6 Things You Should Know About Health Insurance Exchanges

The below is a blog post from PrimeGroup's sister company, PrimePay (Payroll Services) about the Health Insurance Exchanges the federal government is putting in place as part of the health care reform.  This article tells you the most important things you should know about the exchanges.

6 Things You Should Know About Health Insurance Exchanges

Posted by Jeff Price on Fri, Jun 10, 2011

In previous posts… Health Care Reform: The Timeline for 2011 and 2012 and What’s Happening in 2013 and 2014 With Health Care Reform, we detailed Health Care Reform’s timeline.  Now that you know when provisions go into effect it’s time to discuss what some of these provisions are and how they will affect you.

One of the most misunderstood provisions in the Patient Protection and Affordable Care Act is the introduction of Health Insurance Exchanges coming in 2014.  Confused as to what Health Insurance Exchanges are?  You’re not alone.  Here are some answers to your questions:

1. What is a Health Insurance Exchange? 
   A health insurance exchange is a marketplace in which consumers can shop for health insurance by comparing benefits, prices, and plan provisions.   
2. Is everyone eligible to use Health Insurance Exchanges?
   No.  Under Health Care Reform, exchange consumers will be limited to companies with fewer than 100 employees and individuals who do not have coverage available to them through employment or otherwise. 
3. Do Health Insurance Exchanges under Health Care Reform include the “Public Option”?
   No.  The original bill drafted by the House of Representatives did include a “public option”, or a Federal public-benefit corporation designed to compete with private companies on the exchanges.  However, the version of the bill that was eventually signed into law did not include the public option, ensuring the exchange will be composed of private insurance companies. 
4. Who will govern the Health Insurance Exchanges?
   Contrary to popular belief, exchanges will not be administered by the Federal government.  Although a national exchange was initially sought by President Obama, the bill was ultimately passed naming states as the responsible party for administrating their own exchanges.  How the exchange will be offered to the public (online, telephone, mail, etc.) will be determined by each state, although some states have already received Federal funding to develop an online system.   
5. What is one advantage of a Health Insurance Exchange I need to be aware of? 
   Buying Power – Under a group health plan, the insurance carrier’s risk is spread out over a group of people.  This keeps group premiums low.  Under an individual health plan, carriers absorb an individual’s entire risk.  This keeps individual premiums high.  Exchanges will essentially become cooperatives, allowing individuals and small businesses under 100 employees to form a ‘group’ which obtains access to competitive pricing and health plan variety.      
6. What is one disadvantage of a Health Insurance Exchange I need to be aware of?
   “Cherry Picking” – Under an exchange, private health insurance companies can offer their group plans inside and outside the exchange.  As such, there is a risk that these carriers will seek to sign up all the small businesses with healthy employees under their non-exchange platform and offload the companies with older and sicker employees onto the exchange.  The result?  The exchange experiences adverse selection, or high risk participants in greater numbers, ultimately leading to higher insurance premiums.  For an example of Cherry Picking within an exchange, refer to what happened to Texas in the mid-1990s.

Please keep in mind that the provisions above reflect the bill as it currently stands.  Since 2014 is still 2 ½ years away, there’s a chance provisions under Health Care Reform could be changed.  Much depends on the outcome of the 2012 Presidential election.