Possible Federal Revenue from Oil Development of ANWR and Nearby Areas

Summary: Recent high petroleum prices, and the related economic burden on consumers and energy-intensive industries, has raised the issue of stimulating domestic supplies of crude oil. One possible source is the coastal plain of the Arctic National Wildlife Refuge (ANWR), which is estimated to contain significant quantities of oil and gas. Interest in developing the ANWR oil resources has also focused on the revenues that the federal government could collect should exploration and development be successful. Some observers have suggested using such revenues for purposes such as providing relief to petroleum consumers, further subsidizing energy conservation measures, or reducing federal budget deficits. However, current federal law prohibits the production of oil and gas in ANWR.

Summary: Federal revenues would consist primarily of corporate income taxes on profits earned by oil producers from the production and sale of ANWR oil. As landowner, the federal government would also collect royalties from such production on federal lands, which are included in the estimates. If producers were able to recover 10.3 billion barrels of oil over the life of the properties—the United States Geological Survey has estimated there is a 50-50 chance that the ANWR coastal plain contains at least this amount of oil—and if oil prices are $125/barrel, then the federal government might be able to collect $191 billion in revenues over the production period, estimated to be at least 30 years once production commences. This estimate consists of nearly $132 billion in federal corporate income taxes, and about nearly $59 billion in federal royalties. These estimates are subject to major limitations. Estimates of technologically recoverable oil used in this report include the resources from the federal lands, and assume the availability of resources in Native lands in the Refuge and offshore state lands. The Alaska Statehood Act would allot 90% of gross royalties to the state and 10% to the federal government.

Summary: The federal government would collect revenues from bonus bids from federal leases, and rents on undeveloped leases. These are not estimated separately by CRS. Independent estimates by the Congressional Budget Office for President Bush's FY2009 budget proposal show estimated bonus bid revenues of $6 billion between FY2011 and FY2018. Finally, income tax revenues from the secondary feedback effects would also increase as a result of the stimulus to general economic activity. However, these revenues are not included here due to the difficulty in estimation over the projection time horizon.

Recent high petroleum prices, and the economic burden on consumers and energy-intensive industries, has raised the issue of stimulating domestic supplies of crude oil. One possible source is the coastal plain of the Arctic National Wildlife Refuge (ANWR), which is estimated to contain significant quantities of oil and gas. The coastal plain includes areas outside the ANWR boundary, but within the Refuge these areas are (1) the section 1002 area of federal lands; (2) 92,000 acres belonging to Native Alaskan corporations; and (3) several thousand acres of Native allotments in various states of conveyance to individuals. Interest in developing the ANWR oil resources has also focused on the significant revenues that the federal government could collect should exploration and development be successful. Observers have suggested using such revenues for purposes such as providing relief to petroleum consumers, further subsidizing energy conservation measures, or reducing federal budget deficits. However, current federal law prohibits this development.

This report estimates the potential revenues to the United States Treasury from ANWR oil development should Congress approve such development. It has been prepared according to key oil price assumptions. More specifically, estimates of potential federal revenues are based on market oil prices—the price at which the ANWR output would be sold—of $60, $80, $90, $100, and $125 per barrel. This report is not an analysis of the broader ANWR issue.

These revenue estimates are premised on significant changes in federal legislation, as well as a number of other assumptions. To reach these estimates, the following was assumed: (1) Congress authorizes oil and gas production from ANWR; (2) commercial quantities of oil will be found, currently an unknown; (3) the current revenue division of 90% to Alaska and 10% to the federal government will be modified by Congress to allow a 50-50 split of royalties; (4) other current bidding systems apply such as bonus bidding and ad-valorem royalties of 12.5%; (5) Congress authorizes oil and gas production under Native-owned lands; and (6) all of the coastal plain, including state waters are available for leasing.

Federal revenues would consist primarily of corporate income taxes on profits earned by oil producers from the production and sale of ANWR oil. As landowner, the federal government would also collect royalties from such production on federal lands, which are included in the estimates. Revenues from bonus bids from federal leases, and rents on undeveloped leases, however, are not estimated separately, although Congressional Budget Office (CBO) estimates of bonus bids are reported. In addition, the federal government would collect income tax revenues from the secondary feedback effects as a result of the stimulus to general economic activity. However, these revenues are not included here due to the difficulty in estimation over an assumed 30-year production horizon. Note that all estimates of future revenues are not discounted to real 2008 dollars due to lack of available data; such discounting would result in much smaller revenue estimates.

Estimates of technologically recoverable oil used in this report include the resources from the federal lands, and assume the availability of resources in Native lands in the Refuge and offshore state lands; however such availability is not within federal control. The estimates are based on a 1999 USGS study of the quantity of technically recoverable oil, and they assume that all technically recoverable oil is also economically recoverable.

