Health insurance marketplaces: How do they operate and who benefits?

By Jennifer Nelson Posted : 04/01/2013

Health reform health exchangesThe Patient Protection and Affordable Care Act (ACA), dubbed Obamacare, mandates that most individuals in the U.S. have health insurance by 2014. If you like your health insurance plan and want to keep it, you may, and if you have an employer-sponsored health insurance plan, you can remain with it. But most of the 30 million uninsured will have to acquire coverage. Many will purchase health insurance from an online health insurance exchange, or health insurance marketplace, as they're being called now.

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Yet a March 2013 poll by the Kaiser Family Foundation found that most people -- 68 percent of those with a household income of less than $40,000, for instance -- have no idea how the ACA will impact them or how the insurance marketplace will work.  (See:  "Your prescription for health insurance exchanges.")

"If you think about Expedia or Kayak for buying an airline ticket or hotel room, this is what exchanges are for health insurance," says Debbie Gordon, vice president and chief marketing officer for Network Health, a non-profit comprehensive health plan in Massachusetts.

In a nutshell, each state's health insurance exchange will bring insurance products to a shelf and sit them side by side, metaphorically speaking, to allow consumers and small business owners with 50 employees or fewer to price, compare, review and purchase health insurance. (See: "Health reform sticks: Now what?")

"Health insurance has never been sold in a marketplace that is so transparent before. It's been really hard to compare rates and coverage, because coverage wasn't standardized from one policy to the next, so you didn't have apples-to-apples comparison and now you will," says R. Ruth Linden, a health policy advocate and president of Public Health Associates, a San Francisco-based consulting firm.

A navigator, or a neutral assistor as they'll be called in California, will help you find the best coverage to fit your needs and that of your family or your employees as you describe them. These helpers will have no financial interest in the policy you purchase, and will assist you online, by phone or, in some states, in person.

Tens of thousands of navigators will need to be hired to help the new customers. For instance, Colorado is expecting 150,000 people to use its marketplace. Meanwhile, insurance brokers in many states are lobbying to prohibit the navigators from giving advice on which plans to choose and to make them liable if their guidance results in financial harm.

Brokers earn commissions and fees by enrolling people in policies and will obviously lose business to navigators. Some brokers say navigators may not have sufficient training and expertise.

How will health insurance marketplaces work?

There were three options under the ACA for states to choose how they will run their marketplaces. Each state could develop its own, join the federally run exchange, or take part in a joint federal-state health insurance exchange.

Twenty-four states and the District of Columbia have now been approved to set up their own exchanges or join a joint federal-state exchange. That leaves 26 states to join the federally run exchange.

Iowa, for instance, has decided to pursue a joint federal and state exchange rather than have the state establish its own marketplace or join the federally run exchange. "The decision was made that they'd rather have the state involved even though the state opposed the Affordable Care Act," says Linden.

"In Massachusetts, we've had a state-run exchange since 2006 when we passed our own version of health care reform. We have a few years under our belt and we definitely have learned how they work and what they can bring to the marketplace," says Gordon.

Utah has had an exchange for small businesses for several years. The governor of Utah proposed the state manage the exchange for small employers while the federal government operates the individual exchange. The U.S. Department of Health and Human Services is considering the proposal.

Who will benefit from the exchanges?

People who don't have employer-sponsored insurance or small businesses that want to buy group plans for their employees make up the target audience for the exchanges.

Beginning in 2014, people who purchase health insurance coverage through exchanges will be eligible for financial assistance if their income is no more than 400 percent of the federal poverty level (FPL). These amounts are updated for inflation annually and vary by family size. In 2013, this amount is $45,960 for individuals and $94,200 for a family of four.

Two forms of financial assistance will be provided: An advance premium tax credit, also called a premium assistance tax credit, and cost-sharing assistance.

An advance premium tax credit will be provided monthly to off set the amount of premium the individual or family must pay for their coverage. Cost-sharing assistance will limit the plan’s maximum out-of-pocket costs, and for some people will also reduce the cost for things such as deductibles, coinsurance or co-payments.

Both types of assistance will be tied in some way to the value of the coverage available in the exchanges. Four levels of plans will be offered by insurers in the exchanges. All the plans must offer a set of essential health benefits that will be specified in future federal regulations and must cover certain categories of benefits. The four plan levels -- bronze, silver, gold and platinum -- vary in the total value of coverage they must provide.

"(Advance premium tax credits)  are only available on certain plans through the exchange," says Gordon. "You will not be able to go directly to an insurance carrier, buy a policy and use your subsidy."

What's more, people earning up to 133 percent of the federal poverty level will be eligible for Medicaid in many states.  For 2013, that's $15,282 for an individual and $31,322 for a family of four. The Affordable Care Act called for an expansion of Medicaid eligibility nationwide, but not all states are following through.

There will, of course, be state variations. Massachusetts plans to implement additional subsidies that sit on top of federal ones.

What about the insurance coverage?

Bronze, silver, gold and platinum policies will be offered in all states, so people can choose between bare-bones coverage and generous protection. But each state will determine what qualifies as essential coverage, and the federal government has to approve the plans offered. For example, what New York covers as part of its minimum coverage may differ from what California or Texas offer. Gender and pre-existing conditions will no longer be a factor in any state.

The exchanges will be open for businesses starting in October this year, for policies that go into effect as early as Jan. 1, 2014. "In theory, there will be three months of start-up," says Linden. "Prepare for a lot of chaos initially, as with any new large government venture."

Also bear in mind there will be nine categories of people who may be exempt from the individual insurance mandate. Exemptions range from certain religious groups to those unable to afford coverage under certain hardship and income criteria.

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