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Published: August, 2011; Vol 8, Num 3

 

Key Feature of PPACA:

Health Insurance ‘Exchanges’ Come into Focus

One of the chief arguments for health care reform was that millions of Americans – one in six by some estimates – do not have health insurance because it is too expensive. When a health crisis hits, they go to hospital emergency rooms where the cost of their care is at its highest. Unable to collect from these patients, hospitals pass the costs onto the health plans of people with insurance, including LIUNA’s health and welfare funds.

In his election campaign, President Obama argued that finding a way to insure everyone would lower costs by limiting emergency room care and, also, ensure a level playing field for employers and employees who pay the cost of their own insurance.

While a controversial element of the Patient Protection and Affordable Care Act (PPACA) of 2010 imposes a requirement that every person have health care insurance, it also envisions a way to make the cost affordable for everyone. Last month, the Obama Administration took the first big step toward creation of this mechanism when it announced standards for new, state-based insurance marketplaces, also known as “exchanges.”

The key to these new markets rests in the nature of insurance and group insurance, in particular. Insurance does not protect against illness or injury; it merely helps cover expenses related to the treatment of such problems when they arise. Group insurance is a protection program for those in the insured group. By spreading the chance of serious expense over a large group, the cost for individual participants is kept as low as possible. In contrast, the cost risks to individuals who are not part of a group – or who work for a small business with few employees – cannot be spread very far; thus, their cost for insurance is very high.

In an effort to address this disparity – and relying on PPACA’s mandate that everyone must carry insurance in 2014 – the government intends to forge a group in each state consisting of individuals and small businesses that cannot afford individual or small group insurance rates. As it forms these risk-spreading groups, it will invite insurance companies to offer policies to them at affordable rates. The net result is expected to be an exchange in which currently uninsured businesses and individuals can assess a variety of plans and purchase whichever they like the best.

Even with an exchange, however, many poor Americans will still find insurance unaffordable, so the government will provide sliding scale subsidies for those with incomes up to $89,000 for a family of four. The Congressional Budget Office estimates that by 2019, about 24 million people will have insurance through exchanges, with about 80 percent of these subsidized to some extent.

Aware that PPACA is creating new markets for insurers among small businesses and individuals, the government intends to regulate these markets so that all qualified plans meet minimum federal standards. The first of these standards, issued last month, make clear that each state must assess offerings and certify which “qualified health plans” may participate. States also must provide the public with “standardized comparative information” on costs and benefits and rate each plan based on quality and price of care. In addition, the state exchange must help people determine if they are eligible for Medicaid or the Children’s Health Insurance Program (CHIP) or for federal tax credits to subsidize their purchase of private insurance. Another rule, to be issued later this year, will specify the “essential health benefits” that must be offered by all plans that participate in any state exchange.

Every state must have an operating exchange by January 1, 2014, and federal officials will assess state “operational readiness” as of January 1, 2013. If a state is not able or willing to run an exchange, the federal government will do the job.

While the exchange concept makes sense on paper, it has provoked considerable controversy, beginning with PPACA’s “individual mandate” that requires everyone to carry insurance. That provision has been ruled unconstitutional in some lower federal courts, but it has been upheld in others. It is working its way toward resolution by the Supreme Court, probably in 2012. In the meantime, out of opposition or uncertainty, many states have been slow to take up preparation for exchange implementation. Although twelve states have enacted exchange legislation, nine have defeated similar bills. Bills are pending in 11 states, leaving 18 that have yet to formulate a legislative plan.

At this point, the Obama Administration appears uninterested in threatening a federal take-over if a state fails to get its a plan in place by 2013. Instead, Health and Human Services Secretary Kathleen Sebelius promised that the Administration will be flexible in assessing progress and may provide “conditional approval” if a state appears on track for a 2014 opening. She also indicated that federal operation of a state exchange in 2014 does not preclude a state from setting up and operating its own exchange in subsequent years.

The LHSFNA’s Health Promotion Division is monitoring developments with regard to PPACA. These are summarized on the Fund’s health care reform updates webpage.

[Steve Clark]