The revenue projections below are very long-term forecasts of what might happen, and not what will happen, given the methodology and the posited assumptions. All of the data used in this estimation are provided by the U.S. Energy Information Administration (EIA), as documented in the footnotes. In particular, the oil production data draws from a May 2000 EIA report based on the resource assessment estimated by the U.S. Geological Survey (USGS) in 1998. Note also that, according to the EIA and the USGS, it would take between 7 and 12 years after congressional approval to commence production, if feasible, from the ANWR area. Further, production from the area is assumed to last at least 30 years.

Also, other major uncertainties, in addition to the production feasability starting date and the lands that might be developed, include (1) the size of the underlying reserve base, (2) the underlying field structure, (3) the costs of development, (4) the market price of oil, (5) the average effective tax rate, and (6) the terms of the authorizing legislation. Thus, revenue projections are highly uncertain. Projections of federal revenue represent totals over the entire recovery period, until oil resources are no longer recoverable. Thus, they do not take into account any increased (or decreased) recovery based on changed economic conditions or the annual flow of production.

Finally, the projections below exclude potentially large revenues from the development of natural gas, which according to probability analysis may exist in large quantities in the ANWR coastal plain (particularly the 1002 federal area ). Revenue projections from natural gas development are excluded because there is currently no way to transport the gas to market (no pipeline or other means of transportation).

Projected Total Revenues: Corporate Tax Receipts and Royalties

Table 1 summarizes the results of our estimation procedure, which is described in the remaining sections of this report. It shows a projected increase in corporate income tax revenues and cumulative estimated royalties projected over the estimated life of the ANWR and other nearby properties from the production and sale of the estimated technically recoverable reserves of oil. Tables 2 and 3 show the corporate tax revenues and royalties separately.

Table 1 presents 15 projections (undiscounted for the time value of money), each corresponding to an oil price and production scenario. For instance, if producers were able to recover 10.3 billion barrels of oil over the life of the area—there is an estimated 50-50 chance that the ANWR coastal plain contains at least this amount of oil—and if oil prices average $90/barrel over the production lifetime of the area, then the federal government is projected to collect nearly $138 billion in revenues over the production period, estimated to be at least 30 years once production commences. This would consist of nearly $95 billion in federal corporate income taxes ( Table 2 ) , and nearly $43 billion in federal royalties ( Table 3 ). (Tables 2 and 3 are each presented below in the sections on the estimation procedure for corporate income taxes and royalties. These estimates assume that all of the oil that is technically recoverable is also economically recoverable, which is not necessarily the case. The amount of economically recoverable oil depends on unknown variables such as market oil prices and oil finding and transport costs. With regard to oil prices, the higher the price, the more the amount of economically recoverable reserves approaches the magnitude of technically recoverable reserves.

The development of the ANWR coastal plain would also generate federal revenues in the form of bonus bids from the leases on federal lands, and income tax revenues from secondary feedback and multiplier effects from an expanding economy. Bonus bids have been estimated by the Congressional Budget Office for President Bush's FY2009 budget proposal to lease the ANWR coastal plain. According to these estimates, bonus bids could total $6 billion between FY2011 and FY2018. The additional federal income tax revenues (both individual and business) from the secondary economic effects are more difficult to estimate because they would depend on the annual expenditures generated by oil development, the geographic dispersion of those expenditures, and the state of the general economy at the time. Neither bonus bids nor income tax revenues from secondary effects are included in Table 1 .

Increases in federal corporate income taxes ( Table 2 ) would most likely represent the single biggest source of revenue for the federal government if oil were found and produced in ANWR. The basic methodology to estimate potential corporate income taxes is to multiply estimated domestic, pre-tax profits from the assumed oil production at ANWR, projected over the lives of the properties, by the estimated effective federal corporate income tax rate for the major integrated companies that would be expected to have an interest in developing ANWR.

Domestic, pre-tax profits are the difference between revenues (price times output) and production costs. Five hypothetical oil price scenarios are assumed here (each in current dollars), reflecting the unpredictability (and volatility) of world crude prices: $125/barrel, $100/barrel, $90/barrel, $80/barrel, and $60/barrel. It is important to underscore that these are hypothetical price scenarios and do not constitute projections of what crude oil prices are likely to be.

Estimated oil output is based on a May 2000 report by the EIA, which is based on a 1999 USGS study that estimates the quantity of technically recoverable oil and gas. This report estimates oil (and gas) output for the three areas of the geographic coastal plain (including areas outside the ANWR boundary) expected to be of interest to the oil industry should congressional approval for federal lands be forthcoming. In addition, prospects for development of Alaskan state lands (offshore lands outside the Refuge out to the 3-mile limit) would likely be increased by successful onshore development and were included in this analysis. Under §1003 of the Alaska National Interest Lands Conservation Act ( P.L. 96-487 ), all lands inside ANWR are closed to development unless Congress changes the law. Were oil and gas development authorized for the federal lands in the Refuge, development might also be allowed or become feasible on the nearly 100,000 acres of Native lands in the refuge.

