ACA Health Exchanges

 VII. Key Issues: Regulation & Reform >> C. Health Reform >> Affordable Care Act (ACA) >> ACA and Government >> ACA and States >> ACA Health Exchanges (last updated 10.10.18)

Overview

ACA created exchanges in every state that began enrolling people on October 1, 2013. These exchanges provide coverage to individuals who do not qualify for Medicaid (all those below 138% of poverty in states that elect to adopt the Medicaid expansion) or choose not to stay with their employer-provided plan. Exchanges offer a variety of private health plans with standardized benefits to facilitate comparison. All plans must offer “essential health benefits” as defined by the federal government and must meet other federal requirements regarding limits on cost-sharing.  Plans come in four categories: Platinum, Gold, Silver and Bronze.
The Bronze plan is the minimum health insurance plan in which individuals can enroll that will satisfy the Affordable Care Act’s individual mandate to purchase health insurance. It is designed to cover 60% of expected health expenses for plan members.
However, the exchanges offer income-related subsidies designed to cap the percentage of income required to pay for coverage; these caps range from 2% for the lowest income individuals to 9.5% for those with the highest incomes. A parallel set of income-related caps applies to out-of-pocket spending, i.e., costs not covered by the plan.  Thus, families qualify for subsidies to make up the difference between the caps applicable to their income category and the actual amount of spending. There is a legal dispute about whether cost-sharing subsidies have been legally implemented; depending on how a lower court rules in spring 2016, this may ultimately be resolved by the Supreme Court.

Exchange Management

Advantages of State Exchanges

  • Easier Sign-up Process. Example: Connecticut’s exchange requires all insurers to offer standardized plans so it’s easier to compare rates and benefits (Kaiser Health News, 12.2.15).
  • Easier Medicaid Enrollment. Enrolling in Medicaid is easier because they connect consumers directly to the state-federal health insurance program for the poor (Kaiser Health News, 12.2.15).
  • Lower Premium Taxes. State exchanges also generally have lower premium taxes than the federal exchange, fees that insurers pass on to consumers (Kaiser Health News, 12.2.15).
  • More Control Over Nongroup Insurance Market. Example: California’s exchange limits which insurers can participate to help it negotiate better rates (Kaiser Health News, 12.2.15).
  • Higher Market Penetration of Uninsured. State-run exchanges have enrolled higher percentages of their uninsured citizens than states on the federal exchange. That’s partly because all but one state with its own exchange also have expanded Medicaid, making millions more people eligible. Idaho is the only state that has its own exchange and has not broadened Medicaid. Twenty states have not expanded Medicaid (Kaiser Health News, 12.2.15).

Disadvantages of State Exchanges

  • Higher Administrative Costs. A report from the Robert Wood Johnson Foundation and the University of Pennsylvania’s Leonard Davis Institute of Health Economics says that on average, states with their own clearinghouses for health coverage spent an average $17.15 on each uninsured resident while those that relied on the federal exchange spent $5.42” (Market Watch, 4.30.14).
  • Lower Retention Rate. According to Avalere Health,  ‘Federally-facilitated exchange states’ (which use the HealthCare.gov website to offer coverage) ‘re-enrolled’ about four in five, or 78% of their 2014 enrollees during the 2015 signup period. By comparison, state-run exchanges generally had lower retention with those that were part of the Avalere analysis retaining 69% of 2014 health plan subscribers. In California, which had the highest enrollment last year, the state-run exchange retained just 65% of their 2014 enrollees.
  • Solvency Problems. Half of the state-run Exchanges are in financial trouble. Exchanges run by Colorado, D.C., Hawaii, Oregon, Rhode Island, Vermont, among others, all have reported financial difficulties. The problems are severe enough that Colorado, Oregon and Rhode Island are considering abandoning their state-run exchanges and using the federal exchange (see Solvency of State Exchanges for details).
  • Financial Mismanagement. Although the federal Exchange, Healthcare.gov, had some financial mismanagement problems as well, such problems appear to have been more severe in certain states (see Financial Mismanagement for details).

State Participation in Exchange Management

  • 2016: According to Kaiser Family Foundation (11.2.15), there are 14 State-established exchanges, 3 Federally-supported exchanges, 7 State-Partnernship Marketplaces, and 27 Federally-facilitated Marketplaces. The states that operate their own exchanges are the same as in 2015. However with the 2015 election of Republican Matt Bevin as Governor in Kentucky Politico reports (11.4.15) “he could next year scrap the state’s health insurance marketplace, called Kynect — and offer a lot less outreach and marketing as people in his state instead seek coverage through the federal exchange on HealthCare.gov…Bevin still says he’d close down Kynect — one of the few online marketplaces to operate relatively glitch-free since Obamacare enrollment started two years ago. And the lack of state commitment could suppress enrollment.” See further discussion here.
  • 2015: According to Kaiser Family Foundation, there are 14 State-established exchanges, 3 Federally-supported exchanges, 7 State-Partnernship Marketplaces, and 27 Federally-facilitated Marketplaces. The following states, along with the District of Columbia, operate their own exchanges: California, Colorado, Connecticut, Hawaii, Kentucky, Idaho, Maryland, Massachusetts, Minnesota, New York, Rhode Island, Vermont, and Washington.
  • 2014: Only 17 states (including DC) elected to set up and run their own Exchanges (called state-based marketplaces or SBMs): California, Colorado, Connecticut, District of Columbia, Hawaii, Idaho, Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New Mexico, New York, Oregon, Rhode Island, Vermont, Washington. However, Idaho and New Mexico are Federally supported SBMs for 2014; they are using the FFM platform for 2014 (footnote 17). Thus, 36 states relied on the federal Exchange in 2014.

