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What you should know about health insurance exchanges Posted: December 27th, 2010

By Susan Tan

The Patient Protection and Affordable Care Act (PPACA), signed into law in March 2010, laid the grounds for health insurance exchanges that will reportedly allow individuals and small businesses to choose and negotiate for health insurance plans at competitive prices. Although several provisions of the PPACA went into effect in 2010, health insurance exchanges are set to be up and running until 2014.

What are health insurance exchanges?

Currently, large corporations are able to negotiate with health insurers for a range of health benefits at competitive rates. However, smaller parties, such as individuals and small businesses, don't have the same negotiation power.

The health insurance exchanges are meant to allow individuals and small businesses to bargain for health insurance plans that fit their budgetary and medical needs. By allowing the uninsured to band together, the health insurance exchanges are intended to introduce more retail competition into the individual medical insurance market. Permitting the uninsured to pool into groups, allows them to collectively bargain and leverage their size for better health insurance rates, much like larger firms do for their employees.

Establishing health insurance exchanges

Insurance exchanges are to be set up by state and local governments, which may operate as a government agency or non-profit organization. If a state does not set up an insurance exchange, the federal government will step in and create one instead.

States will be permitted to set up multiple exchanges--as long as only one insurance exchange serves a single geographical area. Additionally, these geographical exchanges can work together to form regional exchanges.

Who can access these medical insurance exchanges?

Initially, health insurance plans offered through exchanges will be available to individuals, small businesses (100 employees or less) and seniors who may be retired but aren't eligible to receive Medicare benefits. Beginning in 2017, the PPACA provides states the option to allow larger employers access to the exchanges.

So what type of health insurance coverage will these exchanges offer?

The exchanges should have four levels of medical insurance coverage: platinum, gold, silver and bronze. Each tier offers a different cocktail of benefits and will be priced according to the breadth of coverage. While buyers on this exchange cannot set premium levels for themselves, they can "ditch" plans if insurance plans experience irrational price hikes.

When can you access insurance through the health insurance exchange?

Beginning in 2014, the health insurance exchanges will begin offering medical insurance to individuals and small businesses.