HEALTH INSURANCE EXCHANGE
The biggest buzzword of this decade in the employee health benefits market is “Health Insurance Exchange”. Starting January 1st, 2014, the Affordable Care Act (ACA) requires every state to create health insurance exchanges for businesses, employees and individual. And, if a state fails to set up the exchanges in time, the federal government will step in.
What is a Health Insurance Exchange?
Webster defines an exchange as a place where things or services are exchanged, such as a store or shop specializing in merchandise usually of a particular type. So, at a basic level, a health insurance exchange is a store or shop specializing in health insurance merchandise. More specifically, a health insurance exchange is an insurer’s broker’s or government’s insurance offering to individuals and/or employees.
Today’s health insurance exchanges typically include the following components:
- A choice of two or more health insurance options
- Advice and recommendation on what health insurance options best fit your needs
- Automated billing for the chosen health insurance plan premium(s)
- On-going support for the chosen health insurance plan(s)
How Does a Health Insurance Exchange Work?
Health insurance exchanges come in many different shapes and sizes. They almost always include choice of two or more health insurance options, advice on the best fit for each client, automated billing, and ongoing support.
To understand how a particular health insurance exchange (such as the exchanges required by ACA in 2014) works, you must answer the following questions about the particular exchange:
- Is the health insurance exchange Public or Private?
- Is the health insurance exchange Individual Market Based or Group Market Based?
- Who is eligible to participate in the health insurance exchange?
- What products are available in the health insurance exchange?
- What is unique about the health insurance exchange?
Let’s walk through (and answer) the above questions from the perspective the of the imminent health care reform exchanges. This will give you the tools to analyze and understand any health insurance exchange you come across.
1. IS THE HEALTH INSURANCE EXCHANGE PUBLIC OR PRIVATE?
This is pretty straightforward:
- A private health insurance exchange is a health insurance exchange run by a private company.
- A public health insurance exchange is a health insurance exchange run by a government (or government-contracted) entity.
Since the ACA requires states to create the exchanges in 2014, those exchanges will be considered public health insurance exchanges. If a state fails to set up a health exchange, the federal government will set up and run one for them.
Numerous entities ranging from start-ups to new divisions of leading insurance companies have been created to offer new Private Health Exchanges.
To understand health insurance exchanges, you must answer these questions.
2. IS THE HEALTH INSURANCE EXCHANGE INDIVIDUAL OR GROUP MARKET BASED?
In general, there are two core health insurance exchange models: Group Market Health Insurance Exchange – An exchange that sells “group” health insurance to employees of employers. This is traditionally referred to as a “Cafeteria Plan”.
Individual Market Health Insurance Exchange – An exchange that sells “individual” health insurance to individuals and families (that may be employees) in the individual health insurance market. This is traditionally referred to as “Individual Health Insurance Quoting”.
The ACA requires states to create both a Group Market Health Insurance Exchange (called the “SHOP”) and an Individual Market Health Insurance Exchange (called the “American Health Benefit Exchange”) in 2014.
3. WHO IS ELIGIBLE TO PARTICIPATE?
A health insurance exchange may have specific eligibility rules outlining who can participate in the exchange. For example, an exchange might limit eligibility to only specific individuals or business based on:
- An individual’s household income
- An individual’s employer
- A business’s size (i.e. number of employees)
- A business’s ability to meet minimum employer contribution requirements
- A business’s ability to meet minimum employee participation requirements, etc. Initially, the SHOP exchange limits eligibility to only businesses with up to 100 employees.
Similarly, the American Health Benefit Exchange limits eligibility to only individuals who are U.S. citizens and legal immigrants who are not incarcerated.
4. WHAT PRODUCTS ARE AVAILABLE IN THE EXCHANGE?
A health insurance exchange may offer a variety of insurance products from a variety of providers. There is no minimum or maximum requirement. For example, a health insurance exchange might offer:
a. Different Medical Plans from Multiple Carriers, and/or
b. Different Medical Plan Designs from a Single Carrier.
Both the SHOP Exchange and the American Health Benefit Exchange will provide multiple major medical carriers with multiple plan design options (so, both #1 and #2).
5. WHAT IS UNIQUE ABOUT THE EXCHANGE?
A health insurance exchange may offer unique or “special” services to the businesses, employees or individuals participating in the exchange. These unique offerings might include:
- Exclusive product
- Special rates
- Tax advantages, etc.
Starting in 2014, small businesses can only access the small business healthcare tax credits through the public SHOP exchange.
Similarly, starting in 2014, massive tax subsidies will be available for Individuals earning less than 400 percent of the federal poverty level. Individuals can only access the premium subsidies through the public American Health Benefit Exchange.