BernadetteFernandez
Specialist in Health Care Financing
Annie L. Mach
Analyst in Health Care Financing
Thefundamental purpose of a health insurance exchange is to provide a structuredmarketplace for the sale and purchase of health insurance. The authorityand responsibilities of an exchange may vary, depending on statutory or otherrequirements for its establishment and structure. The Patient Protectionand Affordable Care Act (ACA, P.L. 111-148, as amended) requires health insuranceexchanges to be established in every state by January 1, 2014. ACA providescertain requirements for the establishment of exchanges, while leavingother choices to be made by the states.
Qualified individuals and small businesses will be able to purchase privatehealth insurance through exchanges. Insurers selling health insuranceplans through an exchange will have to follow certain rules, such asmeeting the private market reform requirements in ACA. While the fundamentalpurpose of the exchanges will be to facilitate the offer and purchase of health insurance,nothing in the law prohibits qualified individuals, qualified employers, andinsurance carriers from participating in the health insurance marketoutside of exchanges. Moreover, ACA explicitly states that enrollment inexchanges is voluntary and no individual may be compelled to enroll inexchange coverage.
Exchanges may be established either by the state itself as a “state exchange”or by the Secretary of Health and Human Services (HHS) as a “federallyfacilitated exchange.” All exchanges are required to carry out many of thesame functions and adhere to many of the same standards, although thereare important differences between the types of exchanges. States will need to declaretheir intentions to establish their own exchanges by no later than November 16,2012.
ACA and regulations require exchanges to carry out a number of differentfunctions. The primary functions relate to determining eligibility andenrolling individuals in appropriate plans, plan management, consumerassistance and accountability, and financial management. ACA gives variousfederal agencies, primarily HHS, responsibilities relating to the generaloperation of exchanges. Federal agencies are generally responsible forpromulgating regulations, creating criteria and systems, and awardinggrants to states to help them create and implement exchanges.
In general, health plans offered through exchanges will provide comprehensivecoverage and meet all applicable private market reforms specified in ACA.Most exchange plans will provide coverage for “essential health benefits,”at minimum; be subject to certain limits on cost-sharing, includingout-of-pocket costs; and meet one of four levels of plan generosity based onactuarial value. To make exchange coverage more affordable, certainindividuals will receive premium assistance in the form of federal taxcredits. Moreover, some recipients of premium credits may also receivesubsidies toward cost-sharing expenses.
A state that is approved to operate its own exchange has a number ofoperational decisions to make, including decisions related toorganizational structure (governmental agency or a nonprofit entity);types of exchanges (separate individual and Small Business Health OptionsProgram (SHOP) exchanges, or a merged exchange); collaboration (a statemay independently operate an exchange or enter into contracts with otherstates); service area (a state may establish one or more subsidiaryexchanges in the state if each exchange serves a geographically distinct areaand meets certain size requirements); contracted services (an exchange maycontract with certain entities to carry out one or more responsibilitiesof the exchange); and governance (governing board and standards ofconduct). This report outlines the required minimum functions ofexchanges, and explains how exchanges are expected to be established andadministered under ACA. The coverage offered through exchanges isdiscussed, and the report concludes with a discussion of how exchanges willinteract with selected other ACA provisions.
Date of Report: August 15, 2012
Number of Pages: 36
Order Number: R42663
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