Rules For New Insurance Marketplaces Give Insurers Clout

Insurers and other industry representatives will get to fill as many as half the seats on the governing boards for state health insurance exchanges, under final rules for the marketplaces issued today by the Department of Health and Human Services.  At least one seat must be reserved for a consumer representative.

The long-awaited rules are likely to disappoint consumer advocates who would have preferred the governing boards “be dominated by consumers,” said Timothy Jost, who speaks as a consumer advocate before the National Association of Insurance Commissioners and is a professor at the Washington and Lee University School of Law.  But Jost said he is pleased the final rules require at least one consumer representative. “It at least gives a toe-hold,” he said.

But they may also frustrate insurers who had sought to prevent the governing boards from imposing requirements on plans beyond what is included in the 2010 health care law. HHS left that possibility in place, however, writing, “We continue to believe that states are best equipped to adapt the minimum exchange functions to their local markets and the unique needs of their residents.”

The exchanges are seen as a key element in the health law, offering one-stop shops for individuals and small businesses looking to purchase health insurance. They will also help determine applicants’ eligibility for programs such as Medicaid, and for federal subsidies to help them purchase insurance. An expected 21 million people will purchase coverage through the exchanges by 2017, according to Congressional Budget Office projections.

The Obama administration touted the 644-page rules as granting states great flexibility in how they design their exchanges, the types of organizations – nonprofit or public agency – that will oversee them and whether to partner with the federal government to operate parts of it. The rules were published as some states are working to set up exchanges and their governing boards – while others have balked at moving forward until after the Supreme Court rules on the constitutionality of the federal health law, which is expected in June.

Additionally, Monday’s announcement included some “interim” rules, meaning they could be tweaked following a 45-day public-comment period. Those interim rules cover issues such as how quickly states must determine if an applicant is eligible for Medicaid or the Children’s Health Insurance Program, and the role insurance brokers will play in helping low- and middle-income people apply for federal subsidies to buy coverage.

Administration officials said the new rules differ from preliminary regulations in several ways. Earlier guidance had proposed that each exchange be responsible for determining which applicants are eligible for insurance subsidies.  The final rule gives states the option to allow HHS to conduct eligibility review. To determine who is eligible for Medicaid or the Children’s Health Insurance Plan, states can choose their own Medicaid agencies.  It also says states cannot allow insurance agents to determine an applicant’s eligibility for subsidies or Medicaid, which remain government functions. But agents, including those who work for web-based private exchanges, can assist those applicants in sorting through their health plan options.

The rules appear to strike a balance between responding to thousands of comments about earlier proposals and providing more details “so states can move forward,” says Patti Boozang, managing director at Manatt Health Solutions, a law and consulting firm based in New York.

The rules do not explain how the federal government would set up exchanges in states that are unable or unwilling to develop their own marketplaces, with those details promised in future rules. In January, the Obama administration released a report saying about 28 states are “on their way” toward establishing exchanges.  “There’s no new information on how that would work, what the partnership model would look like or what states would have to pay – and that’s all information many states have anxiously awaited,” says Boozang.

Karen Ignagni, President and CEO of America’s Health Insurance Plans (AHIP), a trade group, said her organization would be reviewing the rule and offering feedback.

“Exchanges will work best if they are true marketplaces that maximize choice and competition so that individuals, families, and small businesses can purchase plans that are right for them,” she said in a prepared statement. “Consumers will be best served if a state exchange adopts an efficient, cost-effective approach that leverages existing health plan resources, utilizes federal resources or guidance where sensible, and relies on the exchange itself to administer key functions.”

The law says the exchanges will start taking applications in Oct. 1,  2013 – and policies purchased through them would take effect Jan. 1, 2014.  States that are allowed to operate their own exchanges must have approval or conditional approval from HHS by Jan 1, 2013, according to the rules.

In a nod to the fact that some states won’t be able to meet that deadline, the final rules say HHS can grant conditional approval to states that show they are likely to be fully operational by October 2013. Details on what it will take to prove that are expected in future rules.