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Health care exchanges explained

How health care exchanges work, and what you need to know about them.

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As of mid-October, 71% of uninsured Americans were still unfamiliar with what health care exchanges are designed to do, according to a Gallup poll.1

“Think of it as one-stop shopping for insurance,” says Jeff Munn, vice president of benefit policy development at Fidelity Investments. “Health care exchanges centralize information, allowing people to compare insurance plans.”

How do they work?

If you’re unsure of how the federal Health Insurance Marketplace is designed to work, or if you’re simply curious as to what these exchanges hold for you, these are the essentials:

Who’s eligible? The public exchanges were generally designed to help those who don’t have health insurance—or those who have health insurance but whose insurance doesn’t meet the Affordable Care Act’s (ACA’s) requirements— find health coverage that fits their needs. As of 2012, about 15% of the population had no health care insurance, according to the U.S. Census Bureau. But anyone, regardless of current coverage status, can use the public health care exchanges to shop for insurance. How much you’ll pay for coverage depends on a variety of factors, including income, family size, and the plan you select. You can shop on the public exchanges even if you have employer-provided coverage, though you may not want to because most employers pay part of the premiums and many have negotiated with health care plans to lower costs. As of 2012, 55% of the population was covered by employer-based health care plans, according to the U.S. Census Bureau.

What are the subsidies? The ACA provides government subsidies for some people based on income. Anyone making between 100% and 400% of the federal poverty level for their household size may be eligible for a tax subsidy. Individuals and families below their state’s threshold may be eligible for Medicaid. However, some states have not adopted the expanded Medicaid provisions. If you live in one of these states, you may not be eligible for Medicaid or for the ACA subsidies. You should check with your state’s exchanges for more information. In 2014, the subsidy may be available to an individual with modified adjusted gross income (MAGI) up to $45,960 or a family of four with MAGI up to $94,200. People or families with incomes closer to the lower limit receive larger subsidies. Also, if your employer-provided health plan doesn’t meet minimum requirements under the ACA2 (i.e., coverage of at least 60% on average of medical costs or you have to pay more than 9.5% of your household income) you may also qualify for subsidized coverage on the exchange.

What plans are available? The exchanges categorize plans into five levels, determined by the way that health care costs are shared by the consumer and the insurance provider. Plans at the highest level, called “platinum plans,” cover, on average, an estimated 90% of an individual’s health care costs. Gold plans cover 80%, silver plans cover 70%, and bronze plans cover 60%. Individuals under age 30 can opt for catastrophic policies: These carry the lowest premiums of any plan, but they do not qualify for income-based subsidies.

Do the plans vary from state to state? The public exchanges vary from state to state. Each state has its own health care marketplace: Seventeen states run their own versions, and the federal government operates exchanges in partnership with or on behalf of the other 33 states and Washington, D.C. Although providers and costs will vary from state to state, the policies and benefits are all required to cover at least the same basic types of services.

What information is required to apply? To get started, applicants need to provide their Social Security number and information about their income and household size. Once they enroll, the exchange sends the person’s information to the insurance carrier. However, insurance companies are no longer allowed to exclude applicants based on preexisting conditions, so they don’t need as much information as they used to.

When can I sign up for a plan? Open enrollment in the marketplace began October 1, 2013, and ends March 31, 2014. Under current rules, you must enroll and pay for coverage by December 23, 2013, for coverage to start January 1, 2014. And unless you have a qualifying life event—such as moving to a different state, a divorce, or the birth of a child—you must wait until the next open enrollment period in the fall of 2014 if you do not enroll by the deadline or if you want to change your plan.

Will my doctor accept my new plan? Not necessarily. Each plan offered through an exchange includes networks of health care providers. If your doctor is outside a particular plan’s network, you’ll end up paying more for care and may miss out on benefits covered from in-network providers. During the application process, you can review plans to see whether your primary care doctor and other providers are considered in network. If your state has several insurers providing plans, you may find that one company’s plans will cover care from your existing doctor while another company’s plans won’t.

Can businesses join the exchange? Businesses with 50 or fewer full-time employees will be eligible to use the Small Business Health Options Program (SHOP) marketplace, although they won’t be able to use the federal Web site to enroll their employees until November 2014. In the meantime, businesses can use brokers or enroll directly through insurance companies. If a business has more than 50 employees, it can’t use SHOP. The SHOP marketplace is similar to the individual marketplace but geared to handle the specific issues business customers will face. For instance, in 2014, businesses will determine how much they will contribute to the cost of employees’ health care coverage, and then employees can purchase insurance through the plan provider. Businesses also can earn tax credits—as much as 50% of the cost of employees’ premiums—but must meet several criteria to be eligible for those incentives.

Can I sign up if I’m age 65 or older? At age 65, most people who are not actively working and eligible for an employer plan are enrolled in Medicare. And if you enroll in Medicare, you aren’t eligible to purchase coverage through the health exchanges. Nor can you buy Medigap or Part D prescription coverage through the exchanges—you would still need to purchase that coverage on your own. Read Viewpoints: “Understanding your Medicare options.” Medicare participants don’t have to replace their coverage, because Medicare meets the individual mandate under ACA. But the ACA extends Medicare to cover more preventive care services such as colonoscopies and mammograms.3

The cost of coverage depends heavily on individual preferences and circumstances, so the benefits and appeal of the new marketplace plans can vary greatly from person to person. One reason for the variability is prices: Revised age-rating bands limit the additional amounts providers can charge older applicants. Under the ACA, insurers cannot charge the eldest age group more than three times what they would charge the youngest for the same coverage. The previous structure allowed insurers in some states to use a ratio that was much higher. In addition, a key provision of the ACA required insurers to guarantee coverage regardless of an individual’s medical history.

Beyond the exchanges

Employees of some large corporations might already be familiar with the concept of a health care exchange. Companies in recent years increasingly have given employees a lump-sum subsidy toward health coverage, and offered them access to privately run exchanges where they could comparison shop for plans. This trend is part of a larger transition away from defined benefit plans, where employers are tasked with making decisions on behalf of the employee, and toward defined contribution plans, where employees have more of a say in how they use their benefits.

One clear result of the ACA is that some people, particularly high earners, start paying higher taxes this year to help fund the ACA. Individuals earning more than $200,000 a year and couples with incomes of $250,000 or more face increases of 0.9% in their Medicare tax and 3.8% on their investment gains.

Much about the ACA still needs to be worked out, from Web site glitches to the enrollment process for small businesses. The national conversation about the challenges and opportunities of the ACA will continue, though the topics of discussion will likely change as the law matures. “We’ll see the law continue to evolve over time,” says Munn. “Health care exchanges could look very different five years from now.”

Learn more

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1. Source: Gallup, October 18, 2013.
2. Source: Ernst & Young, The Affordable Care Act: Summary of Employer Requirements, February 2013.
3. Source: Medicare.gov.
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