An In-depth Overview on Health Insurance Exchange

Health Insurance Exchange

A health insurance exchange or a health insurance marketplace is a comparison-shopping platform for diverse health insurance plans available in the market. Health insurance plans offered by the private health insurance companies are listed with the exchange, allowing people to compare and shop on the exchange from among the available health plan listings. The term health insurance exchange generally refers to public health insurance exchanges developed by the government. However, private health insurance exchanges also exist and are usually designed for large employers. Thus, people generally come across private health insurance exchanges while signing up for employer-sponsored health insurance.

Public health insurance exchanges are normally used by people to buy ACA compliant individual and family health insurance plans. Individual and family health insurance plans mean insurance that people buy on their own and that is not obtained through an employer or a government-run program like Medicare and Medicaid. The public health insurance exchange is the only platform offering premium subsidies and cost-sharing reductions that reduces premiums and out-of-pocket costs for millions of eligible enrollees. In 2020, 9.6 million people were receiving premium subsidies through the exchanges and 5.6 million people were receiving cost-sharing reductions.

People can either directly enroll in Medicaid if they are eligible based on their income, or the exchange directs them to the state’s Medicaid office if they determined that they are likely eligible for Medicaid. Small group plans designed for small businesses were offered through the exchange in some states, but due to few enrollees in this program, the federal government has stopped the small business enrollment system after the end of 2017. Small businesses in those states now directly enroll through insurance companies or with the support of brokers and pay premiums to the insurers. However, SHOP-certified health plans are available only in limited areas in some of those states through agents and insurers. Majority of the states using HealthCare.gov now no more have any SHOP-certified plans due to a few people showing interest in the program.

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HealthCare.gov is the largest health insurance exchange run by the federal government serving people in 36 states. The remaining 14 states and the District of Columbia have their own exchanges. However, the number of states relying on the federally-run exchange is expected to reduce because a few of the states currently using federal exchange are in transitioning stage to have their state-run exchange in the coming years.

Exchanges are not Insurers but Enrollment Portals

Individuals shopping for health insurance often confuse exchanges as an insurer, whereas these are just enrollment portals that are used to purchase health coverage. If individuals purchase health insurance through Covered California, which is the state-run exchange in California, then Covered California will not be their insurance company but a platform through which health insurance carriers will be offering coverage. Some of the states created their own exchanges or rely upon the federal government to create an exchange for them. Thus, some states have exchanges that are either a partnership between the state and federal government or they have a state-run exchange that uses the federal enrollment platform. However, as of 2021, fifteen states have state-run exchanges, twenty-four states have federally run exchanges, six states have state-run exchanges but use HealthCare.gov for enrollment, and six states having state-federal partnership exchanges.

Difference Between “On-Exchange” and “Off-Exchange”

While shopping for health insurance plans, individuals probably hear about “on-exchange and “off-exchange” plans. An “on-exchange” plan is the one that is purchased through the exchange. Individuals can shop for these plans on their own or can seek the help of a broker or navigator and sometimes can also be purchased through a broker’s website. Individuals purchasing on-exchange plans from a broker’s site should verify that they are getting an on-exchange plan only.

On the other hand, an “off-exchange” plan is a one that is purchased directly from an insurance company and not through the federal or state-run exchange. This plan can also be purchased with the help of a broker or agent. These plans do not offer any premium subsidies and cost-sharing subsidies even if individuals are otherwise eligible. Individuals cannot claim the premium subsidy on their tax return if they have bought an off-exchange plan.

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In many cases, on- and off-exchange plans are identical or nearly identical. All individual major plans that are effective from January 2014 or later are required to be completely compliant with the ACA, irrespective of whether the plans are sold in the exchange or off-exchange. Insurance companies cannot sell non-compliant major medical plans in the individual market, even if they sell those plans outside the exchange.

The health insurance plans available on-exchange may have to fulfill additional requirements besides being ACA-compliant, depending on how their state has structured its exchange. For instance, in some states, health plans sold in the exchange should be standardized, which means that each health insurer should offer the same set of specific benefits. Some health insurance carriers as well as some states choose to offer health plans for sale on-exchange, whereas some offer plans only off-exchange, and others may offer both on- and off-exchange.

Who can Use the Exchanges?

Health insurance exchanges can be used by all U.S. citizens and legally present residents who are not enrolled in Medicare. These individuals can purchase a health plan in exchange in the state in which they live. Undocumented immigrants cannot enroll in health coverage through the exchanges even without the premium subsidies. Some states allow even small businesses to purchase coverage in the exchange. Though on-exchange availability of small group health coverage is fairly limited because some states that use the federal exchange no longer handle enrollment for small businesses.

How Health Insurance Exchanges Work?

Health insurance exchanges were created to increase competition and to simplify comparison shopping, as health insurance companies compete for business in the exchange. The direct competition keeps the insurance premium down and exchanges ease the plans competition using an “apples to apples” approach. Health insurance plans offered through the exchanges offer a minimum set of essential health benefits, though the specific coverage varies from one state to another depending upon the benchmark plan used by the state.

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However, even the off-exchange major plans are required to provide coverage for essential health benefits as part of being ACA-compliant. The minimum set of essential health benefits covered under on- and off-exchange plans include ambulatory care, prescription drugs, hospitalization, emergency services, maternity, and newborn care, laboratory services, preventive care, pediatric vision, and dental care, along with rehabilitation and habilitative services including devices.

In some states, standardized plans are available like in California’s exchange all plans available are standardized. Health insurance plans offered in the exchange must belong to any of the five metal tiers like catastrophic, bronze, silver, gold, or platinum. Health insurance exchanges also provide subsidies to help individuals pay for health insurance, as these exchanges are the only access point through which people can avail government subsidies such as premium tax credits, making health insurance more affordable for mid-income Americans.

States having Own Health Insurance Exchange

Some states have their own health insurance exchange like California, Covered California that is used by its residents for enrolling in health plans. Some states have created an exchange but use the federal enrollment platform and so the residents of those states use the federal government’s exchange. The states having their own enrollment websites are California, Colorado, Connecticut, District of Columbia, Idaho, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, Pennsylvania, Rhode Island, Vermont, and Washington. Enrollment in the exchange as well as outside the exchange in every state is limited to an annual open enrollment window and special enrollment period that is triggered by qualifying events. However, states that have their own exchange enrollment platforms can create special enrollment periods and most of them offer a longer general open enrollment period each year.

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