Just prior to arguments before the U.S. Supreme Court challenging the Patient Protection and Affordable Care Act (the “Act”), the Department of Health and Human Services published a final rule on the centerpiece of the Act – state insurance exchanges. The final rule, which was published in March, defines the method by which states will establish, or have established for them, an insurance exchange under the Act. It makes concrete one of the most visible proposed changes to healthcare delivery envisioned by the Act. 

The rule, which regulates exchanges that would go into existence as of January 1, 2014, permits states to either operate their own exchange consistent with the federal rules or have an exchange imposed upon the state by the federal government, ensuring that every citizen has access to information on health benefits coverage. The rule envisions the exchange as the virtual marketplace in which categories of health benefit plans, defined by the federal government, can be compared by consumers as to price, as well as other factors that may be relevant in choosing such a plan. 

The rule and comments to the rule, which are set forth in 640 pages of regulations, among other things:

1. Establishes the method by which an exchange is established.  A state may choose to establish an exchange through a branch of government, or permit the formation of a nonprofit, quasi-public entity to oversee the exchange;

2. Requires action and approval by each state no later than January 1, 2013, regarding whether the state will establish such a plan;

3. Sets standards for the exchange regarding its ability to carry out required functions, information reporting, and encompass the entire geographic area of the state;

4. Illustrates to states how to draft an exchange blueprint setting forth the way the state exchange will meet the standards set forth by the federal government and demonstrate operational readiness through readiness assessment;

5. Establishes how HHS will establish and operate an exchange that does not have an approved blueprint prior to January 1, 2013;

6. Authorizes a state to either establish an exchange or enter into an agreement with an eligible entity to carry out one or more of the exchange’s responsibilities;

7. Has a governance and board structure that is administered under publicly adopted operating charters or bylaws, holds regular public meetings, represents consumer interests, includes at least one consumer representative, does not have a majority of representatives with conflicts of interest; and ensures that a majority of voting members have relevant experience;

8. Permits a separate exchange to be set up for the small business market;

9. Permits establishment of either subsidiary exchanges within a state to cover specific and geographically distinct areas, or permits a state to participate in a regional exchange that spans two or more states (whether or not the states are contiguous);

10. Establishes a “navigator” program that awards grants to eligible public or private entities to help maintain eligibility enrollment and program specifications, provides information and services, helps an individual select a qualified health plan, provides referrals for grievances, complaints or questions, and provides information in a “culturally and linguistically appropriate manner” to serve the needs of the population; and

11. Assists in transitioning individuals who previously were in a state program for insuring those with pre-existing conditions into a qualified exchange plan.

The final rule also sets up general requirements to ensure that exchanges permit only “qualified health plans” -- a defined term in the Act that means a plan that offers a federally defined set of benefits so that a precise comparison can be made between plans -- and establishes regulations to ensure that such plans continue to comply with benefit design standards. Among other things, qualified health plans must have a “sufficient number and geographic distribution of essential community providers,” which is defined as providers that serve predominantly low-income, medically underserved individuals. Qualified health plans, under the rules, are permitted to vary premiums by geographic rating only and must charge the same premium rate without regard to whether the plan is offered through an exchange or whether the plan is offered directly from the issuer or through an agent.