Released March 28, 2012 I Download as a PDF

Beginning in 2014, the Affordable Care Act requires that States have an Exchange in place; and if a State does not, then a federal Exchange will be imposed.  An Exchange is intended to be a one stop marketplace available to individuals and certain employers for the purchase of health coverage.  Eligible employers are able, but not obligated, to buy coverage through the Exchange.

Exchanges can be organized as public sector instrumentalities or non-profit entities.  They can be placed under the jurisdiction of existing structures; they can be multi-State or regional. 

There are two types of Exchanges: State-based Exchanges available to individuals and Small Business Health Options Program (SHOP) Exchanges available to small employers.  A State can establish an Exchange to accommodate both individuals and small employers, as long as the regulatory standards for both types of Exchanges are met.

State-based Exchanges

A State can participate in an HHS-approved regional Exchange that spans two or more States, regardless of whether the States are contiguous.  States are also permitted to establish one or more subsidiary Exchanges within its boundaries.  Each State Exchange must receive HHS approval by January 1, 2013 in order to offer QHPs on January 1, 2014.

Qualified Health Plans

The Exchange is responsible for certifying QHPs that can be offered through the Exchange.  The regulations establish standards for QHPs under Exchanges, and address other health insurance insurer requirements.

QHPs must meet certain ACA benefit design standards, such as provide essential health benefits and cost-share requirements, and meet the bronze, silver, gold, or platinum actuarial levels of benefits and coverage.  A bronze plan is required to have an actuarial value of 60%; a silver plan, 70%; a gold plan, 80%; and a platinum plan, 90%.

Essential Health Benefits

Beginning in 2014, certain plans must include 10 specific categories of benefits, referred to as “essential health benefits”, as follows:

1. Ambulatory patient services.
2. Emergency services.
3. Hospitalization.
4. Maternity and newborn care.
5. Mental health and substance use disorder services, including behavioral health treatment.
6. Prescription drugs.
7. Rehabilitative and habilitative services and devices.
8. Laboratory services.
9. Preventive and wellness services and chronic disease management.
10. Pediatric services, including oral and vision care.

States have significant discretion in defining the essential benefits package which provides a standardized framework of benefit coverage that must be included in qualified health plans offered through Exchanges beginning in 2014. 

Cost-Share Requirements

QHPs available through an Exchange are subject to cost-share requirements.  The cost-share amount must equate to qualified high deductible health plan (HDHP) coverage.  For out-of-pocket purposes, cost-sharing includes deductibles, coinsurance, co-pays and the like.  For 2014, the deductible amounts are $2,000 for single coverage and $4,000 for coverage for more than one.  These numbers will be adjusted for years beginning in 2015 and beyond. 

Insurers issuing QHPs through an Exchange must offer at least one silver and one gold QHP, as well as a child-only QHP that has the same level of coverage as any QHP offered through the Exchange to individuals who, as of the beginning of the plan year, have not attained the age of 21. 

The final regulations permit insurers to also offer limited scope dental plans as a stand-alone product or one integrated with a QHP.

Insurers offering QHPs are subject to standards relating to rate and participation, accreditation, transparency of coverage, network provider adequacy, as well as rules relating to enrollment, termination of coverage, payment of premium, notices and applications, prescription drug distribution and cost reporting, termination of coverage, marketing, and plan certification renewals. 

Eligibility Determinations for Exchange Participation and Insurance Affordability Programs.  Exchanges are required to establish a process to determine eligibility for individuals enrolling in a QHP, Medicaid, or CHIP, a process to determine eligibility for participation in the insurance affordability programs, and a process to determine whether an applicant is eligible for qualifying coverage under an employer-sponsored plan.

Exchange Reporting

Part of the eligibility determination process includes a notice obligation by the Exchange to employers about whether their employees are eligible for an advance payment of the premium tax credit or cost-sharing reductions.  The notification would identify the employee and indicate:

1. The employee’s eligibility for the premium tax credit;
2. The employer’s potential excise tax penalty liability if it employs 50 or more full-time employees; and
3. The employer’s right to appeal the determination.

If the Exchange determines that an individual is eligible for advance payments of the premium tax credit or cost-sharing reductions based on a finding that an individual’s employer does not provide minimum essential coverage, or provides minimum essential coverage that is unaffordable, or does not meet the minimum value requirement, then the Exchange is obligated to transmit the individual’s name and taxpayer ID number to the Department of Health and Human Services.

