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July 22, 2014

Daily Briefing primer: ACA's health insurance exchanges

Daily Briefing

The Affordable Care Act (ACA) authorized the creation of health insurance exchanges that sell plans for individuals and small businesses and establish common rules regarding the design and prices of the coverage options.

The exchanges—which open for enrollment in October 2013 and will begin covering Americans in 2014—are part of a broader ACA effort to make health insurance more accessible and affordable to Americans, who in 2014 are required to purchase health coverage or face penalties under the individual mandate. (Find out who's exempt from the mandate.)

How exchanges are expected to provide affordable coverage options

The ACA authorized two types of exchanges, which are also known as "marketplaces":

  • American Health Benefit (AHB) exchanges for individuals; and
  • Small Business Health Options Program (SHOP) exchanges for businesses with less than 50 workers.

The idea behind the exchanges is as follows: In a central marketplace for insurance where all plans must meet basic requirements, market forces will drive affordable coverage options.

All legal U.S. residents who do not have access to affordable, employer-based coverage or to government health coverage programs (namely, Medicare or Medicaid) may purchase coverage through the exchanges. (Note: Coverage is deemed unaffordable if a worker's share of the premium is greater than 9.5% of his or her household income.)

To help cover the cost of premiums, residents with annual incomes between 100% and 400% of the federal poverty level—between $11,500 and $46,000 for an individual and $23,550 and $94,200 for a family of four—are eligible for federal subsidies.

How the exchanges will be structured

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In the ACA, each state was encouraged to design and operate its own exchange, with over $1 billion in federal funding available for exchange development. However, many states have decided not to create and run their own exchanges, instead defaulting to a federally operated exchange or partnering with the federal government for a federally facilitated exchange.

In each exchange, the state or the federal government must take responsibility for implementing certain core exchange functions, including:

  • Eligibility and enrollment;
  • Plan management;
  • Consumer assistance;
  • Outreach and education; and
  • Financial management.

How exchange plans will differ from existing coverage options

Although fundamentally similar, the exchange plans differ from current individual market offerings in three ways: health benefits they must offer, actuarial value calculations dictating plan design, and pricing regulations.

>> Essential health benefits

Health insurers that participate in the exchanges must offer plans that include benefits from 10 categories called "essential health benefits":

  • Ambulatory patient services;
  • Emergency services;
  • Hospitalization;
  • Maternity and newborn care;
  • Mental health and substance use disorder services;
  • Prescription drugs;
  • Rehabilitative and habilitative services and devices;
  • Laboratory services;
  • Preventive and wellness services and chronic disease management; and
  • Pediatric services.

Instead of defining a national benefits package, HHS allowed each state to select its benchmark plan from a set of plans in their state. The benefits included in the benchmark plan are considered the essential benefits for plans in that state.

In the exchanges, many plans will limit hospital choices

>> Actuarial value calculations

Health plans offered on the exchanges are separated into four tiers, which are intended to allow for easy comparisons of plans. The tiers differ in the actuarial value of services covered, which is the percentage of the total average costs for covered benefits that a plan covers:

  • "Bronze" plans must cover 60% of the actuarial value of services covered;
  • "Silver" plans must cover 70% of the value;
  • "Gold" plans must cover 80% of the value; and
  • "Platinum" plans must cover 90% of the value.

>> Pricing regulations

Starting in 2014, insurers in the exchanges must comply with a series of new pricing regulations:

  • Insurers may not deny health insurance coverage to individuals with pre-existing conditions, and they are prohibited from charge higher rates due to gender or health status;
  • Insurers are prohibited from pricing plans differently based on health status, gender, or length of time enrolled in plans; and
  • Insurers must limit premium costs for older adults to no more than three times the cost of premiums for younger people.

The only price bands permitted for insurance coverage will be age, tobacco use, and geography, and those bands will be restricted.

Sources: Advisory Board Company white paper, 5/2013; Health Affairs policy brief, 7/18/2013; Health Affairs policy brief, 5/2/2013; CMS fact sheet, accessed 8/16; fact sheet, accessed 8/16; KFF brief, 5/1/2010; HHS fact sheet, accessed 9/6

Want to know more? Check out the Health Care Advisory Board's exchanges white paper for a more detailed look at the exchanges and what hospitals should know to get ready.

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