If you’ve paid attention at all to discussions of health care reform, technically known as the Patient Protection and Affordable Care Act (PPACA or ACA) and commonly referred to as Obamacare, you have heard the phrase “Health Insurance Exchange”. Although you may be familiar with the term, most likely your knowledge of what an exchange actually does is limited. In this post, I’ll give you an overview of what an exchange is intended to do.
From a consumer point of view the primary function of the exchange is to determine eligibility and enrolling individuals in the appropriate plans from private insurance companies. The plans offered in exchanges will provide comprehensive coverage and meet all specifications dictated by the ACA. Plans will offer preventive benefits, office visit copays and have limits on deductible and out of pocket maximum (deductible plus coinsurance). There is an individual limit as well as a limit for a family.
The plans available from an exchange come in four flavors commonly referred to as:
- Platinum: 90 percent
- Gold: 80 percent
- Silver: 70 percent
- Bronze: 60 percent
The percentage above refers to the actuarial value, an insurance term that makes a standard consumers eyes gloss over. The Kaiser Foundation translates the term into plane English as follows:
However, the levels of coverage in the ACA are not defined using specific deductibles, copays, and coinsurance. Rather, they are specified using the concept of an “actuarial value” (AV). For example, a plan with an actuarial value of 70% (referred to as a “silver” plan in the ACA) means that for a standard population, the plan will pay 70% of their health care expenses, while the enrollees themselves will pay 30% through some combination of deductibles, copays, and coinsurance. The higher the actuarial value, the less patient cost-sharing the plan will have on average. The percentage a plan pays for any given enrollee will generally be different from the actuarial value, depending upon the health care services used and the total cost of those services. And, the details of the patient cost-sharing will likely vary from plan to plan.
Of course, in general the higher the actuarial value, the higher the cost of the plan.
So far, what does an exchange do that couldn’t be done by the private health care industry or 3rd party web site? It comes down to money. Depending on your income you may be eligible for a tax subsidy to assist in paying for the cost of coverage. The amount of tax subsidy is based on your income compared to the Federal Poverty Level (FPL) and the cost of the 2nd lowest cost Silver plan in the Exchange you are participating in. The only way to receive a tax subsidy is to purchase your health coverage via the exchange that operates in your state. We’ll pick up on the topic of subsidies in a future post.