According to the 1999 USGS report assessing possible oil and gas in the three areas described above, there is a 95% probability that there are 5.7 billion barrels or more of technically recoverable crude oil and natural gas liquids in the three areas, and a 5% probability that there are 16.0 billion barrels or more. USGS's mean estimate—50% probability—is 10.3 billion barrels or more. About three-fourths of the possible oil and natural gas liquids are estimated to be under federal lands, and one-fourth under Native Corporation lands and the adjacent offshore state lands. Estimates of technically recoverable oil are those quantities producible using current recovery practices, but without regard to economic viability. The 1999 USGS study and the May 2000 EIA study were conducted when oil prices were much lower than today. As oil prices rise, the fraction of technically recoverable oil that is also economically recoverable rises. At today's record oil prices, most of the technically recoverable oil is likely also economically recoverable, although a precise estimate is not available.

For each recoverable oil quantity and price combination scenario, federal corporate income tax revenue was estimated by (1) multiplying the quantity times the price, (2) subtracting production costs (operating costs plus depreciation, depletion, amortization, and administration), and (3) multiplying the result by the average effective federal corporate tax rate currently applicable to major U.S. energy producers.

Projections of production costs were based upon annual financial data on oil and gas industry operations published by the EIA in its Performance Profiles reports covering the major U.S.-based energy producing companies. An eleven-year average (for 1995-2005) was used to remove the volatility of profits over business cycles and fluctuations in volatile market oil prices to reflect the long-term nature of oil development in the ANWR coastal plain, which, if successful, would be expected to produce oil for at least 30 years. Based upon the Performance Profiles data, production costs of domestic oil and gas producers averaged 69% of revenues over the 1995-2005 period and, consequently, net pre-tax profits for those companies averaged 31% of revenue. That percentage was used to project net pre-tax profits from ANWR output over the life of the wells. The production cost percentage was based upon cost data for all domestic U.S. operations rather than just for Alaska, which are not available. The costs reflect the consolidated operations of largely major integrated producers, rather than just production operations. Exploration and production costs above the Arctic Circle are far higher than in the lower 48 states, but these are the only available data. It was not possible to analyze factors that may increase production costs, but some may be important: time of year limitations, need for ice roads, the movement of equipment across permafrost and so forth.

The effective federal corporate income tax rate also was estimated using EIA's Performance Profiles . Based upon data in those reports, the average effective tax rate for the years 1998-2005 was 33%. This was derived by subtracting from the U.S. federal tax any foreign tax credit (which would not be claimed on income from ANWR operations), and dividing by U.S. pre-tax income. This effective tax rate probably is an upper bound; and the actual effective tax rate over the production horizon might end up being lower due to substantial industry investments in ANWR oil and gas development. Also, the estimation of the effective tax rate assumes that current tax legislation remains unchanged. Any future amendments to current tax laws could, of course, either lower or raise effective tax rates.

Landowners typically collect royalties on minerals extracted from their lands by mineral operators and producers. Likewise the federal government earns royalties from production of oil and gas on federal lands, generally 12.5% of the oil and gas value. The federal lands in ANWR have been estimated by the USGS to contain 74% of the estimated technically recoverable reserves. (The remaining 26% of estimated total recoverable oil resides in state and Alaska Native Corporation lands.)

The Alaska Statehood Act allocates 90% of the royalties from oil and gas production on federal lands to Alaska; the federal government retains the remaining 10%. However, our revenue projections assume a 50-50 split of all royalties, which is consistent with most current legislation. Many, but not all, bills that would approve development of ANWR provide for a 50-50 division of the royalties. Some bills (e.g., H.R. 39 in the 109 th Congress) have been silent on revenue distribution; thus, the current 90-10 split would retained. Obviously, a 90-10 division of the royalty revenues means that less revenue would remain for federal government use.

Table 3 shows the projected total royalties accruing to the federal government over the expected productive lifetime of the ANWR federal leases assuming a 50-50 split with the state. The same amount of revenues are projected to accrue to the State of Alaska. There would also be income to the State of Alaska regardless of whether economically recoverable oil is found. This is because even if no commercially recoverable oil were found, the State of Alaska would likely share in the bonus bids and rents over the short term (5-10 years) while the oil industry is searching for the oil.

Question: Why has the issue of stimulating domestic supplies of crude oil been raised?

Answer: Recent high petroleum prices, and the related economic burden on consumers and energy-intensive industries, has raised the issue of stimulating domestic supplies of crude oil.

Question: Why is the coastal plain of the ANWR important?

Answer: One possible source is the coastal plain of the Arctic National Wildlife Refuge (ANWR), which is estimated to contain significant quantities of oil and gas.

Question: What are some benefits to developing ANWR resources?

Answer: Interest in developing the ANWR oil resources has also focused on the revenues that the federal government could collect should exploration and development be successful. Some observers have suggested using such revenues for purposes such as providing relief to petroleum consumers, further subsidizing energy conservation measures, or reducing federal budget deficits.

Question: Why can't ANWR resources be developed?

Answer: However, current federal law prohibits the production of oil and gas in ANWR.

Question: How would the federal government collect revenues?

Answer: The federal government would collect revenues from bonus bids from federal leases, and rents on undeveloped leases.

