Health Insurance Exchanges
By January 1, 2014, states must establish Health Insurance Exchanges to offer private insurance choices to individuals and small employers (generally with 100 or fewer employees). In 2014 and 2015, a state may limit Exchange access to employers with fewer employees, but will have to open the Exchange to employers with up to 100 employees beginning in 2016. Beginning in 2017, it is possible larger employer groups will be able to participate in the Exchanges as well. If a state chooses not to build an Exchange the Federal government will operate an Exchange in that state. Click on any of the following to learn more:
Click any of the following to learn more:
- Final Exchange rules issued
The US Department of Health and Human Services (HHS) issued a final rule regarding some of the key components of the Exchanges required to be established by each state under ACA. One of the questions for employees that remains unanswered is how will the Exchanges determine if an employee is eligible for the federal premium tax credit. In other words, does the employee have access to employer coverage that is adequate and affordable? For 2014, an Exchange will accept the employee's attestation of whether the employer coverage is adequate or affordable.
The US Department of Health and Human Services (HHS) issued two proposed regulations providing initial guidance on certain requirements related to the state-based Health Insurance Exchanges. The first proposed regulation discusses the requirements States must follow when establishing Exchanges and the requirements health insurance issuers must follow when offering health insurance plans on the Exchanges. The second proposed regulation outlines standards related to reinsurance, risk corridors, and risk adjustment: three programs designed to mitigate the impact of adverse selection for the Exchanges and health insurance issuers offering plans on the Exchanges.
- Who Is Eligible To Enroll In Exchange Coverage?
Generally, any legal citizen or resident who resides in the United States and is not incarcerated may enroll in Exchange coverage. This includes an individual who is eligible for employer-sponsored coverage outside of the Exchange. The coverage is guaranteed to be available regardless of health condition, may not exclude coverage for preexisting conditions, and has premium rates that will vary only based on age, tobacco use, and family size, but no medical underwriting is permitted.
- Responsibility for the Exchanges
Both the Federal and state governments have responsibility for the Exchanges. HHS is responsible for establishing the rules that apply to the Exchanges and the states are responsible for building and operating the Exchanges. States were provided with federal funding to help set up the Exchanges but the Exchanges must be designed so that they're self-sustaining by 2015. If a state chooses not to build an Exchange, or does not have HHS approval (or conditional approval), the federal government will operate an Exchange in that state. A list of the type of Exchange by state can be found here.
- Role of Private Insurers
Private insurance companies will sell qualified health plans on the Exchanges. Qualified health plans must be certified by the Exchanges, consistent with HHS requirements regarding plan design, network adequacy, marketing, accreditation, rating, premiums, etc. Multi-state plans offered by insurance companies under contract with the federal Office of Personnel Management are exempt from the Exchange certification process. It is not yet clear whether States will impose additional certification requirements on plans other than multi-State plans.
- Role of Private Insurers
Private insurance companies will sell qualified health plans on the Exchanges. Qualified health plans must be certified by the Exchanges, consistent with HHS requirements regarding plan design, network adequacy, marketing, accreditation, rating, premiums, etc. Multi-state plans offered by insurance companies under contract with the federal Office of Personnel Management are exempt from the Exchange certification process. It's not yet clear whether States will impose additional certification requirements on plans other than multi-State plans.
- Types of Exchanges
ACA envisions that states will establish two separate Exchanges – one for individuals and one for small employers. However, a state has the option to combine them. States may also choose to build more than one Exchange in a state (e.g., in states with large populations) and can establish multi-state, regional Exchanges.
- Coverage Options
As a general rule, Exchanges are only allowed to include qualified health plans offering major medical coverage (although a limited exception allows for dental coverage). Qualified health plans offered on the Exchanges are grouped into four so-called "precious metal" categories of coverage. ACA establishes the actuarial value for each:
- Platinum: 90% actuarial value
- Gold: 80% actuarial value
- Silver: 70% actuarial value
- Bronze: 60% actuarial value
In addition, Exchanges must offer catastrophic plans to individuals under age 30. A catastrophic plan pays no benefits until the individual incurs expenses in excess of the out-of-pocket limit that applies to HSA-compatible high deductible health plans (except the plan must pay for at least three primary care visits).
All qualified health plans must cover essential health benefits but actuarial value and cost-sharing will vary by level. With each higher level, the insurance premium and amount the insurance will pay (actuarial value) will increase while the amount the participant will pay (cost-sharing) will decrease.
- Premium Tax Credits and Employer Responsibility
Federal premium tax credits to purchase Exchange coverage are available for individuals with household income up to 400% of the federal poverty level. Individuals who are eligible for employer-sponsored health coverage may opt out of such coverage and instead enroll in an Exchange. However, tax credits are available to individuals who are eligible for employer-sponsored coverage only if the employer's plan is unaffordable (costs the employee more than 9.5% of household income) or inadequate (has an actuarial value of less than 60%). If the employer's coverage is affordable and adequate, the employer would not owe a Free Rider Penalty for an employee who opts out and enrolls in Exchange coverage. (Click here to see how an employee could trigger a Free Rider Penalty.) The Small Employer Tax Credit is also available for certain employers who sponsor Exchange plans.
- Role of Small Employers
Exchanges must permit small employers to select a level of coverage (e.g., silver), and let employees choose any qualified health plan offered by the Exchange at that level. However, in 2014, only the employer is allowed to choose the qualified health plan. Exchanges may also allow employers to make one or more Exchange plans available through other methods. Exchanges will determine whether employers are qualified to purchase coverage on the Exchange, provide an aggregated bill to the employer, and collect all required premiums from the employer.
The employer may want to offer a Section 125 cafeteria plan to allow employees to purchase Exchange coverage on a pre-tax basis via salary deferral. The only way employees are allowed to purchase Exchange coverage on a pre-tax basis via Section 125 is if the employer sponsors a group Exchange plan.
- Exchange Reinsurance Fee
HHS will operate a transitional Exchange reinsurance program to help stabilize premiums for coverage in the individual market during the first three years of Exchange operation. Beginning January 1, 2014, insurers for fully-insured plans and plan sponsors for self-funded plans will be required to pay reinsurance fees to finance this program. The reinsurance fees will be determined each year by HHS, based on the total number of covered lives divided by the amount required to be raised ($20 billion must be raised for the transitional reinsurance program and $5 billion must be raised to go directly to the Department of the Treasury). Employers are not required to pay Exchange reinsurance fees directly. It is likely, however, that health insurance issuers and third party administrators will pass these costs on to plan sponsors. For more information, click here.
What do you do with your health plan now?
Additional information about the availability of a federal premium tax credit for individuals
Additional information about the Free Rider Penalty
Exchange Reinsurance Fee
Additional information about the Exchange Reinsurance Fee
American Fidelity Assurance Company does not provide tax or legal advice.