You are no doubt familiar with the concept of health insurance exchanges – state or federally run online markets offering health insurance that are required by law to begin operating by 2014. However, do you know the ramifications these marketplaces could have on your business?
The Affordable Care Act (ACA) offers each state three options for its exchange. The first is a state-run model, which allows states to retain a percentage of control over state insurance matters. The second would be to enter into a partnership with the federal government and run the exchange together, or as a final option, the state could allow federal officials total control over the exchange.
In May, the Internal Revenue Service ruled that subsidies for insurance coverage can be granted through either state or federal exchanges. The state of Oklahoma challenged this decision with a lawsuit arguing that per text in ACA, subsidies can only be granted through state-run exchanges.
An exchange without subsidies would falter and die, leaving just a few states with functional exchanges and creating the opportunity to essentially render this provision of the law powerless. In addition, this type of lawsuit would eliminate the possibility of providing federal subsidies to help consumers pay for private insurance coverage.
The U.S. Justice Department asked the courts to dismiss the case, arguing that Oklahoma lacks the standing to bring the challenge.
Which model is better?
So what kind of exchange – state-run, federally run or a state/federal partnership – is most beneficial to participating insurance agencies?
While federal exchanges may prove advantageous to insurers who sell in many states because the rules will be the same across the board, most insurers favor state-run exchanges. This is due in large part to the relationships that insurance agencies have cultivated with state regulators. Their concern is that federal exchanges will appoint a single regulator, who will not possess a thorough understanding of local markets, to deal with multiple states.
Which insurers will be allowed to participate?
The open market model, adopted by Colorado, has also gained popularity with insurers. Any health insurance plan that meets minimum requirements is permitted to participate, allowing the vast majority of insurance agencies the opportunity to compete for business. California, on the other hand, chose to limit the number of insurers that participate, reasoning that this move allows them to select the highest value plans.
Factors like the particular coverage needs of a state’s population may also come into play when deciding which insurers can join the exchanges. As a result, states may place more of a focus on selecting insurers that offer benefits that specifically address their needs.
Will insurers have to cover the costs of exchanges?
To cover costs associated with running the exchanges, it is anticipated that states will impose a surcharge, which will be passed to consumers, on insurance plan premiums for both state and federally run exchanges. However, some states may impose the surcharge on all policies sold, while others may choose to impose it solely on those plans sold through the exchanges. State exchanges will charge between 2 to 4 percent and federal exchanges will charge 3.5 percent in the first year.