Health insurance exchange (hix) by Sutherland Global Services

Health Insurance Exchange (HIX) June 2013

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Health Insurance Exchange (HIX) Background to The Health Insurance Exchange (HIX) The Patient Protection and Affordable Care Act (PPACA) and Health Insurance Exchange (HIX) • In its meeting in June 2007, ERISA Industry Committee (ERIC) discussed the possibility of lowering premium rates through larger pooling arrangements that an insurance marketplace can provide. In October 2007, the Committee for Economic Development (CED) recommended setting up of independent regional exchanges through which individuals may purchase health insurance from competing health plans. These developments generated interest for setting up of an insurance marketplace • In March 2010, US President Barrack Obama signed ‘The Patient Protection and Affordable Care Act (PPACA)’ into a law with an aim to increase the coverage of health insurance and to make healthcare more affordable in the United States • PPACA, also known as ObamaCare or simply the Affordable Care Act (ACA), laid out the foundation for a new mechanism for purchasing insurance coverage in the United States through exchanges • These Health Insurance Exchanges (HIXs), also known as ObamaCare Exchanges or Healthcare marketplace, will cover more of the low-income group people. Hence, millions of people who were previously denied health insurance or were uninsured will begin to gain coverage, and thereby access to better health “... a market where Americans can one-stop shop for a health • Significant portion of the cost of coverage for the middle- and lowincome families will be covered by tax credits • HIX will create an organized and more competitive marketplace for health insurance wherein individuals and small businesses can compare different health plans offered by different insurance vendors on a level playing field • Initially, HIXs will primarily serve individuals and smaller employers (with up to 100 employees), however states will have the option of opening exchanges to larger employers after a few years

care plan, compare benefits and prices, and choose the plan that's best for them… None of these plans should deny coverage on the basis of a preexisting condition, and all of these plans should include an affordable basic benefit package that includes prevention, and protection against catastrophic costs. There are those who strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans. The belief is that it will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest.”

- Barrack Obama, President, United States

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Types of Health Insurance Exchange Types of Health Insurance Exchange Private HIX

Small Business

•

It is an exchange run by a private sector company, on a profit or not-forprofit basis. The company sets the criteria for insurance providers to get listed on the exchange. These exchanges can exercise more flexibility in their operations as they are not bound by the government

•

Private HIXs cater mostly to employers. An employer can directly purchase health plans for his employees. As large employers will have to wait till 2017 to purchase insurance from a public HIX, many private HIXs are getting operational to tap the market

Private HIX

Individual Health Insurance Exchange (HIX) Small Business

Public HIX •

It is an exchange run by the State or Federal government on a not-forprofit basis. There will be separate exchanges for individual and small business. They are bound by the Federal government requirements

•

An employer cannot directly purchase a health plan for its employees who have to register and choose a plan first

Small Business Health Options Program (SHOP)

Public HIX

Individual

American Health Benefits Exchange (AHBE)

As per an estimate of the Congressional Budget office, by the year 2019: • 5 million employees will purchase exchange-based coverage through their employers • 24 million individuals will purchase coverage through the exchanges directly

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Timeline Timeline for Public HIX • Affordable Care Act (ACA) signed into law, with provision for Health Insurance Exchange (HIX)

Mar 2010

Jul 2012

• Initial enrollment period for HIX set by the Secretary of Department of Health and Human services (HHS)

• State-based exchanges approved by HHS

Jan 2013

Feb 2013

• States planning partnership exchanges submitted the deceleration

• Enrollment to begin for coverage offered through an exchange for the 2014 coverage year

Oct 2013

Jan 2014

• Each state to have an established exchange offering coverage to all individuals and to employers with up to 50 employees

• Employers with up to 100 employees can purchase insurance through the HIX

Jan 2016

Jan 2017

• HIX may open to larger employers having more than 100 employees

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Coverage Levels Four-Tier Levels of Coverage 90% 80% 70% 60% 40% 30%

20% 10%

Platinum

Gold

Silver

Payor Cost-Sharing (%)

