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State board recommends criteria for insurance exchanges

The O'Malley administration will introduce legislation in the coming General Assembly that would create the exchanges where people will buy affordable insurance under health care reform.

The Board of the Maryland Health Benefit Exchange, a group convened to plan and implement the exchanges, released recommendations Tuesday for how they would work.

While the board outlined a setup for the exchanges, it put off a decision on how to fund the exchanges until next year. The federal government provides money to run the exchanges during the first year of reform in 2014, but states are responsible after that.

Most people would still access insurance through their employers or Medicaid under reform, but the exchanges would open up insurance over time to hundreds of thousands of people who aren't currently eligible. About 170,000 people in Maryland are expected to enroll through the exchanges during the first year of reform.

The state would create two exchanges, one for small group markets and one for individual plans. In Maryland, rate-setting for the two markets is so different that the board said merging the two would cause problems, including skyrocketing premiums.

Just about every insurance company in the state would be required to participate under minimum criteria the board is recommending, said Maryland Health Secretary Joshua M. Sharfstein, who is also chairman of the health exchange board. Insurers in the small group market with annual premium revenue of $20 million or more would be required to participate in the exchange, and insurers in the individual market with annual premium revenue of $10 million or more would be required to participate.

The board also hopes to prevent the exchange from becoming overburdened with high-risk patients by requiring anybody who offers catastrophic coverage outside the exchange to also offer it within the exchange. If insurers offer cheaper plans with fewer benefits separate from the exchange, the risk is they would draw healthier people away from the exchange. The board's report noted that a plan in California recently failed because it became a high-risk pool.

"The essence of insurance is spreading risk," Sharfstein said. "The idea is people who are healthy pay so that when your number is called and you get sick you get covered. If it is just the sick people who are seeking insurance, the costs will go up."

The exchanges would also offer dental insurance, something the federal law leaves up to the decision of the states. The board is also recommending a provision that would allow someone to continue care even if their circumstances change and they have to change the way they access insurance: for instance, if someone covered under an employer's plan for chemotherapy treatments then changes jobs and has to buy through the exchange.

State officials are moving forward even as uncertainty continues to loom around reform and the Supreme Court prepares to take up its constitutionality. But they said the state needs to be for prepared when a decision is made.

Under the current law, the government must certify state exchanges by Jan. 1, 2013.

"The law offers significant value to people in Maryland," Sharfstein said."We want to be in the position to capture that value for many Marylanders who can benefit."

"I think that we're moving step by step," he added. "This [report] is a policy framework for the exchange. This doesn't overcommit the state. It allows us to keep pace with where we need to be."

Anthony J. O'Donnell, Maryland House of Delegates minority leader, said he would have to read the recommendations before he could comment. But he questioned the rush to push forward on an issue that was still being legally debated.

"I'm concerned we're going to set up this entire structure that may or may not have any effect," O'Donnell said. "If we spend a lot of money setting this up and find out it's unconstitutional, then it is wasted money."