What are Health Insurance Exchanges and How Do They Work? (2024)

By David Carlson / Last updated: February 8, 2015 / Personal Finance

Health Care Reform in the United States was a groundbreaking law that already has drastically changed the health care landscape. From the Medical Loss Ratio that put refund checks in the mailboxes of millions of Americans, to a mandate that forced health insurance companies to continue to cover dependents on their parent’s plan up to the age of twenty-six, reform has been very visible. One of the biggest reforms is still yet to come, though, and won’t be put in place for over a year from today: Health Insurance Exchanges.

On January 1st, 2014, every state is required to run a health insurance exchange. They can either set up their own exchange or have the Federal government run their exchange.

What is a Health Insurance Exchange?

A health insurance exchange is essentially an “insurance marketplace” where those who do not have health insurance provided by their employer, or employers with up to 100 employees, can purchase health insurance. These plans are eligible for federal subsidies, and are required to fulfill certain minimum standards such as the following:

• Insurers must cover anyone who wants to purchase; they can’t refuse insurance to anyone
• No lifetime or annual limits on coverage
• Limits on Price Variations
• Must cover claims related to pre-existing conditions

The exchange would be a website that people can access at any time to purchase health insurance. There would be a toll-free phone number that people can call with questions or issues. Beyond that, according to health reform Minnesota, exchanges would also:

• Operating a toll-free hotline and website for providing information
• Ensuring that health insurance plans meet certain standards (for example, related to marketing, access to health care providers, and reporting on quality of care)
• Providing information in a standard format to help consumers compare insurance companies and benefit plans
• Determining eligibility for individual premium tax credits, cost-sharing assistance, and coverage requirement exemptions
• Determining eligibility for Medical Assistance
• Determining eligibility for small business premium tax credits
• Providing real-time enrollment in health benefit plans
• Making an electronic calculator available to display the cost of coverage
• Communicating with employers regarding employee tax credit eligibility, cancellation of coverage, etc.

How does a Health Insurance Exchange work?

Explaining how the health insurance exchanges will work on a detailed level is difficult, because each state will have their own exchange. There will be uniformity because of the minimum standards and structure defined in the Affordable Care Act, but overall there is still leeway for each State to format the exchanges how they see fit.

The exchanges (in theory) would work like this:

1. An individual would log on to the website for the exchange in their state
2. They would then answer a number of questions
3. The application would process their information and show them insurance offers in real-time
4. They would be offered insurance rates in real-time
5. The individual would choose the plan they want

As stated earlier, this is all “in theory” how the process would work. There is always the chance of computer glitches, databases crashing, and people just plain not understanding how to go through the process. That’s where the toll-free hotline comes into play, though I would imagine that there would be a chat feature integrated into many of these exchanges as well.

What does this mean for you?

Understanding the ins and outs of health insurance exchanges could take months, but there are a few key takeaways:

• There will be subsidized, legally mandated health insurance available starting in 2014
• The cost of insurance from the exchanges will be linked to income and other factors
• Health insurance will be available to all Americans regardless of income, pre-existing conditions, or other factors
• Some states are actively resisting the implementation of exchanges

It will be interesting to see where all the chips fall and how smooth the implementation of the exchanges are in 2014. While the debate rages on as to whether this is the right approach to health insurance and expanding health care coverage, as of today the exchanges will be implemented and a majority of states are actively moving forward in plans to implement. Because of the high level of subsidization of insurance for the exchanges, it will quickly extend coverage to many who either could not afford insurance or were denied coverage due to pre-existing conditions.

In the meantime, if you do not have insurance but want to be covered until the exchanges roll out in 2014, consider looking at the options available to you at eHealthInsurance.com:

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Photo by Alex Proimos