Explaining Health Care reform: What are Health insurance Exchanges?

A number of recent health care reform plans call for the creation of a health insurance “exchange,“ a new entity intended to create a more organized and competitive market for health insurance by offering a choice of plans, establishing common rules regarding the offering and pricing of insurance, and providing information to help consumers better understand the options available to them.

An exchange is part of the plan aiming for universal coverage currently being implemented in Massachusetts (where it is called the “Connector“). It was also featured in proposals from the major Democratic candidates for President (including President Obama), in the Healthy Americans Act sponsored by Senators Ron Wyden and Bob Bennett (where they are called Health Help Agencies), and in a white paper released by Senate Finance Committee Chair Max Baucus. In all of these plans, the exchange is a key element in providing coverage to the currently uninsured and in facilitating changes to the insurance market, particularly for those who buy insurance on their own. Some proposals allow employers or employees to purchase coverage through the exchange as well.

This brief explains the purpose and function of exchanges, how they would relate to greater regulation of the insurance market, and some of the key questions likely to be addressed by any health reform proposal that calls for the creation of exchanges. purpose and function of an Exchange In the context of a health reform plan aiming for a substantial expansion in the number of people insured and universal access to affordable coverage, there are a number of functions envisioned for exchanges, including:

1.  offering consumers a choice of health plans and focusing competition on price. Exchanges offer enrollees a choice of private health insurance plans, and some proposals also envision including a public, Medicarelike plan. Covered services and cost sharing (i.e., deductibles, coinsurance or copayments, and out-ofpocket limits) would be organized or standardized in ways that make comparisons across plans easier for consumers. The aim is to focus competition among plans on the price of coverage and minimize the tendency for plans to vary benefits in order to attract healthier than average enrollees.

2.  providing information to consumers. In conjunction with offering a choice of health plans, an exchange is intended to provide consumers with transparent information about plan provisions such as premium costs and covered benefits, as well as a plan’s performance in encouraging wellness, managing chronic illnesses, and improving consumer satisfaction. The exchange could also serve a customer assistance function—typical for large employers—to assist consumers who encounter billing or access problems with their plans.

3.  Creating an administrative mechanism for enrollment. For people who obtain private insurance coverage  through work, the employer typically facilitates enrollment in a plan and the payment of the premium. This is especially true in larger businesses. An exchange could serve a similar function for people without access  to that kind of assistance, including people buying insurance on their own or who work for small businesses. The exchange could also be used to determine eligibility for and administer income-related subsidies. Alternatively, these functions could be handled by a government agency or through the tax system.

4.  moving towards portability of coverage. Coverage through an exchange can be de-linked from employment,  helping to make health insurance more portable for people moving from job to job. However, since  employment-based coverage would still exist under some proposals, insurance may not truly be fully portable. Exchanges also could coordinate enrollment shifts between Medicaid and subsidized private coverage for people with very low and potentially changing income