What Is a Health Exchange?

Each State Has Its Own Exchange and They're All Different

Starting in 2014, you will be able to use your state's health exchange. zorani/iStockphoto

As a result of the Affordable Care Act, signed into law in March 2010 by President Obama, each state has a health insurance exchange. The exchanges became available for use in October 2013, and have served ever since as a portal for people to purchase private, individual market health insurance plans (the individual market serves people who need to buy their own insurance because they don't have access to coverage from an employer or a government program like Medicare).

Some people who are eligible for Medicaid can also enroll via the exchanges, although this depends on the reason the person is Medicaid-eligible, as enrollment is processed differently for people who are eligible based solely on income, versus those whose eligibility also depends on other factors, like pregnancy or disability.

And small group plans for small businesses are available through the exchanges as well, although that segment of their market has attracted few enrollees, and the federal government announced in May 2017 that they would no longer operate the small business enrollment system (used in 33 states as of 2017) after the end of 2017. Instead, starting in 2018, small businesses in those states enroll directly through insurance companies or with the help of a broker, and pay premiums to the insurers rather than making premium payments through the exchange. 

The Exchanges Are Enrollment Portals

It's important to understand that the exchanges are just a platform for purchasing coverage. If you buy health insurance via Covered California, for example (the state-run exchange in California), Covered California is not your insurance company. Instead, your insurance company will be Health Net or Blue Shield, or Anthem or any of the other private insurers that offer coverage via Covered California.

Although health insurance is far more complicated than airline tickets, think of the exchange as a platform like Travelocity or Expedia. It shows you the insurance options in your area and allows you to purchase the one you want. But just as your flight will be provided by the airline you choose—not by Travelocity or Expedia—your health insurance will be provided by a private insurer, not by the exchange.

States had the option of creating their own exchanges or relying on the federal government to create an exchange for them. Some states have hybrid exchanges that are either a partnership between the state and federal government, or a state-run exchange that uses the federal enrollment platform (HealthCare.gov). In 2018, there are 12 fully state-run exchanges, five state-run exchanges that use HealthCare.gov for enrollment, six state-federal partnership exchanges, and 28 federally-run exchanges

And to clarify one other point that sometimes creates confusion, the terms "exchange" and "marketplace" are used interchangeably. But the term "market" is used more generally. So while a health insurance exchange or marketplace refers specifically to the portal in each state that people can use to compare the various options and enroll, the term "health insurance market" applies much more broadly, and can include off-exchange plans and employer-sponsored plans as well as grandmothered and grandfathered plans. 

The purpose of the health insurance exchanges is to make health insurance more affordable and easier to purchase.

Premium Subsidies and Cost-Sharing Subsidies: Only Available in the Exchange

The ACA includes premium subsidies (premium tax credits) and cost-sharing subsidies (cost-sharing reductions) to make premiums more affordable and lower the out-of-pocket costs that some enrollees would otherwise face. These subsidies are income-based and are available to both low-income and middle-class enrollees. 

Both types of subsidy are only available if you purchase your coverage through the exchange. Even if the exact same plan is available off-exchange (directly from the insurance company), you'll have to pay full price if you shop anywhere other than the exchange. 

And although federal funding for cost-sharing reductions was eliminated in the fall of 2017, the cost-sharing reduction benefits continue to be available to enrollees who purchase silver plans in the exchange and whose income is within the eligibility guidelines for cost-sharing reduction benefits (ie, no more than 250 percent of the poverty level, and no less than 100 percent of the poverty level in states that haven't expanded Medicaid, or 139 percent of the poverty level in states that have expanded Medicaid).

Who Can Use the Exchanges?

All U.S. citizens and legally present residents who are not imprisoned and not eligible for premium-free Part A Medicare are eligible to purchase a health plan in the exchange in the state in which they live. Undocumented immigrants cannot enroll in coverage through the exchanges, even without premium subsidies.

Small businesses can also purchase coverage in the exchange; in most states, this is limited to businesses with up to 50 employees, although there are a few states (California, Colorado, New York, and Vermont) where businesses with up to 100 employees can use the exchange to secure coverage. Note that in states that use HealthCare.gov's small business exchange, the exchange is no longer handling enrollment, and is instead having businesses enroll directly with insurers.

As a result of the Grassley Amendment in the ACA, Congress and their staffers are required to obtain coverage in the exchange. To accommodate this requirement and ensure that Congress and staffers didn't lose their employer premium contributions, the government created a workaround that lets Congress and staffers enroll in small group plans through the state-run exchange in the District of Columbia (DC Health Link). DC Health Link reported in April 2017 that about 11,000 of their small group enrollees were members of Congress and their staffers.

One-Stop Shopping and Information Resource

A significant benefit of the health insurance exchanges is to make it easy for you to compare options and enroll in a health plan. Some of the ways the exchanges promote choice and competition include:

  • Health plan options in your zip code are listed on a website maintained by your state or the federal government. On this site, you can learn about health plan benefits and costs, and then enroll.
  • If you have limited access to the Internet, the exchange can provide resources for you to get information and enrollment materials through the mail and at publically-designated places in your community; there are in-person assisters available throughout the country during open enrollment each year to facilitate enrollment for people who prefer face-to-face help.
  • To allow for easy comparison of plans, the exchanges must use a standard form, definitions, and marketing materials. You can enroll online, in person, by mail or by phone.
  • A call center to assure good customer service

Health Plan Benefits

If you purchase insurance through an exchange, you will be able to choose health coverage that is best for you and your family. Each of the available health plans includes an essential set of benefits that provide comprehensive health care services with different levels of cost-sharing.

Also, your annual out-of-pocket expenses (deductibles, copayments, and coinsurance) are limited to an amount set by the federal government each year. In 2018, the maximum out-of-pocket for a single person is $7,350 for a single individual, and $14,700 for a family. Plans can have out-of-pocket limits well below these amounts, but not above them.

All plans sold in the exchange fit into one of the following five categories:

  • Bronze Plan: Covers an average of 60 percent of the cost of essential health benefits for a standard population.
  • Silver Plan: Covers an average of 70 percent of the cost of essential health benefits for a standard population.
  • Gold Plan: Covers an average of 80 percent of the cost of essential health benefits for a standard population.
  • Platinum Plan: Covers an average of 90 percent of the cost of essential health benefits for a standard population.
  • Catastrophic Plan: Covers an average of 60 percent of the cost of essential health benefits for a standard population, and includes some primary office care and preventive care before the deductible. Everything else applies to the deductible, and is only covered after it's met. Catastrophic plans are only available to those up to age 30 or to those who qualify for a hardship exemption from the mandate to purchase coverage

Note that in most states, there is a -4/+2 de minimis range allowed for silver, gold, and platinum plans, and a -4/+5 de minimis range allowed for bronze plans. So a gold plan can cover between 76 percent and 82 percent of average costs, and a bronze plan can cover between 56 and 65 percent of costs.

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