Bronze

Platinum

Gold

Silver

Bronze

Consumer Cost-Sharing (%)

• There are four tiers of plans that can be purchased on an exchange. Bronze is the most affordable plan but comes with modest coverage, while platinum is the most expensive of the plans with maximum coverage • A Bronze plan has lower initial cost but has higher deductibles (out-of-pocket expense) in case of a claim, whereas a Platinum plan has higher initial cost but lower cost sharing in case of a claim • Young people less prone to illness can choose the Bronze plan but can gradually shift to silver, gold and platinum plans with increasing age. People with a health problem or family medical history may want to take a higher premium plan to pay less at the time of claims Source: Secondary Research © 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

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Premium Premium The ACA outlines two available forms of health insurance subsidies for individuals:

Premium Tax Credits: • Individuals with incomes up to 400% of the Federal Poverty Line (FPL) are eligible for tax credits to reduce premium costs • For example, an individual whose income level falls into the 150-200% of FPL bracket will have a maximum outlay of 4-6.3% of his/her income as insurance premium, while the remaining premium amount will be paid by the government • In 2012, the FPL is USD11,170 for an individual and increases by USD3,960 for each additional family member

Cost-Sharing Subsidies: • In addition, individuals with incomes up to 250% of the FPL are also eligible for reduced cost sharing if they enrol for a silver plan. Cost-sharing subsidies increase the actuarial value of the plan. Actuarial value indicates the total percentage of expenses covered under the plan with the rest being paid by the individual (out-of-pocket expense/liability) • The Federal government will pay directly to the insurers to lower the amount of cost sharing of an individual at the time of the claim

Income Level Up to 133% FPL

Premium as a Percent of Income 2% of income

Actuarial Value 94-100%

133-150% FPL

3 – 4% of income

94%

150-200% FPL

4 – 6.3% of income

87%

200-250% FPL

6.3 – 8.05% of income

73%

250-300% FPL

8.05 – 9.5% of income

70%

300-400% FPL

9.5% of income

70%

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Public Exchange Models Three Types of Public Exchange Models

State-based Exchange • A state may choose to operate its own exchange under the guidelines of the Department of Health and Human Services (HHS); such states need to obtain the approval from the Federal government to operate their own exchange

Federal Exchange • If a state is not keen on setting up its own exchange, the HHS will establish a federallyfacilitated exchange in that state • Decisions regarding day-to-day running of the exchange is taken by the HHS

• A state-based exchange has to decide on the operational structure and day-to-day governance of the exchange

Partnership Exchange • Some states can operate exchanges in partnership with the Federal Exchange • In such case, the HHS retains authority over the exchange but responsibility for some of the functions (plan management or consumer assistance or both) has to be taken by states

• Government to provide funding to establish exchanges till January 01, 2015 after which the exchanges are required to be self-sustaining. They can charge assessment or user fees from the insurers as a means of generating funds to meet their operating costs

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Public Exchange Models Adopted by States 18 Declared State-based Exchange; 7 Planning for Partnership Exchange; 26 Default to Federal Exchange WA VT

MN ID

PA IL

NH MA

KY NC AZ

TN AR

SC MS

TX LA AK

Declared State-based Exchange

Default to Federal Exchange

Planning for Partnership Exchange

Source: Secondary Research (Note: Status as of 10th May 2013; District of Colombia considered as a separate state for Exchange) ÂŠ 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

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Key Functions of Public Exchange Each Public Exchange Has 5 Key Functions to Perform

Certification

Information

Eligibility

• Exchanges will have to certify health insurers’ health plans that are to be sold through the HIX • These health plans will be known as qualified health plans (QHPs)

• Information about the QHPs will be provided by the exchanges. These include maintaining a website , providing assistance (toll free voice support), assigning rating to health plans, etc.

