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Published on : March 03, 2012

State Health Insurance Exchanges:  Employers Need To Be Engaged

State Health Insurance Exchanges: Employers Need To Be Engaged

Healthcare remains at the forefront of everyone’s minds these days, as do the new state health insurance exchanges.  States are currently replete with debates and decisions about establishing state insurance exchanges, collectively receiving over $640 million in federal grants for these exchanges.  Employers of all sizes, and from all industries, should carefully listen to the issues relating to the anticipated exchanges and actively participate in the dialog, as the exchanges will directly impact all employers.

The Patient Protection and Affordable Care Act (PPACA)—the federal healthcare reform law enacted in March 2010—mandates that states either establish their own state health insurance exchange by January 1, 2014, or participate in a yet-to-be created federal exchange.  This year is a pivotal year for states to make critical legislative and policy decisions necessary to meet this deadline.  Legislation is not the only path to establishing an exchange—effectively demonstrated by Rhode Island’s Governor Chafee, whom established an exchange by an Executive Order.[1]

The state exchanges are expected to be a marketplace for individuals and small employers to purchase health insurance coverage.  These exchanges will also be open to private and non-profit insurance carriers offering health plans that meet minimum quality requirements and provide coverage for “essential health benefits.” Also, exchanges will be the mechanism through which low- and moderate-income individuals receive premium and cost-sharing subsidies to make health coverage more affordable. 

Some states have taken major steps toward establishing their exchanges, while others have struggled to pass legislation or have already opted for a federal exchange.  As of February 7, 2012, fourteen states have established exchanges and four others have signaled their plans to establish one.[2] Two states-- Louisiana and Arkansas-- have chosen not to create a state exchange, necessitating the Federal Government’s establishment of a federal exchange.  The remaining states are undecided; however, they must make this monumental decision very soon—a policy-making process which the employer community will greatly benefit from actively engaging in at the state level.   Without question, employers and industry groups have greater access and ability to influence in state policy-making.

Under PPACA, states have the option to provide an exchange through a governmental entity, a quasi-governmental entity or a private entity.  According to the Kaiser Family Foundation, of the states that have elected to establish a state exchange, these states have chosen to have the exchanges run by quasi-governmental entities, by existing state agencies and by non-profit entities.

It is important to note that employers of all sizes have a vested interest in the state exchange.  First, decisions made by the exchanges will affect their ability to offer affordable, competitive coverage and the rates for coverage.  It will be important that the state exchanges maintain a healthy risk pool and manage the costs of coverage. 

If your business offers a small group health plan, what does this mean for you?  Under PPACA, employers with up to 100 employees in the preceding year may purchase health coverage through the state exchange.  Decisions made by the exchanges will affect whether it provides attractive services to small employers, incenting employers to purchase coverage through them.  How the exchanges offer products to employers and whether employers are permitted to provide input on plan designs will impact whether employers choose to purchase coverage through the state exchanges.

The exchanges will also be more attractive to employers if they provide additional administrative services—such as eligibility verification and COBRA administration—reducing administrative costs for small employers.  The type and manner of customer service provided directly to employers will also be important to the business community.

Even though most employers will not be affected immediately, a large number of businesses will be directly impacted by decisions made by the exchanges, even though they will not purchase coverage for their employees through the exchanges.[3]   According to other provisions of PPACA, employers with 50 or more full-time employees will be subject to a “shared responsibility” penalty if their employees purchase coverage through an exchange and receive a premium tax credit or cost-share reduction—two forms of premium assistance that will be provided through the exchanges.

Accordingly, employers with at least 50 employees have a vested interest in the exchanges’ adjudication of premium tax credits and cost-sharing reductions.  There are two verification methods available to state exchanges: a case-by-case review or a statewide database populated with large employer plan data.  The various state exchanges’ adjudication processes will likely vary and that will significantly impact large, multi-state employers, both in process and pocket book.

Per PPACA, the exchanges are to be prepared for certification review by the Federal Government on January 1, 2013. Considering that a majority of the states have not taken significant action toward establishing a state exchange, this deadline seems ominous and may necessitate a default to a federal exchange by many states. 

The reasons for the slow pace in decision-making are numerous, but a critical issue for all states is the uncertainty that surrounds PPACA based on the pending Supreme Court review. Nonetheless, employers should engage now to shape their state’s decisions on a health insurance exchange, as those key decisions will shape the future of employer-sponsored health plans.


1- Rhode Island, Executive Order #11-09.

2- Establishing Health Insurance Exchanges: A National Overview of State Efforts, The Henry J. Kaiser Family Foundation (Publication #8213-FS), January 2012; also, (as of February 7, 2012).

3- In 2017, states may choose to open the exchanges to large employers.

About The Author

Anne Wilde is an HR and employee benefits compliance attorney with The HR & Benefits Advisor, PLLC in Boise, Idaho. She advises employers on a myriad of employee-related compliance obligations and HR strategy. Her employee benefits practice focuses on group health plans. Learn more about the firm by visiting  Anne can be reached at or followed on Twitter: @Anne_Wilde.