Initial, Annual and Open Enrollment Periods

Qualified individuals are permitted to enroll in a QHP or change QHPs during the initial open enrollment period, an annual open enrollment period, or a special enrollment period.  

According to the regulations, the initial open enrollment period is scheduled for October 1, 2013 through March 31, 2014. Individuals must enroll in a QHP by December 15, 2013 for coverage to be effective January 1, 2014.  The regulations set forth other effective coverage dates, based upon the date the individual enrolls in the plan.

For benefit years beginning on or after January 1, 2015, the annual open enrollment period would mirror the Medicare Part D annual open enrollment timeframe of October 15th through December 7th of the year preceding the year of coverage. Exchanges are required to notify enrollees of the annual open enrollment period by September 30th of each year. 

An Exchange is permitted to automatically enroll individuals, subject to HHS scrutiny.

Special Enrollment Periods 

Exchanges must provide for special enrollment periods, during which qualified individuals may enroll in QHPs or change QHPs upon the occurrence of certain events.  These events are:

1. Acquisition of a new dependent through marriage, or birth or adoption of a child.
2. Loss of minimum essential coverage, including similar qualifying events giving rise to trigger COBRA coverage such as:

• Termination or reduction in hours of employment;
• Death;
• Divorce or legal separation;
• Loss of dependent status under the plan;
• The  individual no longer resides, lives, or works in an HMO’s service area;
• A situation in which an individual incurs a claim that would meet or exceed the  lifetime limit under the plan;
• The plan no longer offers benefits to a class of similar situated individuals that includes the individual;
• Termination of employer contributions; or
• Exhaustion of COBRA continuation coverage.

Loss of coverage does not include failure to timely pay premium, including COBRA premium, or situations allowing for rescission of coverage.

3. The individual is determined newly eligible or newly ineligible for advance payments of the premium tax credit or has a change in eligibility for cost-sharing reductions, regardless of whether such individual is already enrolled in a QHP. The Exchange must permit individuals whose existing coverage through an eligible employer-sponsored plan will no longer be affordable or provide minimum value for his/her employer’s upcoming plan year to access this special enrollment period prior to the end of his/her coverage through such eligible employer-sponsored plan.
4. Change in citizenship status.
5. Failure to enroll in QHP due to an unintentional error, misrepresentation, or inaction by the Exchange or HHS.
6. A resulting violation of a material provision of the QHP contract in relation to the enrollee.
7. A qualified individual or enrollee gains access to new QHPs as a result of a permanent move.
8. An Indian, as defined under law, may enroll in a QHP or change from one QHP to another one time per month.
9. A qualified individual or enrollee meets other “exceptional circumstances” in accordance with HHS guidelines.

SHOP Exchanges

The Small Business Health Options Program (SHOP) would be operated by an Exchange through which a qualified small employer can provide its employees and their dependents with access to one or more QHPs. 

For this purpose, a small employer is one who employs between 1 and 100 employees on business days during the preceding calendar year and who employs at least one employee on the first day of the plan year.  For plan years beginning before January 1, 2016, a State may elect to define a small employer by substituting 50 employees for 100 employees.

A SHOP Exchange is designed to assist qualified employers, as well as facilitate the enrollment of qualified employees into QHPs. A SHOP differs from a State-based Exchange with regard to:

1. Enrollment and eligibility functions;
2. Certain uniform level of coverage for all employees through an employer’s choice of one or more available QHPs;
3. Premium payment administration;
4. QHP certification;
5. Uniform rate restrictions;
6. QHP availability in merged and unmerged markets;
7. Expansion into large markets beginning in 2017, in certain circumstances;
8. Uniform group participation rules; and
9. Requiring a premium calculator tool that allows individuals to compare available QHPs following application of any applicable employer contribution, in lieu of any advance payment of the premium tax credit and any cost-sharing reductions.

A qualified small employer is eligible to purchase coverage through a SHOP if such employer elects to offer, at a minimum, all full-time employees coverage in a QHP through a SHOP; and either:

• Has its principal business address in the Exchange service area and offers coverage to all its employees through that SHOP; or
• Offers coverage to each eligible employee through the SHOP service area where the employee’s primary worksite is located.

