Health Insurance


Source: Kaiser Family Foundation April 2010

The Patient Protection and Affordable Care Act (PPACA), signed into law in March 2010, made broad changes to the way health insurance will be provided and paid for in the United States. PPACA created a new mechanism for purchasing coverage called Exchanges, which are entities that will be set up in states to create a more organized and competitive market for health insurance by offering a choice of health plans, establishing common rules regarding the offering and pricing of insurance, and providing information to help consumers better understand the options available to them. Initially Exchanges will serve primarily individuals purchasing insurance on their own and smaller employers; states will have the option of opening Exchanges to larger employers a few years after implementation.


This summary provides responses to questions about the purpose and function of Exchanges and how they relate to regulation of the insurance market. Certain details of how provisions in the law will actually be implemented will not be available until regulations are issued by various government agencies, primarily the Department of Health and Human Services (DHHS).


Who will have access to Exchanges?
PPACA requires most individuals to have health insurance beginning in 2014. It authorizes entities known as American Health Benefit Exchanges, which states will establish by January 1, 2014, to make plans available to qualified individuals and employers. Qualified individuals include U.S. citizens and legal immigrants who are not incarcerated, and who do not have access to affordable employer coverage. PPACA also provides for separate Small Business Health Options Program (SHOP) Exchanges from which small businesses with up to 100 employees can obtain coverage for their employees. Prior to 2016, states can limit Exchanges to businesses with 50 or fewer workers, and, beginning in 2017, states can allow businesses with more than 100 employees to purchase coverage from an Exchange. The Congressional Budget Office estimated that in 2019, approximately 24 million people would purchase their own coverage through the Exchanges, plus an additional 5 million people whose employers allow all their workers to choose among the plans in the Exchanges.


How will Exchanges be structured?
An Exchange must be a governmental agency or nonprofit entity that is established by a state. States are required to establish separate exchanges for individuals (American Health Benefit Exchanges) and small business employees (Small Business Health Options Program, or SHOP, Exchanges) by January 1, 2014. States can choose to establish a single Exchange serving both individuals and small businesses, or provide coverage through separate entities. States may form regional Exchanges or allow more than one Exchange to operate in a state as long as each Exchange serves a distinct geographic area.

If a state fails to set up an Exchange by January 1, 2014, the DHHS Secretary will establish and operate an Exchange in the state, either directly or through an agreement with a nonprofit entity.


Funding to establish Exchanges will be available to states from within one year of enactment (i.e., 2011) until January 1, 2015, when states must ensure that their Exchanges are self-sustaining. States are required to allow Exchanges to charge assessments or user fees to participating health insurance issuers or to provide other means of generating funding.


The federal Office of Personnel Management (OPM) is required to contract with insurers to offer at least two multi-state plans in each Exchange, including at least one offered by a non-profit entity. Each multi-state plan must be licensed in each state and must meet the requirements of a qualified health plan. These multi-state plans will be offered separately from the Federal Employees Health Benefits Program (which OPM administers) and will have a separate risk pool. In addition, federal funds will be made available to establish non-profit, member-run health insurance companies (called Consumer Operated and Oriented Plans, or CO-OPs) in each state.