A primer on health-care ‘exchanges’

Correction: This article incorrectly says that plans sold to individual consumers in the exchanges would have limits on annual deductibles. There are limits on the total amount of cost sharing, which includes deductibles.

March 29, 2011

It seems like a simple idea: Create new marketplaces, called “exchanges,” where consumers can comparison shop for health insurance — sort of like shopping online for a hotel room or airline ticket.

But, like almost everything else connected with the health-care overhaul law, state-based insurance exchanges are embroiled in politics. Some Republican governors are threatening to refuse to set up exchanges unless they get more flexibility over Medicaid, the state-federal health program for the poor. Others say they don’t want to implement any part of the federal health-care law.

Last week, Louisiana officials decided against setting up an exchange. And in Montana, GOP lawmakers killed a GOP-sponsored Senate bill to set up an exchange. Still, some Republican officials are embracing them. And consumer advocates, disease groups and industry lobbyists are jockeying for influence over how the exchanges will be regulated.

If done well, proponents say, exchanges could make it easier to buy health insurance and possibly lead to lower prices because of increased competition. But, if designed poorly, experts say, healthy people could avoid the exchanges, leaving them to sicker people with rising premiums.

Here are some common questions.

Q: What is an exchange, as envisioned by the health-care law?

A: It’s a marketplace where individuals and small employers will be able to shop for insurance coverage. They must be set up by Jan. 1, 2014. The exchanges will also direct people to Medicaid, if they’re eligible.

Will all states have exchanges?

States have the option of setting up their own exchanges, forming coalitions with other states to create regional exchanges or opting out altogether. In that case, the federal government would run the exchanges.

What about Maryland, Virginia and the District?

They’re all moving forward with legislation to set up exchanges.

Will anyone be allowed to buy from the exchanges?

No. Initially, exchanges will be open to individuals buying their own coverage and employees of firms with 100 or fewer workers (50 or fewer, in some states). Most Americans will continue to get insurance through their jobs, not the exchanges. The Congressional Budget Office estimates that 8 million people will use the exchanges in 2014 and 24 million in 2018. Most will be people who are eligible for subsidies, which will average an estimated $5,700 a person. Undocumented immigrants will be barred from the exchanges.

What about federal workers?

Members of Congress and their staffs will be required to buy through exchanges if they want coverage from the federal government. Other federal employees won’t be required to use an exchange.

Will exchanges be like travel Web sites or some existing health insurance sites?

In some ways. People will be able to compare policies sold by different companies. But information on the plan benefits will be standardized to make it easier to compare cost and quality. Plans will be divided into four types, based on the level of benefits: bronze, silver, gold and platinum.

What will the coverage sold on the exchanges look like?

Plans will have to offer a set of “essential benefits.” Those details, still being developed by the Obama administration, will include hospital, emergency, maternity, pediatric, drug, lab services and other care. Annual deductibles, or the amount consumers must fork over before insurance payments kick in, will be capped at the amounts allowed for health savings accounts — currently, nearly $6,000 for individual policies and $12,000 for family plans.

How much will the policies cost?

The premiums will vary by type of plan and location. Insurers won’t be able to charge more based on gender or health status. They will be able to charge older people up to three times more than younger ones.

Will states negotiate premiums with the insurers?

The law doesn’t require states to set or negotiate premiums. However, states might have some influence over prices. They can decide whether to open exchanges to all insurers or to limit the number. State insurance commissioners will be able to recommend whether specific insurers should be allowed to sell in the exchange, partly based on their patterns of rate increases.

What if I can’t afford the premiums?

People who make less than 133 percent of the federal poverty level, $14,484 this year, will qualify for Medicaid in all states, under the law. Above that, sliding-scale subsidies for private insurance on the exchanges will be available for residents who make up to 400 percent of the poverty level, about $43,560 this year. Most people will be required to have coverage of some sort beginning in 2014.

Will all insurers have to offer policies through the exchange?

No. Insurers won’t be required to sell through the exchanges.

Will all state exchanges be the same?

No. States can design their exchanges differently, an issue that’s sparking debate in statehouses nationwide. Some states may choose to set additional standards for insurers beyond the federal law. Another important issue: The makeup and power of the governing boards overseeing the exchanges. Some states, such as Maryland, are considering barring insurance industry and sales agents from their governing boards. Others, such as North Carolina, have legislation pending that includes representatives from those groups on their governing boards.

Kaiser Health News (www.kaiserhealthnews.org) is an editorially independent news service of the Kaiser Family Foundation, a nonpartisan health-care policy organization that isn’t affiliated with Kaiser Permanente.

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