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Federal Exchange Rules

July 22, 2011

Last week, Health and Human Services (HHS) released their much-anticipated rules on health insurance exchanges.  Comments are due Sept. 28, and the Small Business Association of Michigan, along with our Washington-based affiliate National Small Business Association, will submit comments which we will begin to draft in the coming weeks.  If you have comments that you would like to submit for consideration, please email them to

In short: the rules provide significant flexibility for states to customize their own exchanges, and were far from the proscriptive 800-page document expected. Below are some of the key provisions in the regulations.

Creation/Certification of Exchanges

  • States will be allowed to partner to create regional exchanges, or maintain them within a state’s borders.  
  • State exchanges will be allowed to either be active purchasers (negotiators) or restrict their role to the creation of an open marketplace – the regulations don’t clarify this beyond what was in the Patient Protection and Affordable Care Act.
  • States that are shown to be working on creating an exchange are given some flexibility on the certification deadline of Jan. 2013 before HHS will step in and establish an exchange in that state.
  • The HHS approval process for exchanges would function much like that now used for Medicaid or CHIP state plans, but certification also would require that state exchanges operate a reinsurance program.

Small Business Health Options Plan (SHOP)

  • The rules do not specify a minimum participation requirement for participating in a SHOP exchange, it does seek comments specific to this.
  • SHOP Qualifies Health Plans (QHP) are only allowed to change rates at a uniform time and cannot change rates for an employer during a plan year.  
  • Exchanges are encouraged, but not required, to provide calculators that allow employees to calculate their premium share for particular plans after the employer contribution to aid employee choice.
  • SHOP exchanges enroll small employers, or, if a state elects after 2015, large employers.  Small employers have 100 or fewer employees, or at the election of a state prior to 2016, 50 or fewer.  Part-time as well as full-time employees are included in the count.  Employers must have at least one employee to qualify; sole proprietors do not qualify.
  • Qualified employers can either offer coverage to their employees only through the SHOP exchange that covers their principle place of business or through multiple SHOP exchanges covering the primary workplaces of their employees (for an employer with workers in multiple states).

Administration of Exchanges

  • The regulations do allow for a nonprofit entity to run an exchange, but it would have to be appointed and overseen by the state.
  • Exchanges can contract with other entities, including state Medicaid agencies, provided they are NOT insurance companies, to carry out some of their duties.
  • States will be allowed to have separate governing boards for the individual and SHOP Exchanges; however HHS will require coordination and information sharing.
  • With regard to insurers and brokers, the regulations assert that a majority of voting board members must not have a financial conflict of interest, and also that a majority of voting members must have experience relevant to health care financing or delivery or public health or health policy.  
  • Exchanges must have conflict of interest, ethics, and transparency standards and board members must disclose financial conflicts of interest. 
  • If a state operates separate individual and SHOP exchanges, the geographic areas covered by the exchanges must be coextensive.  
  • Exchanges may be funded through user fees assessed against issuers or through other funding generated by the states (which could include general revenue funds or provider taxes), but can receive no federal funding after January 1, 2015.
  • Some of the most difficult issues—including premium assistance application and eligibility determination, enrollee satisfaction survey, and plan assessment and rating requirements—were put off for future rulemakings. 
  • With regards to brokers, the rule seemingly precludes brokers and agents from serving as “navigators,” the entities that offer education and outreach, but stating that navigators “may not have a conflict of interest during the term as Navigator.”

Operating an Exchange

  • Exchanges would be required to aggregate premium bills for employers and allowing  a single payment rather than having to pay each health plan separately.
  • Exchanges will not enroll individuals in Qualified Health Plans (QHPs), but will rather accept applications and transmit the information to the QHPs for enrollment in a timely fashion. A single streamlined application will be developed for this.
  • The proposal would allow for open enrollment periods and sufficient exceptions for special enrollment periods to protect individuals, but limits them. Applications will be accepted during an initial open enrollment period between October 1, 2013 and February 28, 2014, and thereafter during an annual open enrollment period between October 15 and December 7.  Sixty day special enrollment periods will be provided under  a number of specified circumstances, including loss of employment-related coverage; the gaining of a new dependent through marriage, birth, adoption, or placement for adoption; a change in QHP caused by a QHP’s material breach of contract or decertification; eligibility for a premium tax credit; or a move. 
  • No clear specifics were provided on rate increase oversight, but language did seem to recognize the primary role state insurance commissioners would hold, however the regs would require QHPs to report to the exchange at least annually information concerning rates.
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