Question: How would bonus bid revenues change?

Answer: Independent estimates by the Congressional Budget Office for President Bush's FY2009 budget proposal show estimated bonus bid revenues of $6 billion between FY2011 and FY2018.

Question: Why would income tax revenues increase?

Answer: Finally, income tax revenues from the secondary feedback effects would also increase as a result of the stimulus to general economic activity.

Question: Why are income tax revenues estimates not included in the report?

Answer: However, these revenues are not included here due to the difficulty in estimation over the projection time horizon.


Overview of Health Insurance Exchanges

Summary: The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) requires health insurance exchanges to be established in every state. Exchanges are marketplaces in which consumers and small businesses can shop for and purchase private health insurance coverage. In general, states must have two types of exchanges: an individual exchange and a small business health options program (SHOP) exchange.

Summary: Exchanges may be established either by the state itself as a state-based exchange (SBE) or by the Secretary of Health and Human Services (HHS) as a federally facilitated exchange (FFE). Some states have SBE-FPs: they have SBEs but use the federal information technology platform, including the federal exchange website www.Healthcare.gov. In states with FFEs, the exchange may be operated by the federal government alone or in conjunction with the state. States may have different structures for their individual and SHOP exchanges.

Summary: Consumers who obtain coverage through the individual exchange may be eligible for financial assistance from the federal government. Financial assistance in the individual exchanges is available in two forms: premium tax credits and cost-sharing reductions. Small businesses that use the SHOP exchange may be eligible for small business health insurance tax credits. The tax credits assist small businesses with the cost of providing health insurance coverage to employees.

Summary: The ACA generally requires that health insurance plans offered through an exchange are qualified health plans (QHPs). To be a certified as a QHP, a plan must be offered by a state-licensed issuer and must meet specified requirements, including covering the essential health benefits (EHB). QHPs sold in the individual and SHOP exchanges must comply with the same state and federal requirements that apply to QHPs and other health plans offered outside of the exchanges in the individual and small-group markets, respectively. Exchanges also may offer variations of QHPs, such as child-only or catastrophic plans, and non-QHP dental-only plans.

Summary: This report provides an overview of the various components of the health insurance exchanges. It begins with summary information about how exchanges are structured and then discusses both individual and SHOP exchanges in terms of eligibility and enrollment, financial assistance for certain exchange consumers and small businesses, and enrollment assistance entities. The report also describes exchanges' role in certifying plans as qualified to be sold in their marketplaces and outlines the range of plans offered through exchanges. Finally, the report briefly addresses funding for the exchanges. Where applicable, the report references other CRS reports that have more information on various topics.

The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) requires health insurance exchanges (also known as marketplaces ) to be established in every state. ACA exchanges are virtual marketplaces in which consumers and small businesses can shop for and purchase private health insurance coverage and, where applicable, be connected to public health insurance programs (e.g., Medicaid). Exchanges are intended to simplify the experience of obtaining health insurance. They are not intended to supplant the private market outside of the exchanges but rather to provide an additional source of private health insurance coverage options.

This report provides an overview of key aspects of the health insurance exchanges. The report includes summary information about the major functions of exchanges and how they are structured. It describes individual and small business eligibility and enrollment processes, provides enrollment estimates, explains the financial assistance available to certain consumers and small businesses, and discusses consumer enrollment assistance options. The report also reviews the role of exchanges in certifying participating plans and outlines the range of plans offered through exchanges. It briefly addresses funding for the exchanges. It provides a high-level description of these exchange-related topics while referencing other CRS reports with further information on specific topics, including on topics related to market stabilization policy considerations.

The ACA required health insurance exchanges to be established in all states and the District of Columbia (DC). In general, the health insurance exchanges began operating in October 2013 to allow consumers to shop for health insurance plans that began as soon as January 1, 2014.

Most states have two types of exchanges—an individual exchange and a small business health options program (SHOP) exchange . In an individual exchange, eligible consumers can compare and purchase non-group insurance for themselves and their families and can apply for premium tax credits and cost-sharing reductions. In a SHOP exchange, small businesses can compare and purchase small-group insurance and can apply for small business health insurance tax credits; in addition, employees of small businesses can enroll in plans offered by their employers on a SHOP exchange. Besides facilitating consumers' and small businesses' purchase of coverage (by operating a web portal, making determinations of eligibility for coverage and any financial assistance, and offering different forms of enrollment assistance), the other major function of the exchanges is to certify, recertify, and otherwise monitor the plans that participate in those marketplaces. Individual and SHOP exchanges can be operated by either the state or the federal government, as described below.

State-Based and Federally Facilitated Exchanges

A state can choose to establish its own state-based exchange (SBE). If a state opts not to administer its own exchange, or if the Department of Health and Human Services (HHS) determines that the state is not in a position to do so, then HHS is required to establish and administer the exchange in the state as a federally facilitated exchange (FFE). States also may have a state-based exchange using a federal platform (SBE-FP), which means they have an SBE but use the federally facilitated information technology (IT) platform (i.e., HealthCare.gov).

