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On December 1, 2016, Parker Hannifin Corporation and CLARCOR Inc. announced that the companies have entered into a definitive agreement under which Parker will acquire CLARCOR for approximately $4.3 billion in cash, including the assumption of net debt. The transaction has been unanimously approved by the board of directors of each company. Upon closing of the transaction, expected to be completed by or during the first quarter of Parker’s fiscal year 2018, CLARCOR will be combined with Parker’s Filtration Group to form a leading and diverse global filtration business. Bass, Berry & Sims has served CLARCOR as primary corporate and securities counsel for 10 years and served as lead counsel on this transaction. Read more here.

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Securities Law Exchange BlogSecurities Law Exchange blog offers insight on the latest legal and regulatory developments affecting publicly traded companies. It focuses on a wide variety of topics including regulation and reporting updates, public company advisory topics, IPO readiness and exchange updates including IPO announcements, M&A trends and deal news.

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A Quick Primer on Health Insurance Exchanges

Publications

June 22, 2012

In the same way that Expedia or Travelocity showcases travel deals offered by a variety of hotels and airlines, health insurance exchanges allow consumers to compare private health insurance policies. The Patient Protection and Affordable Care Act of 2010, as amended by the Healthcare Education and Reconciliation Act of 2010 (PPACA), calls for the implementation of state-based health insurance exchanges by 2014. The Congressional Budget Office (CBO) estimates that 20 - 23 million individuals could receive coverage through these exchanges by 2016.1

Background

The concept of exchanges is not new. Two states, Massachusetts and Utah, already operate exchanges. Privately-run health insurance exchanges continue to emerge and evolve in the marketplace, typically structured with defined contribution approaches for employer funding. Some prominent stakeholders are committing significant resources toward such exchanges. A number of platform companies providing solutions in this arena have forged strategic partnerships with health plans, and several health plans have proactively established their own exchange solutions or taken ownership interest in private exchanges. Benefit management entities are also poised to take advantage of an expanding market.

Ultimately, publicly-run health insurance exchanges may have a huge impact on privately-run exchanges; however, publicly-run exchanges and the individual mandate have an uncertain fate given the pending Supreme Court decision on PPACA.

What Do Exchanges Do?

Exchanges must perform a number of key functions in addition to allowing consumers to view plans. These functions include (1) managing participating insurance plans, (2) assisting consumers -- providing individuals with guidance, support and answering questions, (3) determining eligibility and verifying information, (4) enrolling consumers in plans, and (5) managing exchange finances and risk adjustment.

According to federal regulations,2 exchanges may be state- or regionally-based, and can be managed by (1) the state, (2) the federal government, or (3) the federal government and the state working in collaboration (the "partnership" model). Sharing responsibility for managing exchanges means that states and the federal government must divide responsibility for the various exchange components and functions listed above. The federal government will set up a "federally-facilitated exchange" ("FFE") in any state that is unable or unwilling to set up its own exchange.

Final regulations on exchange establishment and eligibility were released in March 2012 (the "Final Exchange Regulations"),3 providing greater detail on standards for state-run exchanges, insurance issuer participation, and the employer participation in the small business insurance exchange, also known as "SHOP." On May 18, 2012, the Department of Treasury released final rules4 on premium tax credits (PTC), which are intended to help individuals under 400 percent of the federal poverty level afford coverage through the exchange. The rule calls for PTCs to be paid to insurers on a monthly basis, with a year-end reconciliation to account for changes in an individual’s income status.

Federally-Facilitated Exchanges and Partnerships

On May 16, 2012, the Center for Consumer Insurance Information and Oversight (CCIIO) released guidance on FFEs and partnership exchanges.5 Many insurers were glad to hear that HHS will allow all plans which meet minimum certification standards to participate in the publicly-run exchanges in year one – though HHS may reconsider this policy in later years.

In a partnership model, states will have the option of maintaining control over plan management functions, consumer assistance functions, or both. However, the partnership exchange is still simply a modified version of the FFE.6 As a result, HHS – not the state – will retain ultimate authority and responsibility for the partnership exchange. In the partnership model, though states may retain control over most consumer assistance functions, the federal government asserts that it will maintain control over "centralized" functions such as the consumer assistance call center and website management. Additionally, even in the purely state-run exchange, states can elect to have HHS perform eligibility determinations for advanced premium tax credits and cost sharing reductions, determinations for the individual responsibility requirement and payment exemptions, and risk adjustment and reinsurance functions.

