What Is a Health Insurance Exchange?

illustration of a man comparison shopping for groceries with a magnifying glass
The health insurance exchange in your state makes it easy to comparison shop for health insurance.

Luciano Lozano/Getty Images 

A health insurance exchange, otherwise known as a health insurance marketplace, is a comparison-shopping area for health insurance. Private health insurance companies list their health plans with the exchange, and people comparison shop on the exchange from among the available health plan listings.

Illustration of a man shopping with a magnifying glass to examine products
Luciano Lozano / Getty Images 

The phrase health insurance exchange most commonly refers to public health insurance exchanges developed by the government because of the Affordable Care Act (the ACA, also known as Obamacare) although private health insurance exchanges do exist. Private health insurance exchanges are usually designed to serve several large employers, so most people will only encounter them when signing up for job-based health insurance.

Public health insurance exchanges are used to buy individual and family health insurance plans that are compliant with the ACA ("individual and family" or "individual market" means health insurance that people buy on their own, as opposed to coverage that's obtained through an employer or via a government-run program like Medicare or Medicaid). And these exchanges are the only place people can obtain premium subsidies and cost-sharing reductions, which serve to reduce premiums and out-of-pocket costs for millions of eligible enrollees (9.6 million people were receiving premium subsidies through the exchanges in 2020, and 5.6 million people were receiving cost-sharing reductions).

People who are eligible for Medicaid based on their income can enroll in Medicaid via the exchange in their state (either directly, or the exchange will direct them to the state Medicaid office once a preliminary eligibility determination indicates that they're likely eligible for Medicaid).

In some states, small group plans for small businesses are available through the exchanges as well. But 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, 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. But SHOP-certified plans, via agents, brokers, and insurers, are only available in limited areas in some of those states; most states that use HealthCare.gov simply don't have any SHOP-certified plans available at all anymore, due to low interest in that program.

But this article focuses on the ACA's public health insurance exchanges and the individual market health insurance plans that make up the bulk of the exchanges' private plan enrollments. It's "exchanges," plural, because each state has an exchange. And although the word marketplace invokes the mental image of a physical place where shoppers wander from stall to stall checking out the vendors' wares, most people access health insurance exchanges via the internet.

The largest health insurance exchange, HealthCare.gov, is run by the federal government, serving health insurance shoppers in 36 states. The other 14 states and the District of Columbia each run their own exchanges (eg, platforms such as Nevada Health Link, Pennie, New York State of Health, and Connect for Health Colorado). A few of the states that currently use HealthCare.gov—including Maine, Virginia, Kentucky, and New Mexico—are in various stages of transitioning to having their own fully state-run exchanges in the coming years, so the number of states relying on the federally-run exchange platform is expected to decline over time.

Exchanges Are Enrollment Portals—They're Not Your Insurer

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.

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). As of 2021, there are15 fully state-run exchanges, six state-run exchanges that use HealthCare.gov for enrollment, six state-federal partnership exchanges, and 24 federally-run exchanges (through the 2020 plan year. Pennsylvania and New Jersey used HealthCare.gov, but both transitioned to running their own exchange platforms in the fall of 2020). 

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 plans sold outside the exchange and employer-sponsored plans as well as grandmothered and grandfathered plans (the latter two types of coverage are no longer available to new enrollees, but still remain in force for many employers and individuals who had previously purchased them). 

What's the Difference Between "On-Exchange" and "Off-Exchange"?

If you're buying a health insurance plan in the individual market, you'll probably hear people referring to "on-exchange" plans versus "off-exchange" plans. An "on-exchange" plan is simply one that's purchased through the exchange. People can shop for exchange plans on their own, or they can have help from a broker or navigator (and in some cases, "on-exchange" plans can be purchased via an online broker's website; ask plenty of questions if you're working with a broker or a private website, to ensure that you're getting an on-exchange plan if that's your preference).

"Off-exchange" plans, on the other hand, are purchased without going through the ACA exchange in your state. They can be purchased directly from an insurance company, or with the help of a broker. Premium subsidies and cost-sharing subsidies are not available if you buy an off-exchange plan, even if you'd otherwise be eligible (and you can't go back and claim the premium subsidy on your tax return if you bought an off-exchange plan, whereas you can if you buy an on-exchange plan and don't take the premium subsidy upfront).

