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Health Care / HEALTH CARE

New Health Exchange Regulations Make Room For Brokers

photo of Meghan McCarthy
March 12, 2012

Brokers and other third-party administrators will be allowed to direct people to state insurance exchanges — the marketplaces created by the 2010 health care reform law where people can buy insurance policies — and check to see if they are qualified for tax credits under long-awaited final regulations released on Monday.

That means a possible new business model for insurance brokers or any other companies looking to set up an access point to the state insurance exchanges — something that concerns some consumer groups.

“The concept here is the eligibility for determining the premium tax credit is going to be done by the exchange.... But it is also the case that … a Web-based broker or a small-business broker or agent [would be allowed] to interact with [consumers on] the exchange in an automated way,” Tim Hill, the deputy director in the Centers for Medicare and Medicaid Services insurance-regulation office, told reporters in a conference call.

 

Hill said the federal government would not regulate how insurance brokers or other companies that crop up to guide consumers onto the exchanges charge and collect fees.

“Those are all relationships that are regulated on the state level … to determine the fee structure for how agents or brokers can be compensated for bringing business to the exchange,” Hill said. “That’s something we’re going to leave to the state.”

Hill said allowing third-party companies or brokers access the exchanges would help spread the word about them.

“There are lots of folks out there who can generate interest and marketing.... It’s a source of leverage that we want to leverage if the states choose to,” Hill said.

But some groups had questions. Stephen Finan, senior director of policy at the American Cancer Society Cancer Action Network, said 10 pro-health reform groups including Consumer’s Union, the Multiple Sclerosis Society, the Center for Budget and Policy Priorities agreed while on a conference call on Monday afternoon to object during the 45-day comment period.

“The purpose of the exchange should be to provide consistent, objective information so consumers can make a choice,” Finan said in an interview. “By allowing these Web-based portals onto the exchange, what are the controls around them? How does the consumer continue to get balanced, consistent, objective information? One can imagine arrangements would be such that private, Web-based things [could be] directing consumers to certain insurers or products without full transparency to the consumer.”

The Health and Human Services Department said states will have "substantial flexibility" in operating the exchanges and laid out their functions, which include certifying “qualified health plans”; operating a website for comparing plans; running a toll-free hotline for consumer support; providing grants to “navigators” for consumer assistance; determining eligibility of consumers for enrollment in qualified health plans; and helping them enroll.

States must build their insurance markets essentially from scratch and have been clamoring for the rules of the road before they invested heavily in infrastructure. HHS issued an interim final rule this summer, but many questions remained.

“These new marketplaces will offer Americans one-stop shopping for health insurance, where insurers will compete for your business. More competition will drive down costs and exchanges will give individuals and small businesses the same purchasing power big businesses have today," HHS Secretary Kathleen Sebelius said in a statement.

Joel Ario, who was in charge of developing the insurance exchanges at the Centers for Medicare and Medicaid Services before leaving for Manatt Health Solutions, said the rule officially allows states to adopt a hybrid approach to setting up an exchange. For example, Ario said, states may rely on the federal government to figure out if people are eligible for insurance coverage and tax credits — a technically challenging piece of setting up an exchange — but will run their own oversight operations, which they already do on the state level.

“People continue to think of this as state-based exchanges getting across the finish line versus federal exchanges,” he said in an interview. “But it is more likely that states are going to be in this middle ground."

Anne Gauthier, a senior program director at the National Association for State Health Policy, said the final rule made it clear that the federal government is reacting to states’ slow progress in setting up exchanges. “I think this is their Plan B,” Gauthier said in an interview. “Originally, the hope was that they would see states further along, but given the election in 2010 and the Supreme Court ruling [due later this year], that has put a few more states on pause.… It has slowed things down.”

Gauthier said the administration has made the process easier on states by extending the deadline for federal grants to set up exchanges until the end of 2013, and making a “provisional” exchange official, which allows states to start out with federal help to establish an exchange and eventually transition to a fully state-run exchange.

Brokers and other third-party administrators will be allowed to direct people to state insurance exchanges, even if they qualify for tax credits, under a new proposal in the rules. Some liberal-leaning states and groups did not want brokers assisting the low-income people who will qualify for government subsidies, because the brokers’ fee could increase the cost of premiums.  But Democrats on Capitol Hill were not concerned with this piece of the regulation.

The regulation received a warm welcome from the pro-health reform community, but other industry groups gave the regulations a cautious welcome.

“This rule recognizes that states are in the best position to establish exchanges because they have the experience and local-market knowledge needed to best meet consumers’ needs,” said America’s Health Insurance Plans CEO Karen Ignani. She said AHIP would need to continue to review the regulations.

National Retail Federation’s Neil Trautwein, a vice president of the group’s employee benefits council who has been an outspoken critic of the health reform law in the past, but said the group was “encouraged” by the regulations. “We will seriously review the final rule based on our desire for simple, complete and timely guidance.  The devil – as ever – will be in the details, and we will have a lot to read,” Trautwein said in a statement. “On the surface, we are encouraged by the rule’s focus on flexibility.”

Republican governors, however, slammed the rule as lacking “critical guidance” for states setting up the exchanges.

“Once again, the Obama administration has overpromised, oversold and under-delivered, this time with regards to granting states the flexibility needed to establish and maintain health insurance exchanges,” said Republican Governors Association Chairman Bob McDonnell, R-Va., in a statement. “Rather than provide clarity, the rule opens new questions and is silent on the most crucial pieces of information for states. To date, HHS has not issued proposed rules in many of the areas listed above.

The RGA specifically criticized the regulations for failing to offer any details on what the federal health insurance exchange will look like. 

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