Member Health Insurance Exchanges explained.

Private Member Health Insurance Exchange:

A private member health insurance exchange is an exchange run by a private sector company or nonprofit. Health plans and carriers in a private exchange must meet certain criteria defined by the exchange management. Private exchanges combine technology and human advocacy, include online eligibility verification, and mechanisms for allowing consumers to quote, compare, and complete enrollment.  They are designed to help consumers find plans personalized to their specific health conditions, preferred doctor/hospital networks, and budget. These exchanges are sometimes called marketplaces or intermediaries, and work directly with insurance carriers, effectively acting as an extension of the carrier.

Health Insurance Exchanges in the Patient Protection and Affordable Care Act (ACA)

President Obama promoted the concept of a health insurance exchange as a key component of his health reform initiative. Obama stated that it should be “…a market where Americans can one-stop shop for a health care plan, compare benefits and prices, and choose the plan that’s best for them, in the same way that Members of Congress and their families can. None of these plans should deny coverage on the basis of a preexisting condition, and all of these plans should include an affordable basic benefit package that includes prevention, and protection against catastrophic costs.  Insurance sold on the health insurance exchanges in the United States will be exclusively from private insurers (Aetna, United Health Insurance, Blue Cross Blue Shield, and others).

Government run Exchanges

The Patient Protection and Affordable Care Act (ACA) sets up government run insurance exchanges in each state known as American Health Benefits (AHB) Exchanges. Implementation of the individual exchanges changes the practice of insuring individuals. The expansion of this market is the major focus of President Obama’s Patient Protection and Affordable Care Act.   Studies have shown that increases in health care costs are driven by increases in per-case cost, not merely the overall prevalence of disease, thus driving the need for greater access to health coverage.

Major requirements affecting insurers in the individual exchanges:

  • Guaranteed issue: insurers will not be permitted to refuse to insure any individuals
  • Limit to price variations: prices will vary based on four factors and not beyond a total factor of approximately 10
  • Plans will be offered in four comparable tiers ranging from bronze to platinum with limited out of pocket expenses
  • Strict regulations on rescission
  • Lifetime and annual limits eliminated

Guaranteed Issue

In the individual market, sometimes thought of as the “residual market” of insurance, insurers have generally used a process called underwriting to ensure that each individual paid for his or her actuarial value or to deny coverage altogether.  The House Committee on Energy and Commerce found that, between 2007 and 2009, the four largest for-profit insurance companies refused insurance to 651,000 people for previous medical conditions, a number that has increased significantly each year (49% increase in that time period).  The same memorandum said that 212,800 claims had been refused payment due to pre-existing conditions and the insurance firms had business plans to limit money paid based on these pre-existing conditions. These persons who might not have received insurance under previous industry practices are guaranteed insurance coverage under the ACA. Hence, the insurance exchanges will shift a greater amount of financial risk to the insurers, but will help to share the cost of that risk among a larger pool of insured individuals.

The ACA’s prohibition on denying coverage for pre-existing conditions will begin in 2014.