But in many cases, the plans themselves are identical or nearly identical, on- and off-exchange. All individual major medical plans with effective dates of January 2014 or later are required to be fully compliant with the ACA, regardless of whether they're sold in the exchange or off-exchange. That part is important: Insurance companies cannot sell non-compliant major medical health plans in the individual market, even if they sell them outside the exchange.

Depending on how your state has structured its exchange, the health plans available on-exchange might have to adhere to additional requirements beyond simply being ACA-compliant (for example, some states require the plans sold in the exchange to be standardized, with the same set of specific benefits offered by each insurer).

Some insurers choose to only offer their plans for sale on-exchange, others only offer them off-exchange, and others offer plans both on- and off-exchange (note that Washington DC does not allow plans to be sold off-exchange; ACA-compliant individual and small group health plans can only be purchased there via DC Health Link, the District's health insurance exchange).

Non-ACA-Compliant Plans Sold Outside the Exchange

Plans that are currently for sale outside the exchange but that are not compliant with the ACA generally fall into the category of "excepted benefits," which means they're specifically exempt from the ACA's rules, and are, by definition, not individual major medical health insurance. Excepted benefits include short-term health insurance, limited benefit plans, fixed indemnity plans, accident supplements, critical illness/specific disease plans, and dental/vision insurance.

There are also various other types of coverage, including healthcare sharing ministries (and Farm Bureau plans in a few states, including Kansas, Iowa, Tennessee, and as of 2021, Indiana), that are not considered health insurance and thus not subject to health insurance rules and regulations.

Some of these plans, including short-term plans, healthcare sharing ministry plans, and Farm Bureau plans, are designed to serve as stand-alone medical coverage for at least a short while, although they all have gaps in their coverage when compared with ACA-compliant plans—some more so than others. The rest of the excepted benefits are designed to serve as supplemental coverage. Excepted benefits and "non-insurance" plans are available off-exchange in most areas (and dental/vision plans are available on-exchange in many areas).

Who Can Use the Exchanges?

All U.S. citizens and legally present residents who are not imprisoned and not enrolled in 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.

In some states, small businesses can also purchase coverage in the exchange (in most states, this is limited to businesses with up to 50 employees). Note that in states that use HealthCare.gov's small business exchange, the exchange is no longer handling enrollment, and is having businesses enroll directly with insurers instead. Some of the state-run exchanges are also using this approach, so on-exchange availability of small group health coverage is fairly limited.

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. The annual open enrollment period for members of Congress and their staff runs for one month in the fall (it's an enrollment window for employer-sponsored coverage, so it's not the same as the open enrollment period that applies to individuals purchasing their own health insurance through DC Health Link).

How Many People Have Coverage Through the ACA's Exchanges? 

At the end of open enrollment for 2020 coverage (which ended on December 15, 2019, in most states), total exchange enrollment in individual market plans stood at 11.4 million people, including enrollments conducted via HealthCare.gov and the 13 state-run exchanges. Effectuated enrollment (ie, in-force policies) as of early 2020 stood at about 10.7 million people. Effectuated enrollment is always lower than the number of people who sign up during open enrollment, as there are invariably some people who don't pay their initial premiums or who cancel their coverage shortly after enrolling.

The number of people enrolled in individual market plans through the exchanges increased more than usual throughout the course of 2020, as millions of Americans faced at least a temporary loss of employer-sponsored coverage due to the COVID-19 pandemic. Many of them have an option to continue their employer-sponsored plans with COBRA or state continuation, but they also have a choice to buy individual coverage in the exchange, with premium subsidies and cost-sharing reductions if their income makes them eligible. And although the open enrollment window for 2020 ended before the COVID pandemic took hold in the U.S., loss of employer-sponsored coverage triggers a special enrollment period, regardless of when it happens during the year.

Small businesses can enroll in plans through the exchanges, but there were fewer than 200,000 people enrolled in small business exchange plans nationwide in 2017—the vast majority of the ACA exchange enrollees have coverage in the individual market. 

