The Affordable Care Act (ACA) established health insurance exchanges, enabling people to shop and purchase qualified health plans. However, states have faced challenges in implementing exchanges that meet important policy objectives without sacrificing important aspects such as choice and affordability.
The Affordable Care Act (ACA) offers few specific rules regarding how exchanges should be run and relationships with other state and federal institutions must be carefully considered. States are free to select their own implementation model, but must still abide by certain federal requirements.
Cost
Exchanges provide a new way for individuals to shop for health insurance that complies with the requirements of the Affordable Care Act (ACA). They also offer information and assistance to those seeking coverage.
State governments, benefit companies and health insurance carriers can run exchanges. Furthermore, private non-ACA exchanges that existed prior to the ACA exist in many states.
Exchanging health coverage through exchanges is a simple process. Sites ask for basic details like your residence and family size, then display plans based on that data.
The primary challenge facing exchanges is adverse selection, in which high-risk people enroll in costly health plans at the expense of lower risk individuals who have more affordable options elsewhere. Adverse selection can quickly drive up costs and premiums, potentially creating a “death spiral” scenario where premiums increase exponentially with increasing risk exposure.
Choice
Exchanges offer consumers a vast selection of health plans that can be compared side by side. Businesses, too, now have new options; offering their employees Qualified Health Plans tailored to their requirements and budgets.
The Affordable Care Act (ACA) contains several provisions designed to promote transparency and competition in the exchanges, as well as safeguard against adverse selection. These requirements include requiring plans to offer standardized benefit tiers based on relative actuarial values and meet minimum benefit standards, among others.
The ACA delegated to exchanges several regulatory duties, such as certifying insurance plans for participation. This power allows exchanges to maximize plan participation by limiting certification requirements and disqualifying those that fail to fulfill specific criteria.
Transparency
ACA-implemented regulations for transparency of health care costs are intended to promote competition that lowers prices, enhances quality and adds value. They are based on a recognition that consumers need and want price information when selecting their healthcare provider.
Insurers must provide patients with pricing information and personalized cost-sharing estimates (i.e., deductible payments, co-pays and coinsurance) for 500 common “shoppable” services. The pricing data must be posted both online and in machine-readable files.
CMS fines plans that don’t abide by this requirement, with an average daily penalty of $100 per affected member. This amount can quickly accumulate for large plans with many beneficiaries.
Flexibility
The Affordable Care Act created health insurance exchanges, which serve as a hub for individuals and small businesses to purchase affordable, high-quality coverage at reasonable costs. These exchanges consist of Internet websites that let people search for plans and compare them.
The law also permits states to create their own exchanges or collaborate with the federal government. This flexibility can be utilized for each state’s specific needs and reduce duplication from federal programs.
As previously discussed, flexibility is an invaluable resource for states to address their unique circumstances. It shouldn’t be disregarded.
Adverse Selection
Adverse selection is a type of market failure that occurs when buyers and sellers do not possess the same amount of information. It’s a widespread issue across various sectors such as health insurance and used car markets.
When someone purchases a health insurance policy, they are making an important decision that will shape their future medical needs and costs. Adverse selection can result in higher premiums for consumers while creating financial risks for insurers.
The Affordable Care Act attempts to eliminate adverse selection in health insurance markets by providing tax credits and subsidized health insurance premiums. Unfortunately, these programs do not completely eradicate this risk of discrimination in the marketplace.
