Health Insurance Exchanges: 10 Key Questions for Consumers

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Implementation of the Affordable Care Act (commonly referred to as “Obamacare”) is accelerating and will result in several important changes to the U.S. health care system over the coming months. One significant change is the opening of new insurance marketplaces, known as “exchanges,” in many states on October 1. But what exactly are these exchanges, and how do they relate to the law’s other major pieces? This Q&A factsheet addresses those crucial questions and prepares consumers for what’s to come.

1. What’s an exchange?

A health insurance exchange is a government-overseen marketplace in which individuals and small businesses can shop for health insurance coverage. Individuals and small businesses who shop in an exchange will be able to closely compare their insurance options, determine their eligibility for new federal tax credits and apply for a health plan of their choice. Although several insurance companies will be offering plans for sale on the exchanges, all plans must meet certain federal and/or state standards.

Even though consumers will still be allowed to purchase insurance outside of an exchange, there are several important reasons why consumers might shop in one. Most importantly, individuals and small businesses must purchase their insurance through an exchange if they wish to receive tax credits and government subsidies that are available under the Affordable Care Act.

2. What’s the difference between an exchange and a marketplace?

In news items or discussions about the new health care law, you may have heard people use terms like “health insurance exchange” and “health insurance marketplace.” These terms mean the same thing. Although the law itself uses the term “exchange,” the general consensus is that the term “marketplace” is easier for consumers to understand.

3. What kind of insurance will be available in an exchange?

All insurance in an exchange must provide “essential health benefits,” including (but not limited to) coverage for hospitalization, emergency services, rehabilitation services, prescription drugs, preventive care, mental health care and maternity/newborn/pediatric services. However, consumers can still be held responsible for deductibles, copayments and coinsurance fees. These out-of-pocket expenses must have an annual cap (approximately $6,300 for individuals and $12,700 for families).

In order to give consumers a general sense of their potential out-of-pocket expenses, plans in the exchanges will be put into one of several metal-based categories. For example, plans that are estimated to pay for roughly 90 percent of covered services will be categorized as “platinum” plans. Conversely, plans that are estimated to pay for roughly 60 percent of covered services will be categorized as “bronze” plans. Be aware that these metal-named designations are merely estimates that are based on a broad base of consumers. The amount actually paid by an insurer for a specific kind of care might be higher or lower than these percentages.

4. Will plans in an exchange charge me more if I’m in bad health?

Plans in an exchange are prohibited from discriminating against consumers on the basis of health. They can’t refuse to insure someone because of health and can’t charge a sick person more than a healthy person.  Similarly, the cost of group insurance can’t be based on the collective health of the group’s members.

Although there may be some differences from state to state, the cost of coverage for a consumer will depend on the chosen plan and the following factors:

  • Age. (The cost for any one age group can’t be more than three times the cost of any other age group.)
  • Tobacco use. (The cost for smokers can’t exceed 150 percent of the cost for non-smokers. People in group plans can receive non-smoker rates by participating in a smoking cessation program.)
  • Geography. (For employer group plans, this will be based on the location of the employer, not the location of the individual employee.)
  • Whether the coverage is for an individual or family.

5. Will I receive tax credits or subsidies if I purchase insurance through an exchange?

U.S. citizens and legal residents with low or moderate incomes might have some of their insurance premiums paid for by the federal government if they shop in an exchange. This assistance is provided as a tax credit and is provided on a sliding scale to households whose income is below 400 percent of the poverty line. (The poverty line is adjusted each year and is dependent on family size. For 2013, 400 percent of the poverty line is roughly $46,000 for a one-person household and $94,200 for a family of four.)

The amount of an individual’s potential tax credit will be calculated by the exchange when the person shops there. Consumers who are eligible for the credit will have the choice of either receiving it in the form of an annual tax refund or having it applied automatically to their insurance premiums and sent directly to an insurer upon enrollment. Married couples who wish to receive the credit must file their income taxes jointly.

Households with an income below 250 percent of poverty will receive additional financial assistance in order to reduce their deductibles, copayments and co-insurance fees.

Credits and subsidies can be estimated via an online tool from the non-partisan Kaiser Family Foundation.

6. I get health insurance through my job. Can I buy my own insurance in the exchange and get the tax credit/subsidies?

Workers who are offered insurance through their employer can decline it and purchase their own insurance in an exchange. However, they usually won’t be eligible for the tax credit or other subsidies.

In general, an individual who is offered group health insurance will only be eligible for the aforementioned financial assistance if the group plan provides insufficient benefits (by covering less than 60 percent of treatment-related costs) or is unaffordable (more than 9.5 percent of the person’s income for self-only coverage.)

7. When can an individual enroll in a plan in the exchange?

Eligible individuals can’t be denied health insurance in an exchange as long as they enroll during an open enrollment period. The first chance to enroll will occur from October 1, 2013 to March 31, 2014. In order to have coverage in place by January 1, 2014, individuals must enroll by December 15 of this year. In subsequent years, enrollment will open on an annual basis from October 15 to December 7. Individuals will also be allowed to enroll at any point during the year in special circumstances. Special circumstances might include the loss of other coverage, the birth or adoption of a child or a marriage.

8. What is the enrollment process like for individuals in an exchange?

Individuals who wish to purchase insurance through an exchange will complete a single application that will determine their eligibility for all plans in the exchange as well as their eligibility for other health insurance, such as Medicaid or other federal insurance programs. Once eligibility has been determined, the applicant will be contacted by the exchange and can begin shopping. The applicant will enroll in a chosen plan through the exchange, and the exchange will notify the person’s chosen insurer. Although most applications and enrollments are likely to be done online at healthcare.gov and other websites, phone and mail options will also be available. Individuals in Illinois can enroll and learn more by going to getcoveredillinois.gov or by calling (800) 318-2596.

9. Can an employer’s group plan charge employees different amounts based on their age?

Unless prohibited by their state, group plans in an exchange can charge employees different amounts for health insurance based on age. However, employers will retain the option of charging a flat amount for each employee regardless of age.

10. Why are group plans being allowed to charge different amounts based on an employee’s age?

In order for an employer to purchase insurance through an exchange, at least 70 percent of eligible employees must participate in it. (There is an exemption for employees who are already covered by different health insurance.) Research has shown that younger (and presumably healthier) employees are more likely to decline health insurance from their employer. The age-based pricing is designed to encourage greater participation among this demographic.

To learn how insurance agents and brokers will be impacted by the exchanges, keep reading Real Estate Institute’s blog. Important information will be posted here.

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