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Filling in the Details of NJ's Health Insurance Exchange

Lilo H. Stainton | June 20, 2011

A virtual market for healthcare coverage could deliver real benefits to New Jersey residents and small businesses.

Health insurance exchanges -- virtual marketplaces that will let individuals and small businesses comparison shop for coverage -- are a key part of the federal healthcare reform slated to go into effect in 2014.

But while the federal law establishes the requirement for a marketplace, the state determines the specifics of what it contains. Who will run the day-to-day program, who will participate, and what specifically will be required of participants are among the questions policy experts are now reviewing.

The answers to those critical questions are not being left to chance -- or to a single stakeholder. Rutgers University is preparing a pair of high-level reports that it will issue this summer. Healthcare advocates are hoping to help determine what requirements participants will have to meet, while lobbying for broad inclusion and lower prices. And insurance companies are understandably vocal about their concerns. Chief among them is that the state will overburden its regulations with complex, costly requirements that chase providers out of state – mirroring a previous experience the state had with the auto insurance industry

Policy experts are also looking to other states that have already implemented exchanges, most notably Massachusetts and Utah. The two provide examples of how to comply with the new federal law but are virtual polar opposites in their approach. Massachusetts has invested heavily in ensuring that providers meet high standards and include everyone. Utah has taken a stripped-down approach: Its exchange essentially funnels consumers to insurance companies and leaves the details to individuals and providers.

A Federal Case

The Patient Protection and Affordable Care Act, signed by President Obama in March 2010, is designed to enroll tens of millions of Americans in healthcare plans; New Jersey has roughly 1.3 million residents who lack insurance, and experts believe nearly half of these will be able to obtain subsidized coverage under the reform.

Experts at Rutgers Center for State Health Policy expect to provide the administration with a pair of reports this summer on insurance exchanges. Supporters believe that if exchanges are done right, they could benefit individuals and small businesses by broadening health insurance choices, simplifying the decision-making process and reducing cost.

What's more, the federal law furnishes tax-credit subsidies to exchange shoppers within a certain income bracket, and advocates believe that if enough people are enrolled in the program there will be savings for everyone.

"There are a ton of opportunities in the exchange to help bring down the costs and make health insurance more accessible to people," said Crystal Snedden, who leads a healthcare coalition for the advocacy group Citizen Action. The coalition has provided information to Rutgers and this spring released a list of a dozen principles that they believe should guide development of the exchange. The recommendations call for strong consumer advocacy and patient protections, operational transparency and allowing the state to negotiate with insurance companies to bring down costs.

Complicated and Costly

Insurance providers, who have been contributing their thoughts in different stakeholder meetings, say that increasing competition is the key to driving down cost. A system that is too regulated, placing additional burdens on insurance companies, won’t make premiums more affordable, they warn.

"New Jersey should learn from its prior experience in the auto insurance market that a highly regulated marketplace increases prices, reduces the choices available to customers and magnifies the problem of adverse selection within the state risk pool," said Wardell Sanders, president of the Association of Health Plans, which represents 10 insurance providers doing business here. For years, New Jersey struggled to attract auto insurance companies to do business in a state known in the industry for its high costs and complex regulations.

To meet it’s goals, the ACA law calls for significantly expanding Medicaid, the state and federally subsidized insurance program for disabled, some elderly and very poor residents, to cover far more patients. Experts predict this change could insure another 400,000 people in New Jersey.

For about 200,000 others -- and perhaps many more -- depending on the final design, selecting and buying health insurance will eventually involve the exchange, a sort of virtual marketplace for insurance plans that meet minimum federal standards. New Jersey can impose additional requirements as to what plans are allowed to participate and decide to limit the exchange to customers who are eligible for tax credits, determined on a sliding scale based on income and premium cost, or to open the program to other individuals.

Although the specific regulations are still being developed by the federal government, the law is designed to permit states great flexibility: they can choose to run the program themselves, or give the job to a non-profit. They can create single exchange, or separate programs for individuals and businesses, or multistate programs. They can offer an almost unlimited number of insurance products or include only certain plans that meet state guidelines

Another option is for the state to take a pass on the operation and let the federal government come in and set up an exchange. New Jersey has accepted a $1 million federal planning grant to study its options, but that doesn’t mean it will end up letting Washington take the lead.

"It is not a foregone conclusion" that this will be state-run, said Marshall McKnight, a spokesman for the Department of Banking and Insurance (DOBI), which is overseeing the exchange process.

The planning grant is funding the work at Rutgers, where experts are gathering stakeholder input and conducting demographic research to pin down exactly who would be eligible. The state is also in the process of hiring a second consultant to help them design the actual program, McKnight said.

