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Government lays out health insurance exchange details

By Alina Selyukh and Anna Yukhananov

WASHINGTON (Reuters) - The government on Friday laid out incentives for states and people to participate in health insurance exchanges, including tax credits and funding grants for the states.

Health regulators also clarified how they expect states to determine who is eligible to join this program under President Barack Obama's healthcare overhaul.

The exchanges are envisioned as open marketplaces of competing insurance plans that allow uninsured people and small businesses to band together to negotiate cheaper rates.

In the guidelines, released on Friday, the U.S. Health and Human Services and Treasury departments said states need to provide a "one-stop shop" system that can tell people what insurance programs and tax credits they're eligible for -- including federal/state Medicaid insurance program for the poor.

States, insurance companies, employers and patient groups have been awaiting these details because they are critical to establishing exchanges expected to be functional by 2014.

"This is finally giving states the kind of details they need to move forward with setting up the exchanges," said Kathleen Stoll, director of health policy at Families USA, a patient advocacy group.

The HHS on Friday also awarded 13 states and the District of Columbia $185 million in grants to help them build the exchanges. Three more states had received another $35 million in such establishment grants in May. For a list of grants, please see http://r.reuters.com/dyt23s.

Last year, HHS also gave $50 million in planning grants to nearly all states and $241 million in "early innovator" grants to help seven states establish exchanges that other local governments could use as a model. Two of those seven, Oklahoma and Kansas, have since returned the money.

States are facing a deadline of January 1, 2013, to submit detailed plans for how their exchanges will work, or the HHS will come in and do the work to ensure the exchanges are up and running by 2014.

The HHS in July released the first wave of federal guidelines, giving states great flexibility in setting up the exchanges' infrastructure and the deadlines to do so. [ID:nN1E76A0UG] It also created incentives for insurance companies to enroll patients with chronic conditions, who typically have more expensive needs.

One more crucial element that HHS has yet to release is the benefits that plans would have to provide.

SINGLE APPLICATION, MANY INCENTIVES

The regulators have been under pressure to release more details of how they want the exchanges to work as Republican-led states balk at the notion of supporting the reform and as many of those actually making progress worry about meeting the deadlines.

Friday's proposed rules highlight the expectation of a smooth connection between state-run exchanges and the federal systems to make sure they connect and share information.

For example, the exchanges should be able to plug into federal tax databases to check income status and determine eligibility for federal subsidies or tax credits -- from a single, one-time application.

"This is not an '800' number you call and submit your information and maybe hear back later down the road," HHS Secretary Kathleen Sebelius told reporters.

"This is actually a system that anticipates real-time ability to connect consumers to a plan they are eligible for."

The government will offer individuals and families tax incentives that make it cheaper to buy insurance coverage on the exchanges. The amount of the tax credit will be tailored to income and the insurance premium.

Households that don't have enough cash to pay the insurance premium up front can get advance payments from the Treasury Department directly to the insurance company.

On average, individuals will get $5,000 in premium tax credits each year, the Congressional Budget Office estimates. The premium will be available for people who earn between 100 and 400 percent of the federal poverty level -- which was between $22,350 and $89,400 for a family of four in 2011.

People without employer-sponsored insurance and those who cannot afford their employer's insurance are eligible for premium tax credits.

HHS and the Treasury department are soliciting comments on the guidelines, which can be found at: http://r.reuters.com/zut23s.

(Additional reporting by Andrew Seaman; Editing by Robert MacMillan and Steve Orlofsky)

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