Abridged from www.aetna.com
Think of an exchange as an online marketplace. It’s a website where shoppers can research all their options and then buy health insurance.
There are different types of exchanges. First, let’s talk about a public exchange.
The Affordable Care Act requires every state to offer an exchange to its residents. States have a few options:
- A state can choose to create and run its own exchange.
- If a state decides not to run its own exchange, residents of that state can shop on an exchange that will be run by the federal government.
- Or a state can partner with the federal government. In a partnership model, the state and federal government share responsibility for operating that state’s exchange.
No matter what each state decides to do, an exchange is available to residents in every state.
Public exchanges exist for both individuals, who are buying insurance for themselves, and for small group employers, who can buy insurance to offer to their employees. The small group exchange is called SHOP – short for Small Business Health Options Program.
Why are exchanges expected to be so popular? There are a few reasons:
- The Affordable Care Act no longer allows insurers to deny coverage or charge people more based on their health status or pre-existing conditions. So, many people who were unable to buy coverage in the past can now start shopping for a health plan.
- Starting in 2014, individuals are required to buy health insurance or face penalties. This is called the “individual mandate.” Although the penalty for not buying coverage is initially low, it will grow over time. As the penalty goes up, so will participation on exchanges.
- The Affordable Care Act provides tax credits and subsidies for individuals who qualify, to help make insurance more affordable, when they shop on a public exchange.
Many individuals who shop on exchanges may be new to health insurance. To help make shopping easier, health plans on a public exchange are labeled platinum, gold, silver or bronze. The metallic level helps shoppers understand the level of coverage a plan offers – how much they will need to pay and what the plan pays.
Platinum plans have the lowest out-of-pocket cost for members, but the monthly premiums will generally be higher. Bronze plans, on the other hand, have the highest out-of-pocket costs for members, but will typically feature lower monthly premiums.
All plans on an exchange have to offer some core benefits – called essential health benefits – like preventive and wellness services, prescription drugs, and coverage for hospital stays.
Public exchanges are designed to help shoppers choose a plan that fits their needs and their budget.
So that’s the public exchange – offered by the government – either state or federal, or both.
There are also private exchanges. Private exchanges are not part of the Affordable Care Act. They are created by private sector companies, for example, by a health insurance company or a brokerage or consulting firm. A few private exchanges exist today, but they are becoming increasingly popular.
Like public exchanges, private exchanges can sell to both individuals and employer groups. And subsidies are only available on public exchanges.
For employers who are trying to keep the cost of offering health benefits manageable, private exchanges offer an interesting solution. Employers can give their employees a set amount of money and then direct them to a private exchange. There, they can shop for a health plan and other benefits, like dental, based on what the employer has selected as options.
Public and private exchanges are likely to appeal to different audiences. Individuals who do not have access to affordable health insurance today are more likely to shop on a public exchange because of the subsidies, which are not available through private exchanges. Employers are more likely to send their employees to a private exchange. And both individuals and small employers will still be able to shop for coverage as they do today, directly from health insurers.
