Start­ing in 2014, the Patient Pro­tec­tion and Afford­able Care Act (ACA) requires the estab­lish­ment of state-based Amer­i­can Health Ben­e­fit Exchanges for indi­vid­u­als and Small Busi­ness Health Options Pro­gram (SHOP) Exchanges for small employ­ers. The gen­er­al pur­pose of these Exchanges is to pro­vide a sin­gle resource in each state for con­sumers and small busi­ness­es to com­pare health plans, get answers to ques­tions, and enroll in a health plan that is both cost effec­tive and meets their health-care needs.

Exchanges are not issuers of health insur­ance. Rather, they con­tract with insur­ance com­pa­nies who then make their insur­ance cov­er­age avail­able for exam­i­na­tion and pur­chase through the Exchange. In essence, Exchanges are designed to bring buy­ers and sell­ers of health insur­ance togeth­er, with the goal of increas­ing access to afford­able coverage.

A health-insur­ance Exchange is essen­tial­ly a one-stop health insur­ance mar­ket­place. Through an Exchange, you can com­pare pri­vate health plans based on cov­er­age options, deductibles, and cost; get direct answers to ques­tions about cov­er­age options and eli­gi­bil­i­ty for tax cred­its, cost-shar­ing reduc­tions, or sub­si­dies; obtain infor­ma­tion on a provider’s claims pay­ment poli­cies and prac­tices, denied claims his­to­ry, and cost-shar­ing and pay­ment pol­i­cy for out-of-net­work coverage.


Who can benefit from an Exchange?

Begin­ning in 2014, most indi­vid­u­als are required to have health insur­ance (excep­tions apply). While the ACA does not require that health insur­ance be pur­chased through Exchanges, obtain­ing cov­er­age through an Exchange can be eas­i­er than doing it on your own. This is true espe­cial­ly for indi­vid­u­als who do not have employ­er-pro­vid­ed health insur­ance avail­able; indi­vid­u­als who have pre-exist­ing con­di­tions; ear­ly retirees who aren’t eli­gi­ble for Medicare; indi­vid­u­als who are unem­ployed; small busi­ness­es (few­er than 100 employ­ees, although begin­ning in 2017, states may allow larg­er employ­ers to par­tic­i­pate) who want to pro­vide insur­ance cov­er­age to their employ­ees; and indi­vid­u­als who want to “com­par­i­son shop” for health insur­ance through a sin­gle resource. Exchanges also help qual­i­fied indi­vid­u­als obtain fed­er­al­ly sub­si­dized pre­mi­um and cost-shar­ing assis­tance, and screen indi­vid­u­als for eli­gi­bil­i­ty for cer­tain pub­lic insur­ance pro­grams (e.g., Med­ic­aid, Chil­dren’s Health Insur­ance Program).

In order to be eli­gi­ble to par­tic­i­pate in an indi­vid­ual Exchange:

  • You must be a U.S. cit­i­zen, nation­al, or nonci­t­i­zen law­ful­ly present in the Unit­ed States.
  • You can­not be incarcerated.
  • You must meet applic­a­ble state res­i­den­cy standards.

Unau­tho­rized aliens are pro­hib­it­ed from obtain­ing cov­er­age through an Exchange, with­out regard to their abil­i­ty to pay for the cost of coverage.


SHOP Exchanges

The ACA allows states to opt to have one Exchange for both indi­vid­u­als and small busi­ness­es or pro­vide cov­er­age through sep­a­rate Exchanges. SHOPs allow employ­ers to research, com­pare, and pur­chase insur­ance cov­er­age for their eli­gi­ble employ­ees. An employ­er and each of its employ­ees who want cov­er­age must sub­mit an appli­ca­tion to the SHOP. Once eli­gi­bil­i­ty is deter­mined, qual­i­fied employ­ees are enrolled into the qual­i­fied health plan (QHP) offered through the SHOP on behalf of the employer.

To be eli­gi­ble, an employ­er must offer cov­er­age to all full-time employ­ees (although the employ­er may elect to include part-time employ­ees). And the SHOP must allow the employ­er to pur­chase cov­er­age for employ­ees at any time dur­ing the year. How­ev­er, the plan can’t be for a peri­od of less than 12 months. The employ­er does­n’t have to offer all of the SHOP’s plans to employ­ees’, and the employ­er isn’t required to con­tribute toward the employ­ee’s cost of insurance.


