Health Insurance Exchanges and the Affordable Care Act
Health Insurance Exchanges
One-Stop Health Insurance Marketplaces
Starting in 2014, state-based health insurance exchanges will make it easier for individuals and small businesses to buy affordable health insurance. The exchanges will act as one-stop health insurance marketplaces to allow customers to find and compare competitive health plans, to select among standardized coverage options, to find out if they are eligible for any health programs or tax credits to make their health insurance more affordable, and to enroll in a health insurance plan of their choice.
History of Health Insurance Exchanges
Health insurance exchanges (also referred to as health benefit exchanges) are a key component of the Patient Protection and Affordable Care Act (ACA) of 2010.
Per President Obama, the exchanges are to act as "...a market where Americans can one-stop shop for a health care plan, compare benefits and prices, and choose the plan that's best for them, in the same way that Members of Congress and their families can. None of these plans should deny coverage on the basis of a preexisting condition, and all of these plans should include an affordable basic benefit package that includes prevention, and protection against catastrophic costs."
This quote from President Obama highlights that health insurance exchanges:
- will be one-stop marketplaces for purchasing health insurance plans;
- will make it easier for consumers to compare benefits and prices among plans;
- will give consumers the same access to health insurance that Congress has;
- will make it illegal for plans to deny coverage based on preexisting conditions;
- will insure all plans provide a basic coverage package including prevention; and
- will insure all plans provide protection against catastrophic health care costs.
Under the ACA, each state has the option of operating its own health insurance exchange or partnering with the federal government. The federal government will operate a federally-administered exchange for any state that refuses both options.
Each state must decide whether to operate its own state-based exchange by December 14, 2012, or whether to operate a partnership exchange with the federal government by February 15, 2013. Any state that cannot or will not choose either option will be forced to accept a federally-administered exchange.
As of November 29, 2012, the status of the 50 states and District of Columbia is as follows:
- Declared state-based exchanges (17 states plus DC): CA; CO; CT; DC; HI; IA; KY; MA; MD; MN; MS; NM; NV; NY; OR; RI; VT; and WA.
- Planning for partnership exchanges (6 states): AR; DE; IL; MI; NC; and OH.
- Default to federal exchanges (17 states): AK; AL; AZ; GA; KS; LA; ME; MO; ND; NE; NH; OK; SC; SD; TX; WI; and WY.
- Not decided (10 states): FL; ID; IN; MT; NJ; PA; TN; UT; VA; and WV.
Regardless of how it's operated, each exchange must be fully certified and capable of enrolling customers into insurance plans by October 1, 2013, and must be operational by January 1, 2014.
Thus, by October 1, 2013, individuals and small businesses will have access to exchanges that will make it easier to buy affordable health insurance that will go into effect on January 1, 2014.
People Who Will Use Health Insurance Exchanges
In 2014 and beyond, Americans who buy individual health insurance will purchase that insurance through their state's health insurance exchange. Small businesses with up to 100 employees will also buy their health insurance from these exchanges. Exceptions are provided for people covered by grandfathered plans, and the relatively few people who are covered by self-funded plans.
In 2017 and beyond, states will have the discretion to allow employees of businesses with 100 or more employees to also purchase their insurance from their state's health insurance exchanges.
Thus, starting in 2014, individuals and small businesses who previously may have had difficulty finding affordable coverage will be able to turn to health insurance exchanges. Some analysts believe these exchanges may trigger a boom in entrepreneurship as workers who were previously tied to an employer due to its health insurance benefits gain the confidence to start their own businesses.
The exchanges will also help other groups of people who previously had difficulty navigating the complex individual health insurance market, including the unemployed, individuals with preexisting conditions, early retirees, and people who could not afford the steep premiums of individual plans.
Guaranteed Issue & The Individual Mandate
In the past, many insurance companies refused to cover individuals with preexisting conditions, or provided coverage only with premiums too high for most people. Other insurers excluded coverage for any healthcare costs related to any preexisting condition. This practice effectively prevented many individuals from moving to a new job because they couldn't risk losing their coverage.
Under the ACA, beginning in 2014, all plans offered by health insurance exchanges will be prohibited from denying coverage due to preexisting conditions. This feature is referred to as "guaranteed issue" because the issuance of the health insurance plans selected by customers is guaranteed.
The guaranteed issue feature of the ACA will result in insurance companies being forced to accept more customers with medical conditions that will require expensive treatments. To help keep down insurance premiums, the ACA also includes a feature referred to as "the individual mandate". This mandate will require every American to purchase healthcare insurance (or pay a fine on their tax return). This feature will allow insurance companies to spread the financial risk of covering people with preexisting conditions by increasing their pools of customers to include more healthy people.
Standard Tiers of Benefit Packages
The insurance plans offered by health insurance exchanges will have four tiers of benefits. The tiers, from least to highest benefits, will be referred to as the bronze, silver, gold and platinum tiers. These plans will cover different percentages of medical bills in 10% increments, starting at 60% for the bronze plans, 70% for the silver plans, 80% for the gold plans, and 90% for the platinum plans.
To make it easier for people to comparison shop, each health insurance plan offered on the exchanges will need to cover an essential health benefits package that provides a comprehensive set of services. These essential health benefits packages are still in the process of being defined.
The ACA creates several other mandates for all insurance plans offered on the health insurance exchanges. These mandates include limiting the deductibles for small group plans to $2,000 for individuals and $4,000 for families, and limiting any waiting periods for coverage to 90 days.
Under the ACA, lifetime and annual limits on individual plans sold by the health insurance exchanges will be prohibited. This will vastly reduce the risk of catastrophic healthcare costs for individuals.
Limits on Price Variation
The ACA will impose limits on the differences in premiums charged to certain groups of people. Due to these limits, older people will not need to pay more than 3 times the premium for the lowest-cost plan, and smokers will not need to pay more than 1.5 times the premium for the lowest-cost plan. Pricing variations will be allowed for different areas within a state, and for different family compositions.
Health Insurance Subsidies
A major goal of the ACA was to increase the number of people with health insurance by making it affordable. To this end, tax credits will be available to people under age 65 who purchase coverage from a health insurance exchange and are not covered by their employer, Medicare or Medicaid.
The amount of the tax credit will depend on the relationship of the individual's or family's gross income to the federal poverty level (FPL). Individuals or families with incomes from 100 to 400 percent of the FPL will receive tax credits to reduce the cost of their health insurance premium. Individuals or families with incomes from 100 to 250 percent of the FPL will also receive assistance in paying for non-covered, out-of-pocket healthcare costs such as deductibles and co-pays.
The amount of the tax credits will be a percentage of income. Payments will start at 2% of income for people with incomes up to 133% of the FPL. The payments will rise from 3% to 4% of income for people with incomes from 133% to 150% of the FPL, from 4% to 6.3% of income for people with incomes from 150% to 200% of the FPL, from 6.3% to 8.05% of income for people with incomes from 200% to 250% of the FPL, from 8.05% to 9.5% of income for people with incomes from 250% to 300% of the FPL, and 9.5% of income for people with incomes from 300% to 400% of the FPL.
The amount of the premiums and subsidies that will apply to individuals or families buying insurance through a health insurance exchange can be estimated using an online tool created by the Henry J. Kaiser Family Foundation.