The Guide to Health Insurance Exchanges provides an overview of what the exchanges are and how they work, as well as reports on what happened right after they opened. The guide will help both employers and consumers to better understand exchanges by explaining the different types including public exchange for individuals, the SHOP exchange for small businesses, or a private marketplace for larger companies.

1. Health
Insurance
Exchanges
T H E G U I D E T O
healthcaretrendsinstitute.org

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Introduction
The Patient Protection and Affordable Care Act, also known as
Healthcare Reform, or simply the ACA, is a complex piece of legislation with
more than 900 pages and 450 provisions. The law is designed to provide
affordable, quality health coverage to the more than 47 million American
citizens estimated to be without health insurance in 2012, according to the
Kaiser Commission on Medicaid and the Uninsured. Beginning in 2010
and extending into 2020, legislative guidelines are being followed for its
massive implementation.
One of the key provisions for 2013 is the creation of health insurance
exchanges. This paper explores the design of public exchanges for individuals
and families and each state’s role in expanding coverage to its residents.
A U.S. Map of Exchanges highlights every state’s participation and chosen
exchange model.
The expansion of coverage under the ACA has also brought new
opportunities for providing coverage to employees. Small companies have
the option of using the newly created online Small Business Health Options
Program (SHOP) while larger employers can now consider the benefits
of using private exchanges. Three private exchange models are identified
and discussed as well as the impact of companies adopting this type of
benefit platform.
Finally, this paper will conclude with a look at the future trends for
purchasing health plans through the exchanges as well as a discussion on the
initial impact these exchanges are having on the insurance landscape.
One of the key
provisions for 2013 is
the creation of health
insurance exchanges.
Accessible Healthcare
for the Uninsured

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ACA Overview
With the passage of the Patient Protection and Affordable Care Act
(ACA),healthinsuranceisbeingextendedto37millionAmericansby2023through
two major mechanisms – the expansion of Medicaid and the public exchanges.
One of the biggest features of healthcare reform is the creation of
public insurance exchanges or insurance marketplaces, which began accepting
enrollees on Tuesday, October 1 for coverage beginning January 1, 2014.
By 7 a.m., more than 1 million people had visited the healthcare.gov
website, according to President Barack Obama in a press briefing.
The public exchange opened as debates in Congress over its funding,
which include subsidies to those citizens who qualify, caused the government
to suspend its operations. But the marketplace still opened and was visited
by over a million people, many of whom were looking to get health insurance
for the first time. With insurers unable to deny anyone coverage based on
previous health conditions, this was a new opportunity for many Americans to
purchase health insurance. According to the Congressional Budget Office:
Estimate of the Effects of the Affordable Care Act on Health Insurance Coverage,
May 2013, 37 million people will find coverage through public exchanges
and the expansion of Medicaid by 2023.
What is a Health Exchange?
So what is a health exchange? A health exchange is a web-based
portal that connects individuals and/or employees who wish to purchase health
insurance with insurance carriers. The exchange or online marketplace provides
decision-making tools and support to help users make informed decisions.
There are two types of exchanges, public and private. Private health
exchanges have been around for a number of years and were the precursor
to the much-anticipated public exchanges. The model for public exchanges
was envisioned to work similarly to how consumers purchased other online
goods and services, like when shopping on Amazon.com or Expedia.com.
37 million individuals
will find coverage
through public
exchanges and the
expansion of Medicare
by 2023.
37 Million Americans
2 Major Mechanisms

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AGUIDETOHEALTHINSURANCEEXCHANGES
Exchange Type
Federal
State
State-Federal
Partnership
What is a Public Exchange
or Marketplace?
There are three types of public exchanges: Federal, State
and State-Partnerships.
Prior to the opening of the marketplaces, states chose how they
wanted to participate—whether they would utilize the federally-managed
healthcare.gov exchange, develop their own exchange, or use a combination
of federal and state resources. With respect to health plan design and pric-
ing, states have some flexibility as to what is covered and, as has always been
the case, states have jurisdiction over premium rates.
Individuals can now access their state’s marketplace to compare
their coverage options side-by-side, learn about subsidies or cost-reductions
that may be available to them, and enroll for coverage. In addition to viewing
health plan details—including benefits and rates—they can access a number
of tools to help them select the most appropriate coverage. They may use
cost calculators, benefit comparisons, or work with a trained representative
via live online chat or toll-free hotline. If applicable, they may also connect
with their state’s Medicaid or Children’s Health Insurance Program (CHIP)
or certify if they are exempt from the ACA’s individual mandate.
Exchange Type
Federal
State
State-Federal
Partnership