For the 2018 plan year, 34 states have FFEs, 12 states have SBEs, and 5 states have SBE-FPs. In addition, state involvement in the FFEs may vary. In many states with FFEs, the exchange is wholly operated and administered by HHS. But in some cases, states partner with HHS to perform some functions, such as plan management or consumer assistance.

Like the individual exchanges, SHOP exchanges may be federally facilitated (FF-SHOP; 32 states), state-based (SB-SHOP; 16 states), or state-based using the federal IT platform (SB-FP-SHOP; 2 states). One state is exempted from operating a SHOP exchange. For the 2018 plan year, most states' individual and SHOP exchanges are administered in the same way (i.e., both state-based or both federally facilitated). However, a handful of states have different approaches for their individual and SHOP exchanges.

See Figure 1 and Table A-1 for the exchange types by state.

A primary function of the exchanges is to provide a way for consumers and small businesses to compare and purchase health plan options offered by insurers.

Consumers may purchase health insurance plans for themselves or their families in their state's individual exchange. Consumers may enroll as long as they (1) meet state residency requirements; (2) are not incarcerated, except individuals in custody pending the disposition of charges; and (3) are U.S. citizens, U.S. nationals, or "lawfully present" residents. Undocumented individuals are prohibited from purchasing coverage through the exchanges, even if they were to pay the entire premium without financial assistance.

Consumers can use their state's exchange website (Healthcare.gov or a state-run site) to compare and enroll in plans, and the exchange websites are required to display a calculator that estimates consumers' costs after any cost-sharing reductions or premium tax credits for which they are eligible (see " Premium Tax Credits and Cost-Sharing Reductions " in this report). Consumers may be linked to Medicaid or the State Children's Health Insurance Program (CHIP) enrollment pages if they are eligible.

In addition to using the exchange websites, consumers can enroll by phone, by mail, or in person—including through an agent, broker, or plan issuer—as available by state. Enrollment assistance is available for those who want it (see " Individual and SHOP Exchange Enrollment Assistance " in this report).

Once the exchange receives and verifies consumers' eligibility and enrollment information, it may continue to serve as a conduit through which consumers pay their premiums to their issuers. Alternatively, consumers may pay premiums directly to their issuers.

Enrollment Periods and Enrollment Estimates

Consumers may enroll in coverage through the exchanges only during specified enrollment periods.

Anyone eligible for exchange plan coverage may enroll during an annual o pen e nrollment p eriod (OEP). The OEP typically takes place in fall of the year preceding the plan year. The OEP for calendar year 2018 coverage was November 1, 2017, to December 15, 2017, for FFE and SBE-FP states (see Table 1 for enrollment periods). States with SBEs may observe different OEPs. For 2018 coverage, all 12 SBEs' OEPs lasted longer than the federal OEP. The OEP for plan year 2019 is currently set as November 1, 2018, to December 15, 2018, for FFE and SBE-FP states.

Consumers also may be allowed to enroll for coverage in an exchange if they qualify for a s pecial e nrollment p eriod (SEP). Generally, consumers qualify for SEPs due to a change in personal circumstances—for example, a change in marital status or number of dependents—or loss of qualifying coverage. HHS also may choose to offer SEPs or extend an OEP for some or all consumers due to broadly applicable circumstances. In addition, consumers generally may enroll in Medicaid or CHIP whenever they qualify, regardless of their state's exchange OEP.

Annual individual exchange enrollment estimates to date are shown in Table 1 . Given the exchange eligibility determination process as well as the OEPs and SEPs, data on exchange enrollment are released in stages. Pre-effectuated enrollment is the number of unique individuals who have been determined eligible to enroll in an exchange plan and have selected a plan. These individuals may or may not have submitted the first premium payment. In general, cumulative and final pre-effectuated enrollment estimates are released during and soon after an annual open enrollment period.

Subsequently, effectuated enrollment is the number of unique individuals who have been determined eligible to enroll in an exchange plan, have selected a plan, and have submitted the first premium payment for an exchange plan. Effectuated enrollment estimates generally are point-in-time and may change over the coverage year. For example, due to changes in life circumstances, an individual may disenroll (e.g., if later offered coverage through an employer) or enroll (e.g., given eligibility for an SEP) in an exchange plan.

Premium Tax Credits and Cost-Sharing Reductions

Consumers purchasing coverage through the individual exchanges may be eligible to receive financial assistance. Eligibility for such assistance is based primarily on income and provided in the form of premium tax credits and cost-sharing reductions.

The premium tax credit is generally available to consumers who do not have access to public coverage (e.g., Medicaid) or employment-based coverage that meets certain standards. The credit is designed to reduce an eligible individual's cost of purchasing health insurance coverage through the exchange. The amount of the premium tax credit is based on a statutory formula and varies from person to person. It is designed to provide larger credit amounts to individuals with lower incomes compared to those with higher incomes.