Standards for Employers Participating in a SHOP

The final regulations set forth standards for qualifying employers selecting QHPs for their employees.   The final regulations do allow for continued eligibility in QHP coverage for growing small employers.  A small employer can also participate in more than one SHOP. 

Participating employers are required to meet certain SHOP standards, such as:

1. Timely distributing enrollment information to employees;
2. Timely remitting employer premium contributions, and
3. Notifying the SHOP of any changes in employee or their dependent’s eligibility status under the plan.

Annual Employer Election Period. The SHOP must provide qualified employers with an annual employer election period in which a qualified employer may change its participation in the SHOP for the next plan year, including:

• The method by which an employer makes QHPs available to its employees;
• The employer contribution towards the premium cost of coverage;
• The level of coverage offered to qualified employees; and
• The QHPs offered to qualified employees.

Standards for SHOP

A SHOP must determine and verify both employer and employee eligibility for participation purposes through an application process.  Once the determination has been made, the SHOP then provides written notification to both the employer and employees of their acceptance into the SHOP.  Once accepted, a SHOP must provide for enrollment of individuals into QHPs in accordance with certain timeframes for selecting and effectuating coverage.  An employer wishing to withdrawal from a SHOP must follow certain termination procedures.

Other duties of a SHOP include a 10-year record retention requirement, a monthly reconciliation of enrollment information and employer participation in QHPs, notifying employers when an employee terminates QHP coverage, and an IRS reporting obligation.

SHOP Initial, Annual and Special Enrollment Periods

A SHOP must provide for the same initial and annual enrollment periods as an Exchange.  In addition, a SHOP must also provide for a rolling enrollment in the SHOP wherein a qualified employer is permitted to purchase coverage for its small group at any point during the year. The employer’s plan year must consist of the 12-month period beginning with the qualified employer’s effective date of coverage.

Annual employee enrollment period.  A SHOP must provide for a 30-day annual open enrollment period to qualified employees prior to the end of the employer’s plan year and following the employer’s annual election period.  An employee who becomes newly qualified for QHP coverage outside of the initial or annual open enrollment period must be given an enrollment period to seek QHP coverage beginning on the first day of becoming a qualified employee.

Special enrollment periods.  A SHOP must provide for special enrollment periods as required of Exchanges, except when the individual:

1. Is determined newly eligible or newly ineligible for advance payments of the premium tax credit or has a change in eligibility for cost-sharing reductions, regardless of whether such individual is already enrolled in a QHP.
2. Incurs a change in citizenship status.

Guaranteed Renewability of QHPs.  A QHP available through a SHOP must allow enrolled individuals to continue coverage under that QHP, except where the individual terminates coverage or enrolls in another QHP option, or, the QHP is no longer available.

Insurers offering QHPs through a SHOP must adhere to certain standards relating to rating and premium payments, enrollment periods, participation and termination of coverage.

Consumer Assistance Tools and Programs

Exchanges are required to set up and maintain certain consumer assistance tools and programs, including:

1. A toll-free call center.
2. An active internet website that provides individuals the ability to view all QHPs offered through the Exchange with up-to-date information on the following:

• Standardized comparative information on each available QHP, including premium and cost-sharing information, summaries of benefits and coverage, and identification of whether the QHP is a bronze, silver, gold, or platinum level plan or a catastrophic plan;
• The results of any enrollee satisfaction surveys;
• Quality ratings of plans;
• Medical loss ratio information, as reported to HHS;
• Transparency of coverage measures reported to the Exchange during certification; and
• Provider directories.

The website must also:

• Meet certain accessibility standards to individuals with disabilities, as well as to individuals with language barriers.
• Provide financial information specific to the Exchange, such as licensing and regulatory fees, administrative costs and monies lost to waste, fraud, and abuse.
• Provide applicants with information about Navigators. A Navigator, as its name implies, is to assist consumers in an impartial way to navigate through the Exchange process.  Each Exchange is required to establish a Navigator that meets certain regulatory standards and criteria through which grants will be awarded to those eligible public or private entities establishing one.
• Allow for eligibility determinations.
• Allow individuals to select a QHP.
• Provide an electronic calculator to facilitate the comparison of available QHPs after the application of any advance payments of the premium tax credit and any cost-sharing reductions.
• Conduct consumer outreach and educational activities.

About the Author:  Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc.  She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law.  Ms. McLeese is based in the CBIZ Leawood, Kansas office.

The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation.

The information contained herein is not intended to replace or substitute for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.