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Health care exchanges explained

Here are some key things to know about these one-stop insurance shopping places.

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More than 8 million Americans enrolled in health care exchanges by the end of March 2014,1 and an estimated 2 million more signed up by the end of 2014 during the enrollment period for 2015,2 which ends Feb. 15, 2015

“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 health 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 care coverage—or those who have health insurance but whose coverage 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. People making from 100% to 400% of the federal poverty level for their household size may be eligible for a tax subsidy. However, a case currently being heard by the U.S. Supreme Court, King v. Burwell, challenges the federal government’s ability to provide some of these subsidies in 34 states that use the federal government to manage enrollment in the health care exchanges.3

What plans are available? The exchanges categorize plans into four 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: Sixteen states and Washington, D.C., run their own versions, and the federal government operates exchanges in partnership with or on behalf of the other 34 states. 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 personal medical information as they used to.

When can I sign up for a plan? Open enrollment in the marketplace for 2015 began November 15, 2014, and closes February 15, 2015. 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 2015 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. Also, unless the plan pays out-of-network benefits, the plan may not pay any benefit and you could be responsible for paying the entire cost. 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.

What if I choose not to have health care coverage? If you currently do not have health coverage but are required to have it, and you choose not to enroll in one of the federal health care exchanges, you could be required to pay a penalty. According to Healthcare.gov, you’ll pay the higher of these two amounts in 2015:

  • 2% of your yearly household income. (Only the amount of income above the tax filing threshold, about $10,000 for an individual, is used to calculate the penalty.) The maximum penalty is the national average premium for a bronze plan.
  • $325 per person for the year ($162.50 per child under 18). The maximum penalty per family using this method is $975.

The penalty increases every year. In 2016 it’s 2.5% of income or $695 per person. After that, it’s adjusted for inflation. You’ll pay the fee on the federal income tax return you file for the year you don’t have coverage.

Can businesses join the exchange? Businesses with 50 or fewer full-time employees can start offering health insurance to their employees under the Small Business Health Options Program (SHOP) marketplace. There is no limited enrollment period for small business coverage, and employers can offer it at any time. Businesses can also use brokers or enroll directly through insurance carriers. 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, businesses will determine how much they will contribute to the cost of employees’ health care coverage, and then employees can purchase insurance through a variety of plan providers. 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 are not eligible for an employer plan are enrolled in Medicare. If you enroll in Medicare, you aren’t eligible to purchase coverage through the health exchanges. Nor can you buy Medigap or Medicare 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. Also, the ACA extends Medicare to cover more preventive care services, such as colonoscopies and mammograms.5

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. Revised age-rating bands limit the additional amounts providers can charge older applicants, for example. Under the ACA, insurers cannot charge the eldest age group more than three times what they would charge the youngest group for the same coverage. Under the previous structure, insurers in some states used a ratio that was much higher. In addition, a key provision of the ACA requires 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. In recent years, some companies 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.

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. Department of Human Health and Services, Health Insurance Marketplace: Summary Enrollment, April 2014.
2. Department of Human Health and Services estimate on federally enrolled participants.
5. Medicare.gov.
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