The premium credit is refundable, so individuals may claim the full credit amount when filing their taxes, even if they have little or no federal income tax liability. The credit also is advanceable, so instead of waiting until they file taxes, individuals may choose to receive the credit on a monthly basis to coincide with the payment of insurance premiums (technically, these advance payments go directly to issuers). Advance payments automatically reduce monthly premiums by the credit amount. Therefore, the direct cost of insurance to a consumer eligible for premium credits generally will be lower than the advertised cost for a given exchange plan.

In addition to premium tax credits, certain consumers also may be eligible to receive cost-sharing reductions that reduce out-of-pocket expenses. There are two forms of cost-sharing reductions, and individuals may receive both if they meet the applicable eligibility requirements.

The first form of cost-sharing assistance reduces the annual out-of-pocket limit applicable to an individual's exchange plan. Annual out-of-pocket limits apply to all plans in the exchanges and to other plans under the ACA. In 2018, the annual out-of-pocket limit is $7,350 for a self-only plan and $14,700 for coverage other than self-only (e.g., a family plan). In 2019, those limits will be $7,900 and $15,800, respectively. This form of cost-sharing assistance further lowers the spending cap for eligible consumers. The second form reduces cost-sharing requirements applicable to an individual's exchange plan. All exchange plans must meet certain requirements related to actuarial value, or the percentage of allowed health care expenses that issuers will cover. This form of cost-sharing assistance reduces the percentage of costs that the individual is responsible for, effectively raising the actuarial value of the plan.

Certain small businesses are eligible to use the SHOP exchanges. For the purposes of SHOP exchange participation, states may define small employers (or small businesses) as employers that have 50 or fewer full-time employees or employers that have 100 or fewer full-time employees. A majority of states define small as having 50 or fewer employees, and only four states employ the 100-or-fewer-employee definition for their SHOP exchanges. As of 2017, all states have the option to allow large businesses to use SHOP exchanges, as well, but no states have taken that option.

To participate in a SHOP exchange, a small business must offer coverage to all of its full-time employees , meaning those working 30 or more hours per week on average. The business may, but is not required to, offer coverage to part-time or other employees. Employees must meet the same citizenship and other eligibility requirements that apply in the individual exchanges.

For an employee to obtain coverage through a SHOP exchange, a SHOP-eligible employer must select one or more plan options on the SHOP exchange for its employees to choose from. Then, employees can visit the SHOP exchange website to compare their employer's plan options and to enroll. Employers and their employees also can work with a SHOP-registered broker or directly with a plan issuer instead of going through their SHOP exchange's web portal (or if their SHOP exchange does not offer a web portal with enrollment functionality, as discussed below).

Small employers that want to offer more than one plan option to their employees generally are able to do so. Via the employee choice method, also called horizontal choice , the employer can allow its employees to select any plan at a certain coverage and value tier (e.g., a certain metal level of actuarial value). As of 2017, there is also a vertical choice method, under which employers can allow their employees to select any plan "across all available actuarial value levels of coverage from a single issuer."

Changes in SHOP Exchange Web Portal Functionality

Citing early difficulties in getting some SHOP exchange websites online, CMS issued guidance in March 2014 that exchanges still developing their SB-SHOP websites could use a direct enrollment approach for plan year 2014, meaning small businesses and their employees would work directly with agents, brokers, or issuers to compare and purchase coverage rather than enrolling online. In subsequent guidance, CMS extended that policy for plan years beginning in 2015-2019, still for SB-SHOPs only. As of April 2016, CMS indicated that SB-SHOPs would need to implement online portals in time for plan years beginning in 2019 and outlined different options for those states to consider, including transitioning to the federal IT platform (becoming an SB-FP-SHOP) or applying for an ACA Section 1332 waiver to obtain an exception to the requirement to have a SHOP exchange at all.

Via the "2019 Notice of Benefit and Payment Parameters" (2019 Payment Notice) finalized in April 2018, HHS signaled a new policy direction, citing generally low employer participation in the SHOP exchanges and decreasing issuer participation. For plan years beginning in 2018, the direct enrollment approach is not just a transitional option for SB-SHOP states: it is the only option in FF-SHOP and SB-FP-SHOP states. Although small businesses using the SHOP exchange in those states still will be able to use the Healthcare.gov portal to browse plans and determine their eligibility for small business tax credits (discussed below), they will not be able to enroll in a plan through the SHOP web portal. States with SB-SHOPs also can choose to maintain or return to a direct enrollment approach or to maintain online enrollment, if they have it.

HHS also confirmed in the 2019 Payment Notice that because of these reductions in federal SHOP web portal functionality, going forward, state-based SHOP exchanges will not be able to use the federal IT platform. In other words, HHS is eliminating the SB-FP-SHOP option (discussed above in " Types of Exchanges "). The two states that currently use this option, Kentucky and Nevada, may continue to do so if desired, knowing that the Healthcare.gov functionality is to be diminished.

As of June 2018, three SB-SHOP states still use their initial direct enrollment approaches and five other SB-SHOPs are transitioning to this approach and/or are instructing small businesses to enroll directly with issuers off the exchange because no issuers are offering plans in their SHOP exchange in 2018. For FF-SHOP and SB-FP-SHOP exchange states, Healthcare.gov instructs users of the new direct enrollment approach.

