A health insurance exchange is an online marketplace where consumers can compare and buy health insurance plans. The number of private exchanges is growing. However, the exchanges you’re hearing about are most likely the state health insurance exchanges being set up as part of the Affordable Care Act (ACA) — that’s what’s described here.
State health insurance exchanges will help individuals and small businesses buy health insurance. Typically, the health insurance policies available to individuals or people employed by small businesses are expensive and don’t cover things like maternity care, mental health services or prescription drugs.
The exchanges will address consumers’ costs in several ways:
First, exchanges will bring individuals and employees together in groups. Working with groups is advantageous to health insurance companies. It lowers their administrative costs and allows them to spread risk (the cost of caring for an individual who requires a lot of care in a given year is offset by the premiums paid by the entire group).
Second, eligible consumers will receive subsidies to offset their premium costs. (Small employers will receive tax credits to reduce their cost for providing health insurance. However, the credits aren’t technically part of the exchange.)
The exchanges will also address adequate coverage. Any health plan sold on a state health insurance exchange must cover ten essential health benefits including emergency services, hospitalization, preventive services and more.