What Is a Health Insurance Exchange?


As part of the recent health-care reform bill, health insurance exchanges will become available in 2014. Learn what a health insurance exchange is, and how it might benefit you.

Health Care and Education Reconciliation Act

With the Health Care and Education Reconciliation Act of 2010 come many changes to the way health insurance is provided, purchased, and paid for. The Act will touch just about every American in one way or another at some point in time—some provisions of the bill are immediate and others take effect in the coming years. One of the changes that will take place in 2014 is also one of the most controversial: the requirement for citizens to purchase health insurance. To help accomplish this, health insurance exchanges will be established. But what is a health insurance exchange, who runs it, and who benefits from it?

Health Insurance Exchange Explained

The concept of health insurance exchanges isn’t new—two states (Utah and Massachusetts) already have them. But beginning January 1, 2014, all Americans will have access to an exchange. Health insurance exchanges are a place to comparison shop for private health insurance plans. Essentially, they are meant to be cooperatives that enable purchasers to band together, spread their risk pool, and have a choice of a variety of plans.

Exchanges do not offer their own health insurance plans, but instead review policies offered on the exchange to determine if they meet government standards and are “in the interest” of potential buyers. They do not set premiums, but can help keep costs low by removing plans from the exchange due to rate hikes.

Keeping health care costs affordable

The idea behind an exchange is to create a larger pool of participants, which helps spread risk and reduce administrative costs, and provide a larger range of options, which requires health insurance providers to price their products competitively. Comparisons of plans on the exchange will be easy to read and understand so consumers can review a variety of plans at a glance. And, because plans are not tied to an employer, the exchange provides for more portability of an individual’s health plan—this means that consumers can keep their health-care coverage as they move between jobs, which helps keep the insurance pool more stable. All these reasons are expected to force insurance companies to price their plans more competitively over time.

Who benefits from an exchange?

The uninsured, the self-employed, and small businesses are the main beneficiaries. Individuals working for large companies may also have the option to purchase insurance through an exchange if the premiums they pay for their company-based plan are more than 9.8 percent of their income.

Who will run the exchange?

The health reform bill charges each state with setting up its own exchange, although details are still being worked out regarding how this will happen. Some states will have their own exchanges while other states may elect to band together to create a regional exchange. If a state doesn’t have an exchange set up by 2014, the U.S. Department of Health and Human Services will create that state’s exchange.

Find out what health-care reform could mean for you and when changes will take place.

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Source: The Christian Science Monitor, AOL Health, The New York Times
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