• Exchanges to check and inform eligibility requirement of each individual for the health plans sold through the HIX • After the check, exchanges need to assist individuals in enrolling for eligible health programs

Implementation

Financial Management

• Exchanges are also responsible for implementation of laws and other service functions that help in their smooth functioning

• As per ACA, exchanges also need to perform certain financial functions (collection and distribution of premiums, financial oversight, accounting, etc.) and submit an annual report to HHS • Apart from this, exchanges are also expected to generate funds to support their operations

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Process Flow Broad Process Flow of Public Exchange Compare, Shop, Enroll

Individual / Employer

Premium Tax Credit

Provide Support

Help Desk

Lookup Eligibility Information

Manage Funds and Governance

Send Enrollment and Other Notifications

Health Information Exchange Send Enrollment

Federal / State Government

Annual Reporting Cost Sharing Subsidy

HHS Data Services Hub

Plan Management Financial Management and Administration

Apply to be Qualified Health Plan

Insurer

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Conclusion Conclusion • In its meeting in June 2007, ERISA Industry Committee (ERIC) discussed the possibility of lowering premium rates through larger pooling arrangements that an insurance marketplace can provide. In October 2007, the Committee for Economic Development (CED) recommended setting up of independent regional exchanges through which individuals may purchase health insurance from competing health plans • These developments generated interest in setting up of an insurance marketplace, which got bolstered after passing of the ACA in 2010 as many private exchanges were also announced • Federal government wants to set up HIXs for two broad reasons:

– To create a structured marketplace for the sale and purchase of health insurance – To increase the coverage of health insurance for low-income individuals / families by supporting them through tax credit benefit or cost-sharing subsidy • Some states will establish their own exchanges, a few will run in partnership with the Federal government, while many will be run by the Federal government • These exchanges are supposed to provide insurance coverage to all individuals / families and small businesses, provided they meet certain qualifying criteria relating to affordability, required benefits, and market standards • Exchanges will also bring more transparency to the health insurance market as each plan of the insurers under different coverage has to offer some minimum required benefits, hence making it easier for buyers to make a comparison • Prices are likely to become more competitive, and insurance buying will become much more convenient for buyers • All in all, these exchanges can lead to long-term overhauling of the insurance market. Health insurance will become more retail-oriented product with a focus on individual customers Source: Secondary Research © 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

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Health Plans & Health Insurance Exchanges

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The nation's biggest insurers are entering the states where they already sell insurance directly to individuals • According to industry experts, the health Insurance Exchanges, which will market policies to individuals and small groups, will be worth nearly $50 billion to $60 billion in premium revenues in 2014 ― By 2019, the exchange market will more than triple to reach in the range of $170 billion to $200 billion

Recent progress among Health Plans • Executives at the four largest U.S. health insurers stated that they are likely to sell insurance plans on less than a third of the exchanges, reluctant to venture out beyond the states where they already offer coverage ― Some of the reasons cited by the executives are lack of clarity about the kind of prices they can charge and the number of plans they can sell on each exchange; the expectation that the program is only expected to reach about 7 million people nationwide in its first year; and uncertainty over whether all of the exchanges will be ready in time • This can result in the following scenarios: ― Heavily populated states where many insurers already sell plans now, such as California and New York, will have competing products for the exchanges ― States whose existing insurance markets have little or no competition, like Alabama and Alaska, may not see much of a difference • Most of the companies are still waiting to hear how the states will handle pricing and ratings of applicants, how many competitors will be allowed on the exchanges in some states that plan to limit numbers and how many plans they can offer in others that are more permissive Top Health Plans • UnitedHealth: The company plans to enter in as few as 10 exchanges and only up to 25 maximum • Aetna: The company stated that it was not planning a ‘land grab’ when it comes to expanding through the exchanges and has submitted applications to offer plans in 14 states • WellPoint: WellPoint, which operates Blue Cross Blue Shield licenses in 14 states, said it plans to enter exchanges in those states, but that there is uncertainty around timing of the overall rollout of exchanges • Humana: The company is participating in 14 states • Cigna: The company has not yet stated its plan on the number of exchanges it wish to enter, but will participate in a limited number of markets (five) that it has already zeroed in on for growth • Molina: The company has applied to sell plans in all nine states where it provides Medicaid service Source: Secondary Research; Sutherland Analysis © 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

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