How Health Insurance Exchanges Work

Exchanges are designed to increase competition and ease comparison shopping. Insurance companies compete for your business in the exchange. This direct competition is meant to keep the cost of health insurance premiums down. Exchanges/marketplaces ease the comparison of plans by using an "apples to apples" approach:

All health insurance policies offered through the exchanges provide a minimum set of essential health benefits, although the specific coverage that's offered will vary from one state to another, depending on the benchmark plan that the state uses. (Covering essential health benefits is part of being ACA-compliant, so the off-exchange individual major medical plans available in your area will also cover the essential health benefits.):

Standardized plans are available in the exchanges in some states. In California's exchange, all of the plans are standardized.

All health insurance policies offered in the exchange must conform to one of five benefit tiers: catastrophic, bronze, silver, gold, or platinum. Both on- and off-exchange, a policy’s benefit tier (bronze, silver, gold, or platinum) describes the percentage of average covered healthcare expenses the plan will pay, otherwise known as the actuarial value (AV) of the plan. You can learn more about how these benefit tiers work in, " Bronze, Silver, Gold, and Platinum—Understanding the Metal-tier System." In most areas of the country, platinum plans are scarce or not available at all in the individual market. Silver and gold plans are available in all areas of the country (insurers that offer plans in the exchange are required to offer them at the silver and gold level, at a minimum) and nearly every county in the US has bronze plans available.

Catastrophic plans cover less than 60% of the cost of essential health benefits for a standard population, but they still must adhere to the ACA's cap on out-of-pocket costs. Catastrophic plans also include three primary care office visits before the deductible, and certain preventive care is covered in full, just as it is on all ACA-compliant plans. Everything else applies to the deductible and is only covered after it's met. Both inside the exchange and outside the exchange, 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 (although there's no longer a federal penalty for not having coverage, the mandate itself still exists and an exemption is still required in order to purchase a catastrophic plan if you're 30 or older).

Exchanges provide subsidies to help pay for health insurance. Health insurance exchanges are the only access point for government subsidies (premium tax credits) that make health insurance more affordable for Americans with modest incomes. You can apply for a government health insurance subsidy through your health insurance exchange, and the subsidy is only good for health insurance bought on the health insurance exchange. Learn more about health insurance subsidies in, "Can I Get Help Paying for Health Insurance?"

Even if you think you might be eligible for a premium subsidy but aren't sure due to fluctuations in your income, you'll want to consider buying a plan through the exchange. You can pay full price and then go back later and claim the subsidy (since it's really just a tax credit) on your tax return. But you can't do that if you bought your plan off-exchange.

There's a new twist, however, that started to apply in 2018: People who aren't eligible for a premium subsidy and who want to purchase a silver-level plan may find that the off-exchange versions of the plans are less expensive. That's because of the way the cost of cost-sharing subsidies are being added to the premiums.

In 2018 and 2019, however, you couldn't switch back to an on-exchange plan mid-year if your income dropped and made you subsidy-eligible. There were always exceptions for people who experienced qualifying events, but a change in income wasn't a qualifying event unless you were already enrolled in an on-exchange plan. That changed as of 2020, however, with the introduction of a new special enrollment period for people who have off-exchange coverage and who experience an income change that makes them newly-eligible for subsidies. But it is still important to carefully consider the pros and cons of making a mid-year plan change (ie, from off-exchange to on-exchange), since deductibles and out-of-pocket spending generally start over when you switch to a new plan.

In addition to premium subsidies, cost-sharing subsidies (also known as cost-sharing reductions) are also only available if you buy a silver plan through the exchange in your state. If your income makes you eligible for cost-sharing subsidies and/or premium subsidies, you'll want to enroll through the exchanges (as opposed to enrolling off-exchange an insurance company) in order to take advantage of the available assistance.

Finding Your Health Insurance Exchange

Your state may run its own health insurance exchange such as the one run by California, Covered California. Or, your state may have opted not to create a health insurance exchange, or to create an exchange but use the federal enrollment platform. In that case, residents use the federal government's exchange at HealthCare.gov. 

The following states have their own enrollment websites, although you can get to them by starting at HealthCare.gov and clicking on your state or entering your zip code:

In every state, enrollment in the exchange (and outside the exchange) is limited to an annual open enrollment window (November 1 to December 15 in most states) and special enrollment periods triggered by qualifying events.

States that run their own exchange enrollment platforms (ie, they don't use HealthCare.gov) can create special enrollment periods at their discretion, and most of them also offer a longer general open enrollment period each year.

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Article Sources
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