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Health Insurance Exchanges

Exchanges are the Keystone of Health Reform

In 2014, each state is required to set up and operate a health benefit exchange. These health insurance marketplaces truly are the keystone of healthcare reform. States may opt out of creating an exchange. If that occurs, the Department of Health and Human Services will be responsible for implementing and operating an exchange within that state.

These exchanges will initially act as a health insurance marketplace for both the small group and individual markets. States also have wide discretion on how they wish to create their exchange, and they may pool together both the individual and small group market if they choose. Covered California will provide separate exchanges for the individual and small group markets.

Exchanges are the centerpiece of the entire healthcare legislation. If set up and run properly, the exchanges could make the goal of affordable and quality care become a reality. The idea of health benefit exchanges is not a new one. Exchanges have been attempted before, and some are currently in operation. There are several issues and questions facing exchanges, and the Affordable Care Act attempts to deal preemptively with them. The states and federal government must deal with the remaining issues and questions.

Challenges Facing Health Insurance Exchanges

Some of the biggest issues and questions that exchanges have faced in the past, and continue to face today, are:

  • Adverse selection is the biggest obstacle exchanges must handle to be successful. This is the single biggest reason why exchanges have failed in the past and continue to struggle currently.
  • Currently, there is no one working model of an exchange that states can follow as they design and implement their exchanges. Even if there were a single model, since different areas of the country are so diverse, states will require an exchange designed around their unique local circumstances and characteristics.
  • Exchanges must attract a large pool of insureds to combat adverse selection, as discussed above, and it will give greater bargaining power to the exchanges dealing with insurers. It will also entice insurers to offer coverage through the exchanges. If the states and federal government are successful at attracting large enough numbers, more insurers will seek to offer coverage through the exchanges. This will create enhanced competition between private insurers within the exchanges, better rates for consumers, and lower overall healthcare costs.
  • The Affordable Care Act requires exchanges to establish a navigator program. Navigators will literally help individuals, families, and small employers “navigate” their way through their exchange. The role of the navigator under the Affordable Care Act is still vaguely defined. The navigator role presents a major issue for brokers who wish to participate. Currently under the law, any broker or agent that participates as a navigator within an exchange, will be prohibited from receiving direct or indirect consideration from an insurer for the enrollment of an individual or employer. States and the federal government must more fully define the navigator role as they design and implement their individual exchanges.
  • Many states openly oppose the Affordable Care Act, specifically the individual mandate that requires citizens to obtain healthcare coverage beginning in 2014. A growing concern is that states will take little or no action toward the design and implementation of their exchanges. If this happens, the law requires the federal government to step in and implement an exchange within the state. Ironically, it is the federal control of healthcare systems that many states opposed from the beginning of the reform. Barring an appeal or significant amendment to healthcare reform, this legislative framework is the law of the land. All players in the healthcare industry must adapt to the new environment, including the states.

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