Obama Administration Sets Final Rule For Health Insurance Exchanges, With Substantial Flexibility For The States

The Obama administration and Department of Health and Human Services (HHS) has released the long-awaited “final rule” to assist states in establishing and operating Affordable Health Insurance Exchanges that will better serve their residents and get health plans interested in participating. The exchanges, when in full effect, will level the playing field for millions of American consumers and small businesses who are currently in the market to buy coverage, while driving down costs through competition.

The new rule is an incorporation and extension of provisions included within two separate proposed rules issued in 2011 that are “referred to collectively as the Exchange establishment and eligibility proposed rules.” Under the new standards, states are permitted to run exchanges through existing state-operated agencies or through non-profits established by the states, and states are given freedom to determine what role agents and brokers may have in the sale of insurance. States can open their exchanges to all insurers and health plans or place limits on the number of plans made available to consumers, and lastly, states are allowed to permit larger employers to particpate in their Small Business Health Options Programs (SHOP).

A few more elements included in the guidelines:

States can receive conditional federal approval for their exchanges if their plans are far along but not final by Jan. 1, 2013. States can operate exchanges in partnership with other states. The federal government will provide funding for different types of exchanges to allow for flexibility.


– The state exchanges themselves will determine the number and type of health plans offered to consumers, within broad standards set by the federal government. Plans will have to comply with marketing rules to ensure they are not trying to cherry-pick the healthiest customers in the state.

– Consumers will be able to apply online for coverage in their state exchanges. To reduce paperwork, exchanges will rely on existing computer databases to verify basic personal information and eligibility. However, some key details, such as whether the consumer is a legal resident of the U.S., may have to be verified by the government. And the IRS will have final say on tax credits.

– Exchanges will be able to pick from two federally approved methods for coordinating with the Medicaid program in their states.

– Exchanges will be able to use intermediaries called “navigators” to help educate consumers and small businesses about how the new system works.

States are supposed to have their proposed exchange programs approved by HHS no later than January 1, 2013. Federal officials will set up and operate exchanges in states that refuse to comply. According to the most recent progress report released by the Obama administration, at least 28 states and the District of Columbia were already “on their way toward establishing their own Affordable Insurance Exchange,” with several more having expressed interest in setting up exchanges of their own. Two states already “had Exchange-like structures in place before the Affordable Care Act was enacted.” Utah will maintain its current insurance portal as-is, and Massachusetts is preparing to align its program with the ACA. The exchanges are slated to become fully operational by January 1, 2014.

Fatima Najiy