Insurance Exchange particulars

States have the option of run­ning their own state-based Exchange (SBE) or part­ner­ing with the fed­er­al gov­ern­ment to oper­ate a fed­er­al­ly facil­i­tat­ed Exchange (FFE). States not mak­ing a choice default to a fed­er­al­ly run Exchange. The ACA allows for some flex­i­bil­i­ty in the struc­ture of indi­vid­ual state Exchanges while requir­ing some uni­ver­sal oper­at­ing pro­vi­sions. For instance, state Exchanges may be run by a new or exist­ing state agency, a qua­si-gov­ern­men­tal agency, or a non­prof­it enti­ty. SBEs may elect to license with par­tic­u­lar QHPs to active­ly con­trol plan costs, or SBEs may fol­low the FFE mod­el of an open marketplace–allowing all plans that meet min­i­mum qual­i­fi­ca­tions to participate.


Qualified health plans

In the past, insur­ers could deny cov­er­age to indi­vid­u­als with pre-exist­ing con­di­tions, exclude cov­er­age for pre-exist­ing con­di­tions, or offer cov­er­age at high­er pre­mi­ums. Begin­ning in 2014, indi­vid­u­als seek­ing insur­ance through an Exchange can’t be denied cov­er­age due to pre-exist­ing con­di­tions, and insur­ance com­pa­nies can’t impose pre-exist­ing con­di­tion exclusions.

The ACA also impos­es rat­ing restric­tions that lim­it how much insur­ers can vary pre­mi­ums for cov­er­age based on an indi­vid­u­al’s health. Poli­cies issued through an Exchange can’t impose life­time lim­its on the dol­lar val­ue of cov­er­age, nor may insur­ers place annu­al lim­its on the dol­lar val­ue of cov­er­age. Insur­ance must also be “guar­an­teed renew­able” and can only be can­celled in cas­es of fraud.

In addi­tion, Exchanges may only offer QHPs. Gen­er­al­ly, QHPs must cov­er “essen­tial ben­e­fits,” lim­it out-of-pock­et costs, and pro­vide cov­er­age based on four lev­els of cost sharing.

Essen­tial ben­e­fits include ambu­lance, emer­gency, and hos­pi­tal­iza­tion ser­vices; mater­ni­ty and new­born care; men­tal health and sub­stance abuse treat­ment; pre­scrip­tion drugs; reha­bil­i­ta­tive and lab­o­ra­to­ry ser­vices; pedi­atric care; and pre­ven­tive and well­ness care man­age­ment. Exchange plans are lim­it­ed as to the amount of cost-shar­ing that may be imposed. Cost-shar­ing includes co-pays and deductibles for ser­vices. For exam­ple, Exchange plans can’t impose a deductible for pre­ven­tive health services.

QHPs also offer ben­e­fits based on four tiers of cost-shar­ing. These plans cov­er dif­fer­ent per­cent­ages of med­ical costs, with each suc­ces­sive lev­el con­tribut­ing more toward the allowed charges. Bronze plans pay 60% of med­ical costs; Sil­ver plans pay 70% of costs; Gold plans cov­er 80% of costs; and Plat­inum plans pay 90% of cov­ered charges. The pre­mi­um cost for each lev­el of cov­er­age gen­er­al­ly increas­es with the per­cent­age of costs the plan cov­ers, with Plat­inum plans gen­er­al­ly being the most expen­sive and Bronze plans hav­ing the low­est pre­mi­um for the same indi­vid­ual and ben­e­fits package.

Also, Exchanges may also offer:

  • Cat­a­stroph­ic cov­er­age, which does­n’t count as one of the four lev­els of cov­er­age (although it must pro­vide essen­tial health ben­e­fits). But cat­a­stroph­ic cov­er­age plans have low­er pre­mi­ums, high­er cost-shar­ing, and are avail­able only to indi­vid­u­als under 30 years of age, or indi­vid­u­als exempt from the insur­ance mandate.
  • Den­tal ben­e­fits either in con­junc­tion with a QHP or as a sep­a­rate benefit.


Exchanges relate to other ACA provisions

The ACA man­dates that most indi­vid­u­als main­tain min­i­mum health insur­ance cov­er­age, begin­ning in 2014 and there­after (excep­tions apply). Fail­ure to com­ply with this require­ment poten­tial­ly results in a tax penal­ty. Gen­er­al­ly, all plans offered through Exchanges meet the “min­i­mum health insur­ance cov­er­age” require­ment, as do employ­er-spon­sored plans and Med­ic­aid, so enroll­ment in an Exchange plan is not required to sat­is­fy the mandate.

While employ­ers aren’t required to offer health insur­ance to their employ­ees, cer­tain large employ­ers face a penal­ty if they don’t offer cov­er­age, or if they offer health insur­ance cov­er­age that has a val­ue less than a Bronze-lev­el plan and at least one full-time work­er enrolls in an Exchange and receives a pre­mi­um cred­it. Exchanges are also respon­si­ble for noti­fy­ing an employ­er that an employ­ee has been found eli­gi­ble for pre­mi­um cred­its or cost-shar­ing subsidies.


Pre­pared by Broad­ridge Investor Com­mu­ni­ca­tion Solu­tions, Inc. Copy­right 2013.