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Qualified Health Plans (QHP)
on the Public Exchanges
All of the health plans introduced in the federal and state exchanges
today are offered by private companies who have qualified for participation.
The goal of these Qualified Health Plans (QHP) is to give individuals the
scope of coverage they’d be likely to receive under a large group plan in their
state. Organized into four categories differentiated by monthly premium
and cost-sharing (what the policyholder pays out-of-pocket, such as copays
and deductibles), each plan covers a different percentage of medical costs:
• Bronze—pays 60%
• Silver—pays 70%
• Gold—pays 80%
• Platinum—pays 90%
While the plans are set apart by their cost-sharing structures, all are
required to provide coverage in 10 essential health benefit categories:
• Maternity and newborn care
• Rehabilitative and habilitative services and devices
• Pediatric services, including oral and vision care
• Mental health and substance use disorder services, including
behavioral health treatment
• Preventive and wellness services
• Hospitalization
• Laboratory services
• Prescription drugs
• Ambulatory patient services
• Emergency services
The ACA also sets forth another set of requirements that all insurers
must meet whether they’re selling through employers or to individuals on
exchanges. It mandates:
• Children can stay on a parent’s health plan until the age of 26
• There is no lifetime maximum on essential medical benefits
• Insurers cannot deny coverage based on a preexisting condition
• Insurers cannot drop your coverage or raise your premiums
due to an illness
• Annual out-of-pocket medical and prescription costs will be
capped at $6,400 for individuals and $12,800 for families
Individuals have until March 31, 2014 to obtain insurance on the
public exchange unless they have a qualifying event, which will enable them
to apply for coverage after that date.
Bronze – pays 60%
Silver – pays 70%
Gold – pays 80%
Platinum – pays 90%
Individuals have until
March 31, 2014 to
get insurance on the
public exchange.

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The State of Exchanges
Americans are expected to
begin purchasing health insur-
ance through newly created
marketplaces known as
exchanges
12 million
Will have incomes at or below Federal
Poverty Level ($46,100 for a family of
four), however this number is expected to
drop to 35% in 2021
60%
16% of individual exchange population will
have incomes above 300% of Federal
Poverty Level, this portion rises to 35% in
2021
75% of public exchange enrollees will be
newly insured
in 2014
Indicated a willingness to pay a higher price
for additional insurance features such as
dental or vision coverage
47% of consumers surveyed
State insurance exchanges are
projected to translate into a
$205 billion market opportunity for
the health sector
within the first 7
years of operation
Employers have a $2,000 fine per
full-time employee for dropping
coverage, under the ACA
(Affordable Care Act)
dropping coverage
ALL ABOVE DATA TAKEN FROM, “Health Insurance Exchanges” by Ceci Connolly and Jeff Gitlin, March 17th, 2013, AHA Health Forum, Trustee Magazine
Entering exchange market are employed
full-time
60% of Adults
Are expected to come from just 5 states
40% of total individual exchange enrollees
The size of the exchange market is expected to
more than double by 2021, marking the single
largest expansion of health coverage in the USA
since the creation of Medicare in 1965
May range from a low of 11 million in 2014 to a
high of 32 million in 2021
A guide to how health insurance exchanges work, who is using them,
and what it means for consumers in 2014
Will receive
subsidies in 2014
90%
Slated to receive individual coverage
have a median age of 33 and report
being in good health
25 million
california texas Florida New York Illinois
Do not have a college degree compared to 60%
of today’s private insurance market
75% of exchange population
Exchange enrollment in the
shop & individual exchanges
The State of Exchanges
www.HealthcareTrendsInstitute.org Copyright 2013. Healthcare Trends Institute.©

