Decoding State Health Insurance Exchanges

With the largest expansion of the nation’s health care system since President Johnson created the Medicare and Medicaid programs in 1965, the new health reform law has major implications for small businesses and brokers alike. The sweeping legislation, among many other things, establishes state-based health insurance exchanges and preserves the broker’s role in post-health reform America, with influence from each state.

Exchanges are designed to make it easier for individuals and small businesses to purchase health insurance, and are crucial to more efficiently managing health care costs, increasing price and quality transparency, and expanding access to health insurance for many of the nation’s uninsured, as well as small businesses struggling to afford health benefits. They allow for greater choice and flexibility for not only the human resource decision-makers within small firms, but also for workers and their families.

By making a defined contribution toward employees’ health care benefits, employees who obtain their coverage through the exchange can choose from a variety of choices and enjoy greater flexibility when switching plans at year’s end. The primary goal of health reform was, after all, to make it easier for consumers to purchase health insurance; in the end, the Senate bill that became law included provisions requiring each exchange to standardize coverage options.

How do exchange plans work?

Each option will be included in one of four benefit tiers with different out-of-pocket limitations. Bronze tier plans will cover at least 60 percent of costs; silver plans 70 percent; gold plans 80 percent; and finally, rich platinum plans will cover at least 90 percent of costs. Catastrophic plans will be available to individuals who are exempt from the individual mandate because no affordable plan is available to them or they are under the age of 30. These plans should help stem the tide of uninsured, young adult “invincibles,” a population often stymied by the prohibitive cost of individual insurance. To encourage health plans to participate fully in the exchange, each plan that wants to to become a qualified health plan must offer at least one plan in both the silver and gold benefit tiers.

While the federal Department of Health and Human Services (HHS) must provide guidance on how exchanges will be established, each state that chooses to institute an exchange must create two different exchanges that must both be operational by Jan. 1, 2014. The American Health Benefit Exchange will serve individuals, including those receiving premium reduction and cost-sharing subsidies. Small businesses will be able to purchase coverage through Small Business Health Options Program (SHOP) exchanges. At first, only firms with up to 50 employees will be eligible to purchase coverage through SHOP exchanges. Beginning in 2016, they will be expanded to allow larger employers with up to 100 employees to participate. In parts of the country with separate and distinct insurance markets, states will be allowed to form geographically distinct sub-exchanges, or even partner with neighboring states to structure regional exchanges. States have also been granted the authority to merge their individual and small-group markets to enhance the size and formidability of their risk pools.

Exchanges in context