You may have heard the word Exchanges mentioned in reference to health care reform.
Health Care Exchanges function as online, web based health insurance marketplaces where employees and individuals can directly compare various competing health insurance plans and select the plan that best fits their coverage needs and family budget.
They act much like the services offered through companies such as Orbitz and Travelocity, simply comparing health insurance instead of travel.
Through the health care exchange, consumers can select from four tiers of coverage: bronze, silver, gold or platinum. Each tier reflects a different level of cost-sharing (Cost-sharing is a financing arrangements whereby the member of a health plan must pay some of the costs to receive care. An example of this is something that is paid at the time of service, like copayments and deductibles. The Platinum tier, for example, has the lowest level of cost-sharing, the Bronze the highest. Silver and Gold fall in between.
To make it easier for the consumer to compare and select the right health plan to meet their needs, all plans in a specific tier must have the same actuarial value.
The actuarial value is determined by dividing the claims the health insurance plan pays by the claims incurred. For example, a plan that has an actuarial value of 80% (the Gold Plan) means the plan will pay on average 80% of your medical costs and you will pay 20%. It’s not a perfect estimation since the actuarial value does not reflect your specific expenses. The calculation assumes the expenses of an average population. Still, it comes as close as possible to an apple-to-apple comparison without having to look at each person’s specific medical expenses.
Each State can choose whether or not to build its own Exchange. If a State chooses not to do so, the citizens of that State will have a federally designed Exchange available to them.
So far, fourteen states have passed legislation to establish their own Exchanges. Colorado is one of them.
A State has broad latitude in how it builds its Exchange. It can choose to have separate Exchanges for the individual and employer markets or it can merge the two into a single Exchange.
A State can also define the Essential Benefit Package (EBP), so long as the benefits available cover the ten expense categories required by the law (hospitalizations, emergency services, maternity and newborn care are three of the ten categories).
The EBS is the basic plan the carriers must use to design the plans they will offer through the Exchange.
Individuals and employers are not required to purchase their health insurance through the Exchange. However, if an individual does participate, he or she may be eligible for certain cost-sharing and premium subsidies. Employers may be eligible for tax credits.
Individuals with incomes below 400% of the poverty level are eligible for premium subsidies with the maximum subsidy given to those with incomes at or below 133% of the Federal Poverty Level (FPL). Cost-sharing reductions are available to those with incomes at or below 250% of the FPL.
Small employers may also qualify for a tax credit based on the premium they pay. The maximum credit will go to firms with ten or fewer full-time employees (FTEs) and annual average wages of $25,000 or less. Reduced tax credits are available to firms with up to twenty-five FTEs and an average annual wages of less than $50,000. After 2014, the credit is available for only two years.
The Colorado Exchange is already in design because it must be up and operational by October, 2013 in order to enroll individuals in benefit plans that provide coverage starting in January of 2014.