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What is the SHOP Exchange?
The ACA also created an online exchange for small businesses,
which will offer business owners QHPs. As of October 1, companies with 50
or fewer full-time employees could begin looking for health insurance on
the small business health insurance marketplace. The Small Business Health
Options Program or SHOP is similar to the public insurance exchange
available for individuals and families.
While small companies are not required to offer health coverage
under the ACA, the SHOP is designed to present employers with affordable
QHP options for their employees. Employers should visit healthcare.gov to
see what’s available to them, as well as get help from the federal call center to
fully understand the process.
The SHOP platform for purchasing health insurance allows employers
to select a defined (or fixed) contribution amount for their employees to use
towards a health plan. Initially employers using SHOP were supposed to be
given a choice of plans from different insurers. However, in 2014 there will
only be one exchange-based plan available for all employees.
Unlike the individual insurance marketplace where there is no fixed
open enrollment period, small businesses can enroll in SHOP on a rolling monthly
basis. This is beneficial to companies as delays have caused certain web features
and online enrollment to be unavailable until November 1, 2013. In October,
employers can begin the enrollment process online and apply for coverage
using a paper application. Another option is to wait to enroll fully online until
November, which still allows time for coverage to begin by January 1, 2014.
The SHOP program was designed to change the way employers
purchase health insurance. As an incentive, qualifying businesses with fewer
than 25 full-time employees that participate in the exchanges will receive
another benefit—they may claim the Small Business Health Care Tax Credit
for up to 50 percent of the cost of providing coverage.
SHOP Exchange
Small Business
Health Option Plan

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AGUIDETOHEALTHINSURANCEEXCHANGES
What is a Private Exchange?
In many ways, private exchanges are similar to the public exchanges,
as the latter was patterned after them. Some private exchanges have been in
existence for at least 20 years according to Kaiser Health News. With the ACA
creating new opportunities in the health insurance market, other private
exchanges have established, many identifying as “corporate exchanges.” As of
October 1, 2013, private and public exchanges have began operating alongside
each other.
A critical difference often noted between public and private exchanges
is that private exchanges are not able to take advantage of federal subsidies.
However, this is not true for all private exchanges. Under a rule proposed
by the Obama administration in June, consumers will be able to purchase a
QHP and receive a federal premium assistance tax credit or health law subsidy
from the insurance company itself rather than from the public exchange. It will
be up to insurers to pursue providing QHPs directly from their own websites.
This coverage would be for eligible individuals and their families who have
no access to employer-sponsored coverage.
Additionally, private exchanges like eHealth and GetInsured will be
integrated with the federal systems, allowing consumers in the 36 states where
individuals use the federal public exchange to use these sites to apply for
coverage and tax credits to beginning January 1, 2014.
As noted above, individual policies are going through the biggest
transformation as guaranteed issue provisions are implemented and subsidies
are calculated. Therefore, most of the conversations around private exchanges
are based on employer-sponsored or group insurance, resulting in three
main types of private exchange models.
Private Exchange Models
In the single-carrier/insurer exchange, an individual insurer offers
various plan choices to individuals or employees. Employers may help
choose plan design options for their employees, but there are not multiple
insurers to choose from. BlueKC, started by Blue Cross Blue Shield of Kansas
City, is an example of this type of exchange for small employers.
In the multi-carrier/third-party exchange, consumers choose
from numerous plan designs from multiple insurers. Insurers compete on
providing plans with various price points, provider networks, and customer
service support. While many of these exchanges were originally started by
technology companies, today, large brokers and benefit firms are examples
of companies engaging in or creating this type of exchange and they may be
for-profit or nonprofit. The term corporate exchange has been coined under
Insurers compete on
providing plans with
various price points,
provider networks,
and customer service
support.

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AGUIDETOHEALTHINSURANCEEXCHANGES
this model as well. A recent entry into this marketplace is AON Hewitt’s new
exchange for large employers, which was designed to be ACA-compliant, but
not ACA dependent, meaning all the plans available for employees to choose
from meet the QHPs requirements.
In the hybrid exchange, consumers can choose from multiple insurers.
Some exchanges, like Ehealthinsurance.com and GetInsured.com may
offer federal QHPs with subsidies for eligible individuals, as well as insurers’
traditional health plan offerings.
The multi-carrier, or corporate exchange programs, want to be based
on group insurance contracts that finance the benefit plans on a fully-insured
basis. The employer is the plan sponsor for medical benefits and the plan
fiduciary, determining the fixed premium payments paid on a per employee
basis. However, when using private exchanges, usually the exchange manager
negotiates directly with the participating health insurers and determines
what health plans and benefit options are offered to the employees.
This is an important aspect or shift for employers when adopting a
private exchange—moving from using a defined benefit approach to a defined
contribution platform. Currently most employers define the benefits for
employees and then contract with the health insurers to deliver the coverage.
The multi-carrier or corporate exchange programs typically use a
defined contribution model, where employers give employees a specific dollar
amount toward health coverage. The employees visit the private exchange
selected by their employer and choose from the multiple health plans by
multiple insurers available on that exchange. The employee has the option
to contribute more for additional coverage or other health options.
While employees using a private exchange cannot take advantage
of federal subsidies, they can still pay for their share of the premium on a
pre-tax basis. This is true if their employer uses the SHOP exchange as well.
Also, if their employer moves to a defined contribution plan and they choose
a more benefit-rich plan or other health options, they can still use pre-tax
dollars to cover the difference.
Private exchanges selling group insurance do not need to meet ACA
reinsurance or QHP guidelines. However, as noted above some private exchanges
are already understanding the value of being compliant. Large businesses
with 100 or more employees will be required to provide health insurance to
full-time workers as of 2015 or face a $2,000 fine per employee. While many
companies already comply with this mandate, using a corporate exchange
that is offering federal QHPs may make strategic sense.
Insurers in the private exchange world will have to decide to
create their own single-carrier exchange or choose to participate in a multi-
carrier/third-party marketplace. As companies move employees into a defined
contribution plan, private exchanges will have to create an environment
of direct-to-consumer selling. To succeed, these exchanges will need to
communicate clearly with employees, provide multiple plans to choose from,
and effectively manage risk.
This is an important
aspect or shift for
employers when
adopting a private
exchange - moving
from using a defined
benefit approach to a
defined contribution
platform.
Private exchanges
selling group insurance
do not need to meet
ACA reinsurance or
QHP guidelines.