Enrollment in a SHOP exchange is not limited to a specified OEP, except in certain circumstances. Specific circumstances aside, a SHOP exchange must allow employers to enroll any time during a year, and the employer's plan year must consist of the 12-month period beginning with the employer's effective date of coverage.

Unlike individual exchange enrollment data, SHOP exchange enrollment data are not released annually. However, CMS estimated that there were approximately 27,000 small employers and 233,000 employees using the SHOP exchanges across the country in January 2017. CMS previously estimated 10,700 active small employers and 85,000 employees in the SHOP exchanges as of May 2015.

Certain small businesses are eligible for small business health care tax credits. In general, these credits are available only to small businesses that purchase coverage through SHOP exchanges and subsidize their employees' premiums. The intent of the credit is to assist small employers with the cost of providing health insurance coverage to employees. The credits are available to eligible small businesses for two consecutive tax years (beginning with the first year the small employer purchases coverage through a SHOP exchange).

The maximum credit is 50% of an employer's contribution toward premiums for for-profit employers and 35% of employer contributions for nonprofit organizations. The full credit is available to employers that have 10 or fewer full-time equivalent (FTE) employees who have average taxable wages of $26,600 or less (in 2018). In general, the credit is phased out as the number of FTE employees increases from 10 to 25 and as average employee compensation increases to a maximum of two times the limit for the full credit.

Employees who enroll in a SHOP plan do not receive this tax credit, nor are they eligible for the premium tax credit or cost-sharing reductions available to certain consumers who purchase coverage on the individual market (discussed in this report in " Premium Tax Credits and Cost-Sharing Reductions ").

Individual and SHOP Exchange Enrollment Assistance

Statute and regulations require that exchanges—both individual and SHOP—carry out certain consumer-assistance functions. Exchanges (both federally facilitated and state-based) must establish Navigator programs and certified application counselor (CAC) programs. Under these programs, individuals are trained to conduct public outreach and education activities; help consumers make informed decisions about their insurance options; and help consumers access individual and SHOP exchange coverage and cost-sharing assistance or public program coverage (e.g., Medicaid or CHIP) if they qualify. Although consumer assistance personnel (including Navigators and CACs) can help consumers and small employers understand their options, the assistors may not advise them on which plan to select. Once consumers or small employers choose a plan, assisters may help them enroll in coverage. Neither Navigators nor CACs may be health issuers or take compensation from issuers or consumers for selling health policies.

Pursuant to state law, exchanges also may allow insurance agents and brokers, including web-based brokers, to help consumers and small employers obtain coverage through exchanges. Brokers and agents are licensed by the states and generally are paid on a commission basis by insurance companies.

Besides facilitating in-person assistance, exchanges also must provide for the operation of a call center and maintain a website that meets certain informational requirements. Overall, exchanges' consumer outreach efforts and materials must meet certain standards regarding accessibility for individuals with disabilities or with limited English proficiency.

In addition to carrying out their consumer-facing activities that facilitate the purchase of coverage, exchanges are responsible for several administrative functions, including certifying the plans that will participate in their marketplaces. SBEs, SBE-FPs, and state entities in some FFEs (where states have chosen to perform some plan-management functions) are each responsible for annually certifying or recertifying plans to be sold in their exchanges as q ualified h ealth p lans (QHPs, see " Qualified Health Plans ," below). In FFEs in which HHS oversees all plan-related functions, CMS does this for each state.

QHP certification involves a review of various factors, including the benefits a plan will cover, the network of providers it will include, its premium rates, its marketing practices, and its adherence to quality-of-care standards. The QHP certification process is to be completed each year in time for issuers to advertise their plans and rates during the exchanges' annual OEP.

Exchanges' other administrative activities include collecting enrollment and other data, reporting data to and otherwise interacting with the Departments of HHS and the Treasury, and working with state insurance departments and federal regulators to conduct ongoing oversight of plans.

In general, health insurance plans offered through exchanges must be QHPs. A QHP is a plan that is offered by a state-licensed issuer that meets specified requirements, is certified by an exchange, and covers the essential health benefits (EHB) package. The EHB package requires plans to cover 10 broad categories of benefits and services, comply with limits on consumer cost sharing on the EHB, and meet certain generosity requirements.

QHPs must comply with the same state and federal requirements that apply to health plans offered outside of exchanges. A QHP offered through an individual exchange must comply with state and federal requirements applicable to individual market plans; a QHP offered through a SHOP exchange must comply with state and federal requirements applicable to plans offered in the small-group market. For example, QHPs offered through individual and SHOP exchanges must cover specified preventive services without imposing cost sharing, just like plans offered in the individual and small-group markets outside of exchanges.

A QHP is the only type of comprehensive health plan an exchange may offer, but QHPs may be offered outside of exchanges, as well.

