September 02, 2019

Pennsylvania Takes Over Online Health Insurance Exchange

Robert J. Hobaugh, Jr.

Pennsylvania established its own online health insurance exchange (the “New Exchange”) under Act 42 of 2019 (the Act”) to deliver premium savings to Pennsylvanians who seek health insurance from the exchange previously operated by the federal government (the “Federal Exchange”). That Federal Exchange has served about 400,000 Pennsylvanians who purchase policies compliant the Affordable Health Care Act (“AHCA”) through The Governor’s Office estimates that the federal government took 3.5 % of the premiums paid in the Commonwealth, totaling $94 million in 2019, to operate the Federal Exchange but that the Commonwealth can operate the New Exchange for $30 million to $35 million with reimbursement liability between 20% and 25%. Pennsylvanians who purchase coverage through under the New Exchange could benefit from a 5% to 10% reduction in premiums according to the Governor’s Office.

The Federal Exchange has operated in Pennsylvania under the AHCA since 2014. Under the AHCA and the Public Health Service Act (the “Federal Acts”), states may operate their own exchanges for providing approved medical and dental insurance. The Insurance Department of the Commonwealth (the “Department”) approves such insurance with coverage in Pennsylvania (“Qualified Plans”). The purpose of the Act is to maintain sovereignty over the regulation of health insurance in the Commonwealth, recognizing the uniqueness of the insurance marketplace in Pennsylvania and to keep that sovereignty while working within the requirements of the Federal Acts to stabilize insurance premiums in the Commonwealth.

To achieve these goals, the Act authorizes (1) the New Exchange to facilitate or assist in facilitating enrollment in Qualified Plans; and (2) the Commonwealth Health Insurance Reinsurance Program (the “Reinsurance Program”) for implementation of waivers and establishment of reinsurance. Further, the Act creates (a) the Pennsylvania Health Insurance Exchange Authority (the “Exchange Authority”) to create, manage and maintain the New Exchange; (b) an advisory council (‘the “Council”) to advise the Exchange Authority regarding the New Exchange; and (c) the Pennsylvania Health Insurance Exchange Fund (the “Exchange Fund”) for deposit of reinsurance monies and disbursement according to the Act. The Reinsurance Program is intended to subsidize health insurance premiums so that enrollees qualified under the AHCA (each a “Qualified Enrollee”) can better afford health insurance authorized under the Federal Acts.

The Exchange Authority exists to “facilitate or assist in facilitating the purchase of on-exchange [Q]ualified [P]lans by [Q]ualified [E]nrollees in the individual market or the individual and small groups market.” 40 Pa.C.S.A. §9302(b)(2). Pennsylvanians without employer-provided health insurance coverage typically seek insurance under AHCA. The Exchange Authority is governed by a board (“Exchange Board”) consisting of 11 members: four appointed by the General Assembly, four appointed by the Governor and three ex officio members. The Board members appointed by the Governor represent a cross-section of the insurance industry, including a consumer advocate. The Board has corporate powers, programmatic duties and shall enforce the sovereignty of the Commonwealth as it complies with the Federal Acts. Board members receive no compensation but may be reimbursed for travel expenses from the Exchange Fund.

The Council advises the Exchange Authority on its request in the areas of initial operation decisions, ongoing financial decisions and other decisions for which the Board seeks advice. The Council consists of four consumer representatives appointed by political officers, one representative selected by the Pennsylvania Medical Society, one representative selected by the Pennsylvania Chamber of Commerce and Industry from a small employer group, and one representative selected by the Pennsylvania Association of Health Underwriters. As with members of the Board, Council representatives receive no compensation but may be reimbursed for travel expenses from the Exchange Fund.

The Exchange Authority is subject to strict confidentiality standards. Its papers shall be confidential, not subject to subpoena or the Right-to-Know Law, shall not be discoverable or admissible in evidence and may not be made public by the Exchange Authority or any other person. Subject to confidentiality, to determine eligibility of individuals for the New Exchange or any government program, information may be shared (a) among the Exchange Authority, the Department and various state agencies and (b) between the Exchange Authority and specified federal agencies. Disclosure is authorized in connection with the annual audit of the Exchange Authority or with the consent of the company or person to which the information pertains. That audit must assess compliance and identify weaknesses and deficiencies and ways to correct the same. The cost of the audit is payable from the Exchange Fund. That audit and an annual report must be disclosed to the public and specified public officials. The Board, Council, Department and others are protected from liability while working within the scope of their authority under the Act.

