What is a health insurance exchange?

Jan 25, 2012

Under the Federal Affordable Care Act, states are required to create a health care exchange. An online place where people can comparison shop for health insurance. It looks much like a Travelocity or Orbitz website, but for health insurance.

Many Republicans in the Michigan legislature want to hold off on creating this exchange until the Supreme Court rules whether the act is constitutional.

Helen Levy is a Research Associate Professor at the University of Michigan’s Institute for Social Research. She worked with President Obama’s Council of Economic Advisors in 2011.

Michigan Radio's Jennifer White sat down with Levy to talk about how health insurance exchanges work and  what health care options they may provide to individuals.

You can listen to the interview. Or read the transcript here:

JW: The health insurance exchange is a part of the Affordable Care Act. Will you put the exchange in context within the Act?

HL: The health insurance exchanges are part of the strategy for expanding coverage to the uninsured. So, the exchanges are intended to make it easier for people who don’t have access to employer sponsored coverage to buy non-group health coverage.

JW: Right now, what are the health care options available for people and how would having access to this health exchange make a difference for those people?

HL: I think if you’re health right now, your options are okay because you can go out and you can buy an individual policy. It’s probably not as generous as what you would get from an employer, but it’s okay. If you’re sick on the other hand, or someone in your family has a chronic illness you don’t really have a lot of reasonably priced choices. And so what the exchange is going to do is it’s going to make it possible for people like that to get coverage, to have better access to care, to have financial protection of their assets and it’s also going to free them up in terms of their labor market choices. So, suppose I want to start a business here in Michigan and currently I’m staying at in job at a large employer because my child has a chronic health problem. If the Affordable Care Act moves forward with the exchanges I’m going to be able to get coverage for my family that’s fair, that’s guaranteed and that is reasonability priced through an exchange. And so I can be freed up to start that business if I want to. So that’s one of the main, what we think of as the spill over economic benefits of this.

JW: Are there specific types of coverage that have to be offered?

HL: Well one of the requirements of the law is, there’s no pre-existing condition requirements they have to sell you coverage. The plans also have to sell you coverage at a premium that’s the same regardless of your health status.  The premiums can vary a little bit in respect to your age and also with respect to whether or not you’re a smoker, but otherwise everyone is paying the same premium. The basic package of benefits includes, kind of what you think would be in a standard employer sponsored plan hospital visits, doctor visits, rehabilitation, prescription drugs.

JW: So how would this work functionally for Michigan, when a person goes to a site like this what would they see?

HL: So what they’ll see is something like what you see right now at ehealthinsurance.com or you can also go look at the websites of the two states that already have health exchanges Massachusetts and Utah. And they actually look quite similar their websites, even though the way those exchanges are being run is pretty different. So the basic idea is you would go to the website, you would see the listing of plan offerings of generosity, bronze, silver, gold and  platinum. The set of covered benefits will be very similar across the different plans and you get to choose what plan you want.

JW: Right now in Michigan there is a debate about whether to move forward with a health insurance exchange or wait for the Supreme Court Decision to come down this summer. Is there a reason the state should move forward right now?

HL: There are a couple of arguments. The individual insurance market has been crazy for a long time. It’s very difficult for people to navigate. So there’s clearly a role for states to step in and make things easier for consumers and small businesses to navigate. And that logic is why you see the state of Utah, which is a very conservative state go ahead and set up an exchange well in advance of any requirement to do this.

The other argument for going ahead is that these systems are very complicated to set up.  So if you think about how complicated it is to do something like just set up a computer in your own home, by the time the Supreme Court rules on the issue of constitutionality we are going to be half way through 2012. The state needs to be prepared to show the federal government by January 1st of 2013 that they are ready to have an exchange up and running a year from then, January 2014, otherwise the federal government comes in and does this for us.

I think the Governor has been exactly right to say this is a good thing to move forward with, even if there were no Affordable Care Act it would make sense for us to be setting up an exchange that people could access.