Federal Requirements for The Minnesota Health Insurance Exchange

Federal Requirements: As noted earlier, an exchange could increase choice and portability of coverage if it is able to serve as a vehicle through which employers could implement a "defined contribution" approach to health insurance coverage. Such a model could also increase access to employer-subsidized coverage for people who frequently are not eligible for health benefits, such as part-time or temporary employees. In the focus group research performed for this study, such an option was appealing to many employers.

However, changes to Minnesota law would likely be necessary to avoid conflict with federal laws and regulations that establish nondiscrimination requirements for employer group health plans.

Specifically, the Health Insurance Portability and Accountability Act (HIPAA) requires that "group health plans" may not restrict access or vary health insurance premiums based on health factors.

Because current Minnesota law allows individuals to be denied coverage and charged a higher premium based on their health status for coverage in the nongroup health insurance market, employers could be in violation of federal law even if they do not contribute to coverage.

In order for a "defined contribution" type model to be feasible in Minnesota, the legal analysis in the Mathematica study recommends that the state change its insurance market rules to require guaranteed issue and to remove health status as a rating factor in the individual market. The experience of other states that have implemented these reforms suggests that unless an individual responsibility to maintain a minimum level of health insurance coverage is also enacted, guaranteed issue and rating reforms alone could have severe negative consequences on the affordability of coverage (and, as a result, on the number of people covered).

Strategies that could expand individuals' ability to purchase health insurance coverage through a Section 125 plan, while avoiding federal compliance problems and minimizing adverse effects on insurance markets, should be examined. For example, short of sweeping changes to the individual insurance market, the state could require that health plans sell coverage on a guaranteed issue basis and without regard to health status during an employer's annual open enrollment period for its Section 125 plan, and also when an individual experiences other "qualifying events" for coverage (e.g., a change in jobs or family status).

The definition of dependent coverage in Minnesota law is also potentially in conflict with federal requirements. Effective January 2008, Minnesota law defines a "dependent" for purposes of health insurance coverage to include unmarried children under the age of 25. This definition is inconsistent with the definition of "dependent" for purposes of who is eligible to pay for health insurance through a Section 125 plan, which requires that the person also be considered a dependent for tax purposes. Conflicts such as this do not necessarily preclude the state from establishing a requirement that employers adopt Section 125 plans, but they do mean that there will need to be extensive efforts to educate employers about how to establish and operate these plans in compliance with federal requirements.

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