012, employers should learn how the Exchanges will operate and consider how the Exchanges might affect their particular employees’ participation in the employer group health plan(s). Some employers have been reluctant to spend time trying to understand the Exchanges until a US Supreme Court decision is rendered on whether the “individual mandate” portion of the Health Care Reform law is constitutional, since it seems this will greatly affect the viability of the Exchanges.