All remaining states are in what are termed federally-facilitated marketplaces (FFMs).

Enrollment

Exchange Costs

  • Projections.
    • 2014. CBO projected the cost of Exchange premium tax credits and cost-sharing subsidies in 2014 to be $19 billion (March 2010), $30 billion (July 2012), $23 billion (May 2013) and $15 billion (April 2014) (p. 11).
    • 2015. CBO projected the cost of Exchange premium tax credits and cost-sharing subsidies in 2015 to be $44 billion (March 2010), $59 billion (July 2012), $50 billion (May 2013) $36 billion (April 2014) and $28 billion (March 2015) (p. 11).
    • 2019. CBO projected the cost of Exchange premium tax credits and cost-sharing subsidies in 2019 to be $113 billion (March 2010), $137 billion (July 2012), $123 billion (May 2013) $107 billion (April 2014) and $83 billion (March 2015) (p. 11).
  • Actual.
    • The cost of Exchange premium tax credits and cost-sharing subsidies in 2014 was about $11 billion (p. 11).
    • See discussion of High Exchange Costs. According to GAO, as of September 2014, the federal government had spent $3.7 billion to build and promote online marketplaces. This does not include additional amounts spent by states setting up their own Exchanges.

Key Problems with Health Exchanges

Low State Participation

Lower-Than-Expected Enrollment

Problems With Exchange Costs

Problems Related to Choice of Coverage

Problems Related to Affordability

Operational Problems

State Experience

Resources

Short-Form Application. This is the Obama administration’s draft of the 21-page application form to determine if a person qualifies for subsidies in the new exchanges.
Application Appendix.  This codifies what information is required about each applicant, the applicant’s family, income, job and employer, and health habits. This 61-page appendix to the short-form application shows the full decision tree of questions.
Decision Chart. This is a decision tree to determine eligibility for subsidies.
House Committees on Ways & Means, Energy & Commerce, and Education & Labor, 111th Congress. Affordable Health Care for America, Health Insurance Reform at a Glance, Health Insurance Exchanges (Mar. 20, 2010).
ProPublica’s tool allows users to view significant ways exchange plans have changed from 2014 to 2015.

Research and Analysis

General Studies

Individual States

State Innovation Waivers

  • Several States Have Found Ways To Mitigate Obamacare’s Damage To Their Health Insurance Markets. “In a new paper published by The Heritage Foundation, scholars Doug Badger and Ed Haislmaier detail how several states have successfully used Obamacare’s Section 1332 waiver authority to begin to revive their non-group health insurance markets with better risk-mitigation strategies. They explain in State Innovation: The Key to Affordable Health Insurance Choices that Obamacare’s rigid and centralized federal regulation of the nongroup market has driven premiums up, choices down, and forced millions of people out of the individual health insurance market. Section 1332 of the Affordable Care Act permits states to seek waivers from certain federal health insurance requirements if they believe they can do a better job as long as their program doesn’t cost the federal government more money. But the rules the Obama administration subsequently issued were so strict that they make it very difficult for states to get approval for the broader innovative reform proposals envisioned by the provision’s authors. Alaska, Minnesota, and Oregon have received waivers from the Trump administration for targeted reform initiatives that have been successful in lowering premiums for individual health insurance by separately subsidizing those with the highest health costs. And the lower premiums also mean increased enrollment.” Turner, Grace-Marie, and Doug Badger. (Forbes, 10.3.18)
  • States Ponder Possible Changes to ACA. “ACA Section 1332 stipulates that a state may modify the law if its replacement model is federally deficit-neutral, provides access to quality health care at least as broad and affordable as before and covers a comparable number of the state’s residents. States may petition to rework the individual and employer mandates, essential health benefits, cost-sharing limits, ‘metal’ tiers (bronze, silver, gold or platinum) for health plans and premium and cost-sharing assistance. States’ 1332 plans may not waive the ACA’s pre-existing conditions protections, free preventive health care benefits, coverage for adult dependents up to age 26 nor the ban on annual and lifetime coverage limits. Only Hawaii’s 1332 plan was approved under the Obama administration. Since then, several states have either submitted or received approval for their proposals. Alaska’s 1332 reinsurance plan created a single statewide risk pool, reducing 2017 premium increases from an estimated 43 percent to 7.3 percent. Innovation plans have also been approved for Minnesota and Oregon, while plans submitted by Maryland, Maine and Wisconsin are awaiting HHS approval. Other state legislatures are weighing coverage options. Experimentation may also be undertaken through the Medicaid program.” Beezley-Smith, D. (National Psychologist, 7.24.18)

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