Timing and Implementation

According to the recently released "Draft Blueprint for Approval of Affordable State-based and State Partnership Insurance Exchanges,"7 states must submit letters of declaration and complete an application describing the state’s ability to perform necessary exchange functions by November 16, 2012. Many states have halted or forgone exchange implementation to wait for the outcome of the Supreme Court decision, expected next week. Other states may wait for the outcome of the presidential election. The "wait and see" approach leaves a very short window of time for states opposed to the FFE to change their minds and set up a state-based exchange. Kentucky Governor Steve Beshear recently announced that he will establish an exchange by executive order if the Supreme Court upholds PPACA.8

Health Plan Standards

On June 1, 2012, HHS released a notice of proposed rulemaking (NPRM)9 addressing both data collection for essential health benefits (EHBs) and accreditation of qualified health plans (QHPs). All health plans offered through exchanges must be "qualified," or certified by the exchange as able to meet certain standards, including quality accreditation and network adequacy. The NPRM states that, initially, HHS will use the National Committee for Quality Assurance (NCQA) and URAC standards for accreditation. After 2014, HHS will allow other accrediting entities to apply for participation. HHS previously released a bulletin on EHBs in December 2011.10 This guidance explained that states could choose certain plans that already exist as a benchmark for essential coverage. The new NPRM requires that issuers of the largest three small group market products in each state report information on covered benefits to HHS.

State Action

As of May 2012, the federal government announced approximately $850 million in grants to 34 states for the establishment of health insurance exchanges. HHS clarified in a November 2011 Q&A document that grant money for exchanges could continue to flow until the end of 2014, as PPACA specifies that exchanges must be financially self-sustaining by January 1, 2015.11 However, PPACA and subsequent regulations have left exactly how to finance the exchanges up to the states. Some options include but are not limited to: licensing fees for participating health plans; user fees for businesses or consumers; appropriations from state budgets; or advertising fees.

Each grant award can range from $1.6 million to more than $50 million. Two states, Washington and Rhode Island, have received $128 million and $58 million, respectively, in "Level II" establishment grants. These Level II grants are intended for states that are farther along in the establishment process.

A number of states are using private contractors to build necessary exchange infrastructure. These contracts represent a considerable commitment on the part of the private market. The state of Washington recently finalized a $54 million contract with Deloitte to build key components of its state exchange.12 Several states, including Nebraska and New Mexico, have released RFIs or RFPs seeking the health information technology and components necessary to build an exchange infrastructure. Arkansas seems to be the only state currently moving forward with the partnership exchange; the state received nearly $8 million from HHS to build necessary functionality. Late last year, CMS announced a contract with CGI Federal Inc. to build the FFE; the total estimated value of this contract is more than $93 million.13

Private Exchange Collaboration

HHS surprised many policy insiders by allowing for the involvement of private agents and brokers in exchanges. Both the Final Exchange Regulations and the FFE Guidance indicate that certain insurance producers and web-based brokers would be permitted to assist and enroll individuals in qualified health plans, although the actual enrollment must be done "through an Exchange." The details are still vague, and the FFE Guidance is not yet in final form, but the possibility of collaborating with federal or state exchanges represents a potentially lucrative opportunity for private sector collaborators.

Conclusion

States are still waiting for final regulations or more specific details on insurance reform from CCIIO. Many regulations are still interim only or in the form of brief "guidance." The recent flurry of regulatory activity on insurance reform may come to a halt as we near the end of June, when the Supreme Court is expected to issue its decision on the constitutionality of PPACA. The Court's decision and the upcoming presidential election make the future of exchanges uncertain, but all states and other interested parties should adequately prepare for the possibility of rapid, transformative change to their insurance marketplaces.


1 U.S. Congressional Budget Office. Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act. May 13, 2012. http://www.cbo.gov/sites/default/files/cbofiles/attachments/03-13-Coverage%20Estimates.pdf.

2 76 FR 41866.

3 77 FR 18310.

4 77 FR 30377.

5 U.S. Health and Human Services, Center for Consumer Information and Insurance Oversight. General Guidance on Federally-facilitated Exchanges. May 16, 2012.

6 Ibid.

7 U.S. Health and Human Services, Center for Consumer Information and Insurance Oversight. Draft Blueprint for Approval of Affordable State-based and State Partnership Insurance Exchanges. May 16, 2012.

8 Alford, Roger. "Ky. gov prepares for federal health care reforms." Associated Press. May 3, 2012.

9 77 FR 33133.

10 U.S. Health and Human Services, Center for Consumer Information and Insurance Oversight. Essential Health Benefits Bulletin. December 16, 2011.

11 PPACA §1311(d)(5)(A).

12 Valerie, Bauman. "Deloitte closes deal to build Washington Health Benefit Exchange." Puget Sound Business Journal. April 25, 2012. http://www.bizjournals.com/seattle/news/2012/04/25/deloitte-closes-the-deal-for-wa-health.html

13 "CGI selected to build U.S.-wide competitive health insurance exchange." CGI Media Announcements. December 1, 2011. http://www.cgi.com/en/CGI-selected-build-US-wide-competitive-health-insurance-exchange


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