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AGUIDETOHEALTHINSURANCEEXCHANGES
Future Trends
Insurance exchanges have the potential to dramatically change the
health insurance landscape by providing individuals and employees with greater
choices and prompting insurers to sell in a more retail/consumer-oriented manner.
The public exchanges are offering individuals QHPs from insurers
competing on price and quality versus risk selection. Among the expected
or hoped-for long-term results of introducing a consumer-driven public
exchange are increased competition and lower rates, making coverage more
accessible and affordable for everyone. Time will tell how many people will
use the exchanges and how the economics of healthcare may shift, but as of
today, the Congressional Budget Office estimates that 24 million people will
get coverage through exchanges in the next 10 years—suggesting tremendous
growth with a powerful impact on our healthcare system.
The SHOP exchange evolution may transpire over a longer period
of time as it remains voluntary for businesses with 50 or less employees to
provide coverage to their workers. As more plans become available on the
SHOP exchange and small businesses see the value of the tax credit to their
bottom line, employers may take a more pro-active approach to providing
health insurance through this mechanism.
Private exchanges offer large employers a new approach to providing
health coverage for their employees. Exchanges are a new avenue that employers
will need to explore and fully understand in order to make informed decisions
for their companies. Recent studies indicate that this is a trend many have
begun to carefully consider. Reported last year, an Aon Hewitt study of 562
organizations nationwide indicated that 94% of respondents are committed
to financially supporting health benefit coverage for their employees moving
forward, and 44% believe a private exchange model will be the preferred
approach to offering health benefits to employees in the next three to five years.
Another survey completed last spring by J.D. Power & Associates shows that
47% of employer respondents definitely or probably will switch to a defined
contribution plan in the future.
Private exchanges have the potential for enormous growth in the
coming years. It will require the exchange managers to provide plans that not
only offer competitive pricing, but also offer the networks and service that
will entice new members and retain existing ones. As with any new product
launch, there will be glitches to work out, but private exchanges have much
to gain throughout this development process.
Sources:
Aon Hewitt Corporate Health Exchange Survey: The Time is Now, Rethinking Health Care Coverage, 2012
J.D. Power and Associates 2012 Employer Health Plan StudySM
24 million people
will get coverage
through exchanges
in next 10 years.
47% of employer
respondents definitely
or probably will
switch to a defined
contribution plan in
the future.

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About the Healthcare
Trends Institute
The Healthcare Trends Institute is an educational platform to help
employers, third-party administrators, health plans, brokers, banks, payroll
providers, consumers, and other stakeholders keep up with the rapidly
changing healthcare benefits industry. It covers a range of topics related to the
administration and management of healthcare benefits. To ensure all content
and programs achieve the highest level of quality and relevancy, the Institute
is guided by an Editorial Advisory Board comprised of subject-matter experts
that represent diverse aspects and perspectives within the healthcare benefits
industry. More information is available at www.healthcaretrendsinstitute.org
Tiffany Wirth, Executive Director
Healthcare Trends Institute
4324 20th Avenue, SW, Ste. 200
Fargo, ND 58103
P 701.499.7215
E info@HealthcareTrendsInstitute.
org
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