Health Insurance Exchange

Under the ACA, states were required to create Health Insurance Exchanges (Marketplaces) to offer private insurance choices to individuals and small employers. The Small Business Health Options Program Marketplace - also known as SHOP - helps small businesses provide health coverage to their employees. While the SHOP Marketplace was previously only open to employers with 50 or fewer full-time equivalent employees, starting in 2016, some states may make the SHOP Marketplace available to businesses with up to 100 employees. If a state chooses not to build an Exchange (Marketplace) the Federal government will operate an Exchange (Marketplace) in that state. Click on any of the following to learn more:

Final State Exchange (Marketplace) Rules Issued

The US Department of Health and Human Services (HHS) issued a final rule regarding some of the key components of the Exchange (Marketplace) required to be established by each state under ACA.One of the questions for employees that remains unanswered is how the Exchange (Marketplace) will determine if an employee is eligible for the federal premium tax credit. In other words, does the employee have access to employer coverage that is adequate and affordable? For 2014, an Exchange (Marketplace) accepted the employee’s attestation of whether the employer coverage was adequate or affordable. In 2015, the federal agencies involved in enforcing the ACA focused on educating the public about the employer notice and appeals requirements, as well as conducting outreach to stakeholders to

ensure effective implementation of the employer notice program. Beginning in 2016, federally facilitated Marketplaces began sending notices certain employers whose employees enrolled in Marketplace coverage and were eligible to receive a premium tax credit. An employer may appeal the notice and if it provides its employee access to affordable, minimum value employer sponsored coverage or the employee enrolled in employer sponsored coverage (and was therefore not eligible for a tax credit). States operating their own Exchange (Marketplace) may choose to use the federal process, or may design a similar state-run process.

Who Is Eligible To Enroll In Exchange (Marketplace) Coverage?

Generally, any legal citizen or resident who resides in the United States and is not incarcerated may enroll in Exchange (Marketplace) coverage. This includes an individual who is eligible for employer-sponsored coverage outside of the Exchange (Marketplace). The coverage is guaranteed to be available regardless of health condition, may not exclude coverage for preexisting conditions, and has premium rates that will vary only based on age, tobacco use, and family size, but no medical underwriting is permitted.

Responsibility for the Exchanges (Marketplaces)

Both the Federal and state governments have responsibility for the Exchanges (Marketplaces). HHS is responsible for establishing the rules that apply to the Exchanges (Marketplaces) and the states are responsible for building and operating the Exchanges (Marketplaces). States were provided with federal funding to help set up the Exchanges (Marketplaces) but the Exchanges (Marketplaces) must be designed to beself-sustaining by 2015. If a state chooses not to build an Exchange (Marketplace), or does not have HHS approval (or conditional approval), the federal government will operate an Exchange (Marketplace) in that state.  A list of the type of Exchanges (Marketplaces) by state can be found here.

Role of Private Insurers

Private insurance companies sell qualified health plans on the Exchanges (Marketplaces). Qualified health plans must be certified by the Exchanges (Marketplaces), consistent with HHS requirements regarding plan design, network adequacy, marketing, accreditation, rating, premiums, etc. Multi-state plans offered by insurance companies under contract with the federal Office of Personnel Management are exempt from the Marketplace certification process.

Types of Exchanges (Marketplaces)

ACA envisions that states will establish two separate Exchanges (Marketplaces) – one for individuals and one for small employers. However, a state has the option to combine them. States may also choose to build more than one Exchange (Marketplace) in a state (e.g., in states with large populations) and can establish multi-state, regional Exchanges (Marketplaces).

Coverage Options

As a general rule, Exchanges (Marketplaces) are only allowed to include qualified health plans offering major medical coverage (although a limited exception allows for dental coverage). Qualified health plans offered on the Exchanges (Marketplaces) are grouped into four so-called "precious metal" categories of coverage. ACA establishes the actuarial value for each:

  • Platinum: 90% actuarial value
  • Gold: 80% actuarial value
  • Silver: 70% actuarial value
  • Bronze: 60% actuarial value

The actuarial value is the amount the insurer will pay toward covered costs. Participant cost-sharing makes up the remainder of the costs (in the form of deductibles, co-payments, and coinsurance). This does not include employee premiums.

In addition, Exchanges (Marketplaces) must offer catastrophic plans to individuals under age 30. A catastrophic plan pays no benefits until the individual incurs expenses in excess of the out-of-pocket limit that applies to HSA-compatible high deductible health plans (except the plan must pay for at least three primary care visits).

All qualified health plans must cover essential health benefits but actuarial value and cost-sharing will vary by level. With each higher level, the insurance premium and amount the insurance will pay (actuarial value) will increase while the amount the participant will pay (cost-sharing) will decrease.

Premium Tax Credits and Employer Responsibility

Federal premium tax credits to purchase Exchange (Marketplace) coverage are available for individuals with household income up to 400% of the federal poverty level. Individuals who are eligible for employer-sponsored health coverage may opt out of such coverage and instead enroll in Exchange (Marketplace) coverage. However, tax credits are available to individuals who are eligible for employer-sponsored coverage only if the employer's plan is unaffordable (costs the employee more than 9.5% (as adjusted yearly) of household income or inadequate (has an actuarial value of less than 60%). If the employer's coverage is affordable and adequate, the employer would not owe an Employer Mandate Penalty for an employee who opts out and enrolls in Exchange (Marketplace) coverage. (Click here to see how an employee could trigger an Employer Mandate Penalty.) The Small Employer Tax Credit is also available for certain employers who sponsor Exchange (Marketplace) plans.

Role of Small Employers

Exchanges (Marketplaces) must permit small employers to select a level of coverage (e.g., silver), and let employees choose any qualified health plan offered by the Exchange (Marketplace) at that level.

Employers are prohibited from reimbursing employees on a pre-tax basis for premiums employees pay for individual health insurance policies, either in or outside the Exchange/ (Marketplace). This is due to ACA market reforms applicable to all group health plans. The only exception would be for small employers enrolled in a qualified health plan (QHP) offered through a Small Business Health Options Program (SHOP Marketplace).

Exchange Reinsurance Fee

HHS operated a transitional reinsurance program to help stabilize premiums for coverage in the individual market during the first three years of Exchange (Marketplace) operation. Beginning January 1, 2014, insurers for fully-insured plans and plan sponsors for self-funded plans were required to pay reinsurance fees to finance this program. The reinsurance fees were determined each year by HHS, based on the total number of covered lives divided by the amount required to be raised, with a revenue target of $20 billion to be raised for the transitional reinsurance program and $5 billion to go directly to the Department of the Treasury). Most employers were not required to pay Exchange (Marketplace) reinsurance fees directly however health insurance issuers and third party administrators were likely to pass these costs on to plan sponsors

Neither American Fidelity Assurance Company nor American Fidelity Administrative Services provides tax or legal advice and, given the complexity of these laws, we always recommend working with your legal counsel on how the laws impact your specific situation.