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Health care reform: Exchanges, CO-OPs and understanding

February 13, 2011 - Mary Ann Heath
When this week’s reading again started with exchanges, I took a deep breath. This stuff is interesting, boring, difficult to understand and really important all at the same time.

Exchanges seem like the main crux of health care reform. At this point, I’m a little concerned I may have to read about them for 700 or more pages... But, for me, the bottom line is that this reform has the ability to drastically change health care in America. I want to know — really know — what it’s all about.

By 2014, all 50 states will operate new health care exchanges, as required by the Patient Protection and Affordable Care Act. Three states already do: Massachusetts, Utah and New York. Even though states are required to operate exchanges, the bill provides a lot of flexibility. The idea is for each state to implement and operate the exchange tailored to that state’s needs. States may choose to follow the basic requirements laid out by the law, or add more requirements that improve quality, help lower cost or in some way shift health insurance toward value.

If a state fails to establish an exchange, or implement the requirements needed to run an exchange, the Department of Health and Human Services will operate health plans for them.

States must operate two different exchanges: one for individuals, and small business health options (SHOP) exchanges. Health plans will be offered in four different levels, which varies on the cost to the individual. The bill refers to it as “actuarial” value. Does this mean the actual cost? Sort of. Actuarial value, according to, is the percentage of total average costs for covered benefits that a plan will cover. If a plan has an actuarial value of 70 percent, you are responsible for 30 percent of the cost of all covered benefits.

Levels include:

• Bronze level — actuarial value of 60 percent

• Silver level — actuarial value of 70 percent

• Gold level — actuarial value of 80 percent

• Platinum level — actuarial value of 90 percent

Small businesses will be able to buy insurance through SHOP exchanges.

The bill also allows for the establishment of Consumer Operated and Oriented Plan (CO-OP). A CO-OP is a federal program created to assist in the development of non-profit, member-run health insurance issuers. The issuers will offer qualified health plans in the individual and small group markets. Organizations participating in CO-OP programs must be non-profit entities.

The law sets forth the following provisions for the CO-OP program:

• Priority will be given to plans that operate on a statewide basis, utilize integrated care models and have significant private support.

• Governance of these organizations must be subject to a majority vote of its members.

• Profits must be used to lower premiums, improve benefits or support programs that aim to improve the quality of care to its members.

• Insurance issuers that existed prior to July 16, 2009, are not eligible.

• Federal grant or loan recipients are not permitted to use funds for marketing services, like advertising.

• Government representatives, or insurance issuers that existed before July 16, 2009, may not serve on CO-OP boards.

• CO-OPs can use private purchasing councils to enter collective purchasing arrangements for items and services. The councils, however, are excluded from setting pay rates for health facilities or providers participating in coverage provided by the plans.

• The Secretary of Health and Human Services cannot participate in any negotiation between the CO-OP, purchasing council, or any health care facilities or providers.

CO-OPs are not unfamiliar in the U.S., electric CO-OPs and dairy CO-OPs already exist. In this area, residents might be familiar with the Delta Alger Electric Cooperative. Delta Alger is a distribution utility. It buys power from facilities that generate electricity and supplies it to co-op member/users. Insurance CO-OPs would operate similar to this. A CO-OP purchases insurance in bulk and supplies it to its member/owners.

Other items outlined in this section of the bill include:

• A Community Health Insurance Option: This option is voluntary for states. For states that choose to offer it, it will be offered through the exchange. It is also voluntary for individuals to use the option. The option offers only “essential health benefits” under its health plan. It must meet the requirements of a “qualified health plan.” It must also: offer high value for premium charged; reduce administrative costs, while promoting administrative simplification; promote high quality care and quality customer service; offer sufficient choice and comply with state laws. Some states may add to the benefits the option is required to offer its enrollees. It is basically designed as a “value” option, i.e. insurance at low-cost that still provides the essentials a consumer needs. In addition, enrollees may also be eligible to receive credits to apply toward the option. The health insurance option will also offer the “levels” of coverage I mentioned earlier (bronze, silver, gold, platinum). State-offered options are required to meet a federal solvency standard.

• Alternative programs: In lieu of offering low-income individuals insurance through the exchange, states may elect to offer basic health programs. These programs must provide at least the essential health benefits. States may not charge individuals more for premiums than they would have paid in an exchange for the “silver” level plan (70 percent actuarial value). Only eligible individuals are allowed to enroll in this plan. These are individuals who are a resident of the state in which they are enrolling, who are not eligible for Medicaid, whose income is between 133 and 200 percent of the poverty line. They must also be under the age of 65. Individuals using this option are not permitted to use the insurance exchange.

Exchanges are complex, but their aim is simple: high value.

Trying to fix the health care system we have is not an easy task. With so many things that have to be implemented, does it seem like it? It’s no wonder we lend ourselves to the left and to the right, taking on political opinions as facts when the facts are difficult to comprehend. But the simple truth, a fact easy enough for us all to grasp, is that something has to be done. Acceptance cannot be achieved without understanding. I think more people would accept health care reform if they understood it.

At least here, you and I are trying.


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