Today, many health insurers sell “Swiss cheese policies”: insurance filled with loopholes. Even if you try to read the fine print, you may not understand all of the exceptions to your coverage – until you become sick. Then, the hole with your name on it opens, like a trap door.

The federal exchange option

The federal health insurance marketplace: finally, some options

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The federal health insurance marketplace will bring welcome options and competition to the individual health insurance market when it begins accepting applications this October. The Obama administration recently announced that about 120 health insurers have applied to sell policies on the federal exchange, which will operate in 26 states that have declined to run their own online marketplaces.

Right now, most people looking to buy individual health insurance have few options. A 2011 study by the Kaiser Foundation found that the individual insurance market is dominated by a single insurance company in 30 states and the District of Columbia. By another measure, Wisconsin is the only state with a competitive market for those seeking individual coverage.

The American Medical Association (AMA) backs up this assessment. The AMA has done a series of studies looking at competition among health insurers. A 2012 AMA study found that in nearly 40 percent of metropolitan areas, a single insurance company controlled 50 percent or more of the market. The same study found that a single insurer controlled 30 percent or more of the market in nearly 90 percent of U.S. markets.

More options for consumers

In late May, the White House announced that well over 100 health insurers have applied to participate in the federal marketplace, greatly increasing the number of options available to most consumers in most states.

About 90 percent of consumers shopping on the online marketplaces will have a choice of five or more insurers. Insurers plan to offer, on average, 15 health plans per state with options in each tier of benefits: catastrophic, bronze, silver, gold, and platinum.

Multi-state plans will be available in 31 states in 2014 and in all states by 2017. Multi-state plans were created through the Affordable Care Act to address the lack of competition in the individual health insurance market. Multi-state plans will be operated by the Office of Personnel Management, which is the entity that runs health insurance programs for Congress and federal employees.

New market, some new players

While some big-name insurers are staying away – worried that the first exchange users will be the sickest and most expensive to cover – the online marketplaces are enticing some new companies to compete in the individual health insurance arena. The new insurers are drawn by the opportunity to gain many new customers. The Congressional Budget office estimates that 7 million people will use the online exchanges to purchase health insurance in the first year of operation.

According to a White House memo, at least one new insurer intends to offer individual coverage in about 75 percent of the states where the federal marketplace will operate. About 25 percent of the insurers who applied for the federal exchange are new to the individual market, and about 65 percent of those newcomers are entering markets currently dominated by a single insurer.

The newcomers aren’t entering every state, and in the states where they do enter the market they may do so only in select areas. While the markets in some states will continue to be dominated by one or two insurers, consumers are certainly gaining options they wouldn’t have without the ACA and introduction of the health insurance marketplaces.