The Legislative Process

Although it is not clear what elements of the exchange will require legislation, several members of the state Senate and Assembly have offered their own ideas. Sen. Joseph Vitale (D-Middlesex), a member of the health committee, is a sponsor of two measures; one calls for an exchange run by DOBI itself, while the other recommends the program operate through an independent, non-profit entity.

Both bills encourage state officials to play an active role in screening the insurance policies so that only high-quality plans would be offered for purchase. The measures were both introduced in December, but have received little attention since. Vitale said he plans to combine elements of both proposals into a final bill, at some point, with input from the healthcare coalition.

Assemblyman Herb Conaway (D-Camden), a medical doctor and attorney, may have been the first to propose exchange legislation, in February 2010. His bill recommends a state-run and highly selective exchange, with a board carefully assembled to avoid industry influence. Conaway said recently that he is now drafting some amendments to the bill, which could be included as early as this Thursday.

As written, the legislation would coordinate the exchange with Medicaid and FamilyCare, a state-run program that uses state and federal funds to insure working-class children and adults who earn too much to qualify for Medicaid. That will make it possible for the program to help people with a wide range of incomes shop for insurance in the same marketplace, without requiring more calls and paperwork. The exchange would also offer a basic health plan for lower-income residents who do not qualify for Medicaid, and it would include a separate marketplace for small business policies.

Whoever ends up operating the exchange, the federal law requires the program to provide subsidized insurance options to people who earn between 133 percent and 400 percent of the federal poverty limit, or from $24,350 to $73,240 for a family of three. States can chose to open the exchange to others, with higher income levels, but these individuals would not receive a tax credit – although advocates argue that their participation is key to driving down costs for everyone

The law calls for the exchanges to also provide for small businesses, which will be eligible for their own tax credit of up to 50 percent of employee health insurance costs in 2014. (Some limited benefits have already been made available to small businesses.) In 2017 the exchanges can expand further to include larger employers. Eventually, the federal government will penalize individuals and businesses who do not obtain coverage.

The federal reform also gives states the option to use the exchange in place of state-run subsidized insurance programs that currently cover people who earn too much to qualify for Medicaid. In New Jersey, this would apply to almost 40,000 adults in the FamilyCare program who earn between 133 and 200 percent FPL, or up to roughly $37,000 a year for three. FamilyCare participants with lower income levels would be picked up by Medicaid under the federal law.

State officials said no decision has yet been made on whether to move this population into the exchange or to continue to provide insurance through FamilyCare. But given the governor’s proposal to freeze enrollment levels for adults in the program, some observers believe that it is likely these people will end up in the exchange come 2014.

There is also NJ Protect, a state-run program that was required by the ACA and provides subsidized coverage to patients with pre-existing conditions. The program now has about 500 members, McKnight said, almost double the number it had at the start of the year. Although consumer protections in New Jersey required insurance companies to offer plans to such patients, the cost was out of reach for some. NJ Protect is essentially a bridge for these patients, providing coverage until they can move into the exchange in 2014, where, if income-eligible, they will receive tax credits to offset the costs.

While most states are still in the design stage, experts often look to exchange programs already in operation in two states: Massachusetts and Utah. And many note these two examples could not be more different, or "opposite points on a continuum of what exchanges can provide for consumers and small businesses," according to a recent report from Georgetown University’s Health Policy Institute, which was published by the Robert Wood Johnson Foundation. Both programs were established in the late 2000s as part of state-led healthcare reforms, before the federal law took effect.

State's Rights

In Massachusetts, officials have tailored the requirements for participating insurance companies to ensure a certain high level of benefits; in Utah, the exchange is open to most of the companies that wish to do business in the state. The website for the Massachusetts exchange includes tools to help consumers select the best product, and the signup process takes less than ten minutes, researchers found. Utah’s exchange is more of an online portal, linking customers to existing insurance products, and the state has received a number of complaints about the complexity of the enrollment process.

According to the Georgetown report, "you get what you pay for." Massachusetts’ exchange has a $30 million annual budget and 46 full-time workers, whereas Utah spends $600,000 and employs two staff members. With greater resources and outreach, Massachusetts has reached some 220,000 people, compared with 2,200 now in Utah’s program. According to 2009 data, after a few years with the exchanges in operation, Massachusetts had insured more than 95 percent of its residents and Utah had about 85 percent covered, when including those who obtain insurance through their jobs or the private market.

The healthcare coalition in New Jersey did not focus on any single state in developing its list of principles, Snedden said, but worked with members to determine what was most critical here. The group also plans to launch a public campaign this summer to help individuals and business owners become more familiar with the concept of the exchange.

"What we’re doing is getting the conversation started," Snedden said. "We want to make 'exchanges' a word that actually rings a bell."

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