The Act establishes the Exchange Fund as a special, non-lapsing fund within the Pennsylvania Treasury Department (“Treasury”). Money held there shall not be part of the general fund. Instead, all deposits of appropriated and non-appropriated money, interest and accrued and future earnings shall be used only for the purposes set forth in the Act. Investments by the Pennsylvania Treasurer must be consistent with guidelines of the Board. All money and interest are appropriated to the Exchange Authority.

The Reinsurance Program is designed to facilitate economies of the New Exchange. The Department is authorized to apply to the United States Secretary for Health and Human Services (“HHS”) for a state innovation waiver to (1) waive provisions of the AHCA for health care coverage in the Commonwealth, (2) establish the Reinsurance Program in accordance with the approved waiver, and (3) maximize federal funding for the Reinsurance Program. The Department shall establish and administer the Reinsurance Program upon approval by HHS of the waiver application. That administration includes maximizing federal reinsurance funding, making reinsurance payments to insurers offering Qualified Plans who participate in or are affiliated with an insurer that participates in the New Exchange (“Eligible Insurers”), resolving disputes and submitting invoices under the innovation waiver.

Not less than 60 days before Qualified Insurers are required to submit premium rates for the following year, the Department is required to determine with respect to annual benefits for an insured enrolled to receive benefits under a participating health care policy (each, an “Enrollee”), the following: (1) the threshold amount for claims costs incurred by an Eligible Insurer above which claims are eligible for reimbursement payments (the “Attachment Point”), (2) the upper limit for claims costs incurred by an Eligible Insurer over which reimbursement payments are not eligible (“Reinsurance Cap”), and (3) the percentage rate at which an Eligible Insurer may be reimbursed above the Attachment Point and below the Reinsurance Cap (the “Coinsurance Rate”). The Department must publish the Attachment Point, Reinsurance Cap and Coinsurance Rate (collectively, the “Parameters”) based on information provided by insurers and  may not change the Parameters less favorable to the Eligible Insurers than as set before or during the benefit year. The Eligible Insurers must implement and document reasonable care management practices for Eligible Enrollees and submit reimbursement requests to the Department which pays what it calculates as eligible reimbursement amounts. Those claims are confidential and aggrieved insurers may submit requests for review under the Administrative Agency Law, 2 Pa.C.S.A. §§101 et seq.

The Department is subject to confidentiality in its treatment of such information provided by insurers. That information is not subject to subpoena, the Right-to-Know Law, discoverable or admissible in evidence in a private civil action. The Department may share such information with the Centers for Medicaid and Medicare Services, each Qualified Insurer,  and the Exchange Authority. Such information may be disclosed (1) in connection with the Department’s annual audit, (2) the Department’s annual report in an aggregate and de-identified form and (3) in circumstances other than (1) and (2) only with the consent of the company or person to which it pertains.. Other than in a legal action to compel obligations of the Reinsurance Program, immunity applies to the Department, Commonwealth agencies, persons or entities under contract with the Department for the Reinsurance Program for actions or omissions “done in good faith and in the performance of powers and duties under [the Act], or for the reasonable and good faith use of any information pertaining to the [R]einsurance [Program].” 40 Pa.C.S.A. §9514(a). The Department has rulemaking and enforcement powers.

The United States Court of Appeals for the Fifth Circuit is presently deliberating a challenge to the AHCA based on the recent removal of the individual mandate penalty. That litigation could result in overturning the AHCA entirely or those provisions dependent on the mandate such as coverage of pre-existing conditions. The insurance coverage of about 20 million people could be lost if AHCA is overturned. Accordingly, the Act provides sunset provisions if terms of the AHCA integral to the Exchange Authority or Reimbursement Program (1) are repealed or defunded by Congress, (2) are invalidated by a federal court of competent jurisdiction, or (3) are repealed or defunded by the Executive Branch of the federal government.

HB No. 3 was co-sponsored by House Majority Chair Bryan Cutler (R-Lancaster) and House Minority Chair Frank Dermody (D-Allegheny). The Act received bipartisan support and was signed in the Senate and the House on June 28, 2019. Governor Tom Wolf supported the legislation and approved it on July 2, 2019. It took effect immediately. Reinsurance proceeds are estimated to be $150 to $250 million. Eight insurers participated in the Federal Exchange covering Pennsylvanians in 2019 for the benefit of 366,000 private insurance purchasers and about one million persons having affordable coverage with expanded Medicaid and premium subsidies. Pennsylvania is the 13th state to operate its own exchange and four other states are developing an exchange. Pennsylvania is the only state to use cost savings from its operation of an exchange to fund its share of the Reimbursement Program.

Robert J. Hobaugh, Jr.