The basics of health insurance exchanges

Could buying health insurance become as easy as shopping online for shoes? Many lawmakers and consumer advocates hope so.

Under the federal Patient Protection and Affordable Care Act, plans are under way to set up health insurance exchanges. These exchanges are expected to resemble an online marketplace, making it easy for consumers to head to a website, sort through their options and buy health insurance at a competitive price.

health insurance exchanges

While the idea sounds simple, there are many facets to health insurance exchanges, and lawmakers are still sifting through the details of how to create them in each state.

Let’s look at some of the commonly asked questions about these exchanges, and what consumers can expect to see in the coming years.

What are health insurance exchanges?

According to the health care reform law, a health insurance exchange is a marketplace where consumers and small businesses will be able to shop for insurance. The concept of these exchanges has been compared with travel websites: Consumers will be able to visit a website, compare various health plans and choose the best one for their needs.

In addition to offering private insurance policies, health insurance exchanges also will offer public options, such as Medicare and Medicaid, to people who qualify for these plans.

How do health insurance exchanges work?

Starting in 2014, individuals who do not receive health insurance through an employer should be able to find a policy through an exchange. Health insurance exchanges should feature several insurance companies competing for your business, says Robert Slayton, president of Robert Slayton & Associates Inc. in Naperville, Ill., and president of the Illinois State Association of Health Underwriters.

Each exchange will be required to present information in a standard format for all insurance plans. This format will include premium and cost-sharing information, a summary of the benefits offered by each plan and measurements of customer satisfaction.

While the concept of an exchange involves an online format, some states also may set up brick-and-mortar places for people who have limited Internet access and want to shop for insurance.

Who will benefit from health insurance exchanges?

At the beginning, exchanges will be open to individuals who buy their own health insurance coverage. The Congressional Budget Office estimates that during 2014, the first year of operation for the exchanges, about 11.5 million people will use them. That figure could increase to 24 million by 2019.

Health insurance exchanges also will be available for employees of businesses with 100 or fewer workers. States have the option to limit the exchanges to companies with 50 or fewer full-time employees through the year 2016.

Will all states be part of the same health insurance exchange?

The health care reform law requires each state to have an insurance exchange ready for certification in January 2013. Each state will have the option of setting up its own exchange. A state also may decide to form coalitions with other states to create regional exchanges, or to opt out of the program altogether. If a state chooses to not participate, the federal government will run an exchange for that state’s residents.

Massachusetts and Utah already have exchanges in place; they were established before the health reform law took effect. Governors in other states, including California, Colorado, Connecticut, Hawaii, Maryland, Nevada, Oregon, Vermont, Washington and West Virginia, have signed legislation to establish insurance exchanges in their states.

Other states have decided not to participate in the exchange program. For instance, New Mexico’s governor vetoed legislation to establish an exchange; Louisiana has notified the U.S. Department of Health and Human Services that the state won't establish an exchange.

How much will policies cost?

The federal government is subsidizing insurance premiums – the same way an employer would – for eligible health insurance plans in the exchanges, says Nicholas Newsad, senior associate at HealthCare Appraisers Inc. in Castle Rock, Colo.

Consumers who earn less than 400 percent of the federal poverty income level will qualify for some type of subsidy. In 2011, 400 percent of the federal poverty income level for an individual amounts to $43,560; for a family of four, 400 percent of the federal poverty income level in 2011 comes to $89,400.

Those who earn less than 133 percent of the federal poverty level will qualify for Medicaid. In 2011, 133 percent of the federal poverty level equates to $14,484 for an individual; for a family of four, 133 percent of the federal poverty level amounts to $29,726. For individuals and families earning more, a sliding scale will be established for private insurance sold through the exchanges.

The premiums to be paid will depend on the type of plan and geographic location. Insurers won't charge more for plans based on things such as gender and health status.

What kinds of coverage will be available through health insurance exchanges?

Each plan will offer a set of benefits that are considered “essential.” The list, which still is being developed by federal officials, will include hospital, emergency, maternity, pediatric, drug and lab services.

The hope is that while health insurance plans can be cumbersome to comb through, the information on benefits available through the exchanges will be standardized to make it easier to compare cost and quality. Depending on the number of benefits involved, plans will be grouped into different categories, including bronze, silver, gold and platinum. Health care providers may opt to offer a variety of plans, giving consumers more flexibility when it comes to picking a health insurance plan through an exchange.

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