The Affordable Care Act (ACT), which was signed into law on March 23, 2010, established health insurance exchanges to provide a single marketplace for consumers to evaluate and purchase health insurance coverage. A health insurance exchange does not function as a health insurance carrier but provides an inventory of standardized plans that meet specified government regulations.
States were given the option to establish a health insurance exchange or have the federal government create an exchange and operate it with limited participation by the state. The importance of the government created exchange, whether state or federal, is that plans available through the exchange will provide eligible consumers with federal subsidies, which will lower the premium cost. Health insurance exchanges will also have plans that provide for financial assistance with out-of-pocket expenses for consumers whose incomes do not exceed 250% of the federal poverty level (FPL). Eligibility for access to health insurance exchange coverage will depend on not only an individual's or a family's income as a percentage of the FPL but also whether they have coverage through an employer or are eligible for Medicaid or Children's Health Insurance Program (CHIP).
Consumers whose income exceeds 400% of FPL will be able to
purchase plans outside of the exchanges. These plans will be
guaranteed issue and will meet the essential benefits as determined
by the federal government but policyholders will not be eligible for
Health insurance exchanges will be accessed most likely through the Internet, but there will probably be locations established in heavy traffic environments such as shopping malls. The process of securing coverage within the health insurance exchange will involve determining how a consumer's income ranks as a percentage of the FPL. Applicants will need to provide their income in order to determine if they qualify for exchange plans and, if so, how much financial assistance will be provided by the federal government.
The Texas health insurance exchange will also need to identify employers who failed to provide affordable coverage, resulting in the employee seeking coverage through the health insurance exchange. Under these circumstances, the employer may be subject to penalties, not only for the employee securing coverage through the exchange, but also for the remaining employees of the company.
If an individual or a family has been determined to be eligible for coverage offered through the exchange, they will be enrolled in coverage that has been designated as a qualified health plan. A qualified Texas health plan has been designed to meet a list of essential health benefits, which the federal government has identified to meet the minimum requirements of all health insurance plans.
ACA was written with the intent of having the states develop and operate health insurance exchanges. The U.S. Department of Health and Human Services announced on February 19, 2013 that 24 states and the District of Columbia have indicated that they will operate health insurance exchanges on their own or in partnership with the federal government. The remaining 26 states have opted for the federal government to be responsible for establishing and operating health insurance exchanges within those states. There are several important differences between a state-operated exchange and an exchange operated by the federal government within a state.
ACA allows a state-operated exchange to choose which qualified plans may operate within the exchange or whether to allow all qualified plans in that state to participate. The state can select qualified plans based on price or they may allow all qualified plans regardless of price. For exchanges operated by the federal government, all qualified plans will be allowed to operate. Plans will be determined to be "qualified," not by the federal government, but by the National Committee for Quality Assurance and Utilization Review Accreditation Commission (URAC).
In states where the federal government is operating the exchange such as Texas, consistency between plans in the exchange and outside of the exchange may not occur because the federal government can only regulate the plans within the exchange. Plans offered outside of the exchange will be controlled by each state's regulatory authority. States can choose to regulate plans offered in the exchange as well as plans sold outside the exchange. This uniform oversight is believed to provide stability to the state's insurance marketplace because there will be little or no difference between plans offered in the exchange or outside of the exchange.
The inconsistency between the federal exchange plans and the state exchange plans could result in adverse selection, a situation where healthy individuals enroll in plans outside the federal-operated exchange that offer fewer benefits at lower cost because the benefits are not needed. The less healthy individuals select the more comprehensive benefits offered by the federal exchange, thereby increasing the claims expense for that plan.
The federal exchanges will be required to comply with each state's insurance regulations, which means the federal government will be faced with operating under the regulatory environment of 26 different state authorities.
The most significant difference between federal exchanges and state exchanges is the availability of subsidies for individuals who meet the income requirements. ACA stated that subsidies would be available for those individuals participating in state operated exchanges. There is no language in the legislation allowing for individuals covered by plans offered by federal exchanges to receive subsidies. The Internal Revenue Service has issued regulations stating that tax credits are available through all exchanges, regardless of how the exchange is administered, but opponents to ACA believe the Internal Revenue Service has overstepped its regulatory authority. The dispute over subsidies will require the courts to clarify whether the subsidies will be allowed.
State exchanges and federal exchanges will receive their funding from different sources. ACA stated that all exchanges are to be financially self-sustaining by 2015. This funding requirement was the reason that Health and Human Services proposed assessing a 3.5 percent fee on premiums of all plans sold within the exchange. Federal exchanges can only assess fees on those plans sold within the federal exchange. To meet the financial deadline, state operated exchanges can assess fees on all policies sold in the state.
Both state and federal exchanges face significant challenges
since the deadline to commence enrollment is October 1, 2013 with
coverage effective dates starting on January 1, 2014.
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