Clarifies Health Insurance Exchange deadlines and roles, Medicaid expansion funding levels

On December 10, 2012, the Department of Health and Human Services (HHS) issued a Frequently Asked Questions notice to answer questions focused on the provisions in the Patient Protection and Affordable Care Act (PPACA): implementation of Health Insurance Exchanges and expansion of the Medicaid program.

Any state that intends to pursue a state‐based or a state-partnership exchange must submit a short declaration letter and an exchange blueprint to HHS for approval. In November 2012, HHS extended the deadline for states to submit these items for exchanges opening in January 2014. States intending to establish their own exchanges had until December 14, 2012, and states wishing to partner with HHS have until February 25, 2013. The Frequently Asked Questions (FAQ) notice announced that HHS will not extend these deadlines further.¹ However, a state may apply at any time to run a state-based exchange in future years.

The FAQs confirm that exchanges must be financially self-sustaining by January 1, 2015. They outline the federal funding available to states that establish state-based or partnership exchanges. They also describe a federal data hub states may use — free of charge — for activity related to exchanges, Medicaid and the Children’s Health Insurance Program (CHIP).²

HHS will operate a federally facilitated exchange in each state that chooses not to run its own exchange or apply for a partnership exchange. According to the FAQs, HHS intends to work with these states to preserve the traditional rights and responsibilities of state insurance departments (insurance regulation, oversight, enforcement, etc.). Likewise, HHS officials will be appropriately versed in state insurance laws and Medicaid and Children's Health Insurance Program (CHIP) eligibility standards.

The FAQs also reiterate that the federally facilitated exchanges will be funded through monthly user fees paid by participating insurance issuers. Although HHS previously proposed that these fees would be 3.5% of premium, the new guidance suggests this rate may be adjusted in the final payment notice to take into account state‐based exchange rates. User fees will support activities such as consumer outreach, information and assistance — some of which health insurers currently fund and perform themselves. Finally, the FAQs confirm that states providing resources to the federal government to help operate a federally facilitated exchange will, in certain circumstances, be reimbursed by HHS for the cost of participation.

The PPACA calls for a nationwide expansion of Medicaid eligibility, set to begin in 2014. Under the expansion, nearly all adults under 65 with family incomes of up to 133% of the federal poverty level (FPL) would qualify for Medicaid. While the act originally required states to comply with the new eligibility requirements — or risk losing all their federal Medicaid funding — the Supreme Court’s ruling in the PPACA case effectively made the expansion optional.

For states that implement the full Medicaid expansion, the federal government will fund 100% of the expansion’s first three years (2014‐2016), gradually phasing down to 90%. States that do not expand eligibility — or that expand it to anything less than 133% of the FPL — will continue to receive only their standard federal Medicaid matching contributions, and none of the expansion funding.³ States are not on a deadline for deciding to expand Medicaid and can drop out of the expansion later, even if they participate initially.

The FAQs further clarify that the Supreme Court ruling releases states only from the Medicaid expansion requirement. States must still coordinate Medicaid eligibility with the exchanges if they wish to stay in the Medicaid program. Additionally, HHS intends to allow states significant discretion in the "benchmark" benefit plans offered to the expanded Medicaid population, as long as the plans cover the 10 categories of essential health benefits. States must also convert their income eligibility standards for most groups to the Modified Adjusted Gross Income (MAGI) standard used for premium tax credit eligibility.

What you need to know now

• Impact on employers and brokers – Both groups will need keep abreast of Health Insurance Exchange implementation and the specific models that begin to take shape in their respective states. They will also need to be aware of the ways in which the federal government will be interacting with Medicaid and the exchanges in their states.