Types of QHPs and Other Plans Offered Through Exchanges

Most plans offered in the exchanges are QHPs, including child-only plans, catastrophic plans, consumer operated and oriented plans (CO-OPs), and multi-state plans (MSPs). Stand-alone dental plans are the only non-QHPs offered in the exchanges. Some plans that are available in the exchanges also are available off the exchanges.

The types of plans that may be available through exchanges are summarized in Table B-1 .

The ACA provided an indefinite (i.e., unspecified) appropriation for HHS grants to states to support the planning and establishment of exchanges. For each fiscal year between FY2011 and FY2014, the HHS Secretary determined the total amount that was made available to each state for exchange grants. However, none of these exchange grants could be awarded after January 1, 2015, and exchanges were expected to be self-sustaining beginning in 2015.

Exchanges may generate funding to sustain their operations, including by assessing fees on participating health insurance plans. To raise funds for the exchanges it oversees, HHS assesses a monthly fee on each health insurance issuer that offers plans through an FFE or SBE-FP. The fee is a percentage of the value of the monthly premiums that the issuer collects on exchange plans in a given state, and HHS updates the percentage each year through rulemaking. (See Table 2 .) Currently, these user fees are the primary source of funding for FFEs; they are estimated to account for 70% of all FFE funding in FY2018.

Most SBEs also assess user fees on issuers participating in their exchanges, often 1%-3% of premiums or a monthly flat fee. States also can use other state funding to support their exchanges, and some have become FFEs or moved to the federal IT platform due to challenges and/or costs of maintaining their exchanges.

User fees also have been assessed on issuers participating in SHOP exchanges. However, in the 2019 Payment Notice, HHS announced that the fees won't be assessed for issuers selling plans under the new model of reduced federal IT support (see " Changes in SHOP Exchange Web Portal Functionality " in this report).

For more information about certain issues addressed in or relevant to this report, see the following CRS reports:

CRS Report R45146, Federal Requirements on Private Health Insurance Plans CRS Report R44425, Health Insurance Premium Tax Credits and Cost-Sharing Subsidies CRS Report R44438, The Individual Mandate for Health Insurance Coverage: In Brief

Appendix B. Types of Plans Offered Through the Exchanges

Question: How are health insurance exchanges established?

Answer: Exchanges may be established either by the state itself as a state-based exchange (SBE) or by the Secretary of Health and Human Services (HHS) as a federally facilitated exchange (FFE).

Question: How can exchanges within states be different?

Answer: States may have different structures for their individual and SHOP exchanges.

Question: How does SBE-FP work?

Answer: Some states have SBE-FPs: they have SBEs but use the federal information technology platform, including the federal exchange website www.Healthcare.gov.

Question: How does FFE exchange work?

Answer: In states with FFEs, the exchange may be operated by the federal government alone or in conjunction with the state.

State-Based and Federally Facilitated Exchanges

Question: How might people who obtain coverage through the individual exchange potentially be eligible for federal assistance?

Answer: Consumers who obtain coverage through the individual exchange may be eligible for financial assistance from the federal government.

Question: How is financial assistance in individual exchanges available?

Answer: Financial assistance in the individual exchanges is available in two forms: premium tax credits and cost-sharing reductions.

Question: Why might small businesses get health insurance tax credits?

Answer: Small businesses that use the SHOP exchange may be eligible for small business health insurance tax credits.

Question: How are these tax credits helpful?

Answer: The tax credits assist small businesses with the cost of providing health insurance coverage to employees.

Premium Tax Credits and Cost-Sharing Reductions

Facilitating Purchase of Coverage
SHOP Exchanges
Small Business Health Care Tax Credit

Question: What is required by the ACA?

Answer: The ACA generally requires that health insurance plans offered through an exchange are qualified health plans (QHPs).

Question: How can a plan be certified as a QHP?

Answer: To be a certified as a QHP, a plan must be offered by a state-licensed issuer and must meet specified requirements, including covering the essential health benefits (EHB).

Question: What is necessary of QHPs?

Answer: QHPs sold in the individual and SHOP exchanges must comply with the same state and federal requirements that apply to QHPs and other health plans offered outside of the exchanges in the individual and small-group markets, respectively.

Question: What variations of QHPs are there?

Answer: Exchanges also may offer variations of QHPs, such as child-only or catastrophic plans, and non-QHP dental-only plans.

Administering the Exchanges
Qualified Health Plans

Types of QHPs and Other Plans Offered Through Exchanges

Question: How does this report begin?

Answer: It begins with summary information about how exchanges are structured and then discusses both individual and SHOP exchanges in terms of eligibility and enrollment, financial assistance for certain exchange consumers and small businesses, and enrollment assistance entities.

Question: What else does the report describe?

Answer: The report also describes exchanges' role in certifying plans as qualified to be sold in their marketplaces and outlines the range of plans offered through exchanges.

Question: What does the report briefly address?

Answer: Finally, the report briefly addresses funding for the exchanges.

Question: What might the report reference?

Answer: Where applicable, the report references other CRS reports that have more information on various topics.