The fundamental purpose of a health insurance exchange is to
provide a structured marketplace for the sale and purchase of
health insurance. The authority and responsibilities of an exchange
may vary, depending on statutory or other requirements for its
establishment and structure. The Patient Protection and Affordable
Care Act (ACA, P.L. 111-148, as amended) requires health insurance
exchanges to be established in every state by January 1, 2014. ACA
provides certain requirements for the establishment of exchanges,
while leaving other choices to be made by the states. Qualified
individuals and small businesses will be able to purchase private
health insurance through exchanges. Issuers selling health
insurance plans through an exchange will have to follow certain
rules, such as meeting the private market reform requirements in
ACA. While the fundamental purpose of the exchanges will be to
facilitate the offer and purchase of health insurance, nothing in
the law prohibits qualified individuals, qualified employers, and
insurance carriers from participating in the health insurance
market outside of exchanges. Moreover, ACA explicitly states that
enrollment in exchanges is voluntary and no individual may be
compelled to enroll in exchange coverage. Exchanges may be
established either by the state itself as a "state exchange" or by
the Secretary of Health and Human Services (HHS) as a "federally
facilitated exchange." All exchanges are required to carry out many
of the same functions and adhere to many of the same standards,
although there are important differences between the types of
exchanges. States will need to declare their intentions to
establish their own exchanges by no later than November 16, 2012.
ACA and regulations require exchanges to carry out a number of
different functions. The primary functions relate to determining
eligibility and enrolling individuals in appropriate plans, plan
management, consumer assistance and accountability, and financial
management. ACA gives various federal agencies, primarily HHS,
responsibilities relating to the general operation of exchanges.
Federal agencies are generally responsible for promulgating
regulations, creating criteria and systems, and awarding grants to
states to help them create and implement exchanges. A state that is
approved to operate its own exchange has a number of operational
decisions to make, including decisions related to organizational
structure (governmental agency or a nonprofit entity); types of
exchanges (separate individual and Small Business Health Options
Program (SHOP) exchanges, or a merged exchange); collaboration (a
state may independently operate an exchange or enter into contracts
with other states); service area (a state may establish one or more
subsidiary exchanges in the state if each exchange serves a
geographically distinct area and meets certain size requirements);
contracted services (an exchange may contract with certain entities
to carry out one or more responsibilities of the exchange); and
governance (governing board and standards of conduct). In general,
health plans offered through exchanges will provide comprehensive
coverage and meet all applicable private market reforms specified
in ACA. Most exchange plans will provide coverage for "essential
health benefits," at minimum; be subject to certain limits on
cost-sharing, including out-of-pocket costs; and meet one of four
levels of plan generosity based on actuarial value. To make
exchange coverage more affordable, certain individuals will receive
premium assistance in the form of federal tax credits. Moreover,
some recipients of premium credits may also receive subsidies
toward cost-sharing expenses.
General
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