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What is a Health Insurance Exchange?

October 25, 2010

Question: What is a health insurance exchange?

Answer: A health insurance exchange is a new entity being created by the federal health care reform legislation that was passed in March 2010. The exchanges will begin operating in 2014. Their intent is to provide a source for cheap health insurance to Americans--particularly those who do not receive group health insurance benefits through an employer. Those with pre-existing conditions, who are often unable to find affordable health insurance or are denied medical insurance coverage, can find coverage through health insurance exchanges.

The reform law requires that each state set up an exchange by 2014; however, states can appoint a non-profit organization to administer its program. Individuals and families with incomes less than 400 percent of the federal poverty level will receive federal subsidies to buy health insurance through the exchange. In addition, insurers will be prohibited from denying coverage or charging a higher premium to individuals with pre-existing conditions.

It is not yet clear how the exchanges may be set up or run. Each state may customize its program. However, it is expected that they may be set up as an online marketplace where families can compare health insurance quotes. These portals are expected to foster competition and result in low cost health insurance.

Because health insurance exchanges will not be operational until 2014, the government has mandated that each state set up high-risk pools or allow the Department of Health and Human Services to run a high-risk pool for the state. Until health insurance exchanges are implemented, those with pre-existing conditions should be able to secure medical coverage through high-risk pools.

Maryalene LaPonsie

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