A health insurance exchange is an online marketplace where individuals and businesses can shop, compare, and buy health insurance plans. Mandated by health care reform and set to begin operation on January 1, 2014, health insurance exchanges will offer a choice of different health plans and provide detailed information to help people better understand their options.
Initially, health insurance exchanges (which, I hear, may be rebranded as “marketplaces”) will serve individuals, families, and small businesses up to 100 employees. States may allow large businesses to participate in 2017.
Exchanges may be operated either by a government agency (such as the Department of Health and Human Services) or a nonprofit organization. Each state is expected to set up its own exchanges for the individual and small business markets. If a state does not create its own exchanges, the federal government will create exchanges for it. States may create multiple exchanges, but no more than one exchange can serve any given geographic area.
Health insurance exchanges are not meant to replace traditional means of obtaining coverage—such as through an employer or from a private insurance company. Instead, the exchanges will coexist with other means as an option that simplifies the buying process and helps drive down costs by promoting competition.
How exchanges will work
Exchanges will list health plan options available in a given ZIP code and display information in a standard format to help buyers compare insurance companies and plan benefits. Consumers will be able to enroll online, in person, by phone, or by mail. Exchanges will also help shoppers determine their eligibility for individual premium tax credits, cost-sharing assistance, and coverage requirement exemptions.
Should a consumer require assistance, the exchange will offer a variety of resources, including a toll-free hotline and special consumer assistance representatives known as “Navigators,” to help in finding a plan and determining eligibility for financial assistance.
Qualified health plans and ratings
Every health plan sold on the exchange must be certified as a “qualifying health plan” and meet a set of minimum standards. For example, each plan must provide coverage for “essential health benefits” as determined by the Department of Health and Human Services. Generally speaking, these benefits are based on the typical employer plan and include preventive and wellness services, chronic disease management, maternity and newborn care, pediatric services, emergency services, laboratory services, rehabilitative services, and more.
To help consumers compare plans, the exchange will categorize each plan based on its actuarial value, or the average percentage of eligible health care costs that a plan will cover. For example, a plan with an actuarial value of 90% would cover, on average, about 90% of eligible health care costs.
Plans will be organized into four levels:
- Bronze plans will pay for about 60% of eligible health care costs
- Silver plans will pay for about 70% of eligible health care costs
- Gold plans will pay for about 80% of eligible health care costs
- Platinum plans will pay for about 90% of eligible health care costs
In addition, exchanges will offer “catastrophic” plans for certain individuals who do not want or who cannot afford the plans above. A catastrophic plan is one that provides coverage for essential health benefits, but otherwise does not share in qualified medical costs until the individual has reached the plan year out-of-pocket limit as determined by the Department of Health and Human Services. The plan’s deductible will not apply to at least three primary care visits.
Catastrophic plans will only be permitted in the individual market and only for 1) young adults who are under age 30 before the plan year begins; and 2) people who are exempt from the individual mandate because affordable coverage is not available or who have a hardship exemption.
People who cannot afford to purchase a health plan through an exchange may be eligible for a government subsidy based on income and family size. In addition, tax credits will be available to eligible individuals and small businesses to make coverage more affordable.
We’ll talk more about health insurance exchanges and other aspects of health care reform in future blog posts. Stay tuned!