Exchanges

SUMMARY

By January 1, 2014, each state must establish an American Health Benefit Exchange, or use the federal government Exchange.  Each Exchange also must create a Small Business Health Options Program ("SHOP Exchange") that qualified "small employers" in the state can use to enroll their employees in small group "qualified health plans" (QHPs).  Each state has discretion to create the two Exchanges as one Exchange or as two separate ones.

What is an Exchange?
An Exchange is basically an insurance marketplace that will be supervised by the federal government.  Exchanges can only offer "qualified health plans" -- and must offer them to all "qualified individuals" and "qualified employers."  Insurers can offer policies both inside and outside the Exchange.  Employers and individuals can purchase policies either inside or outside the Exchange.  If an employer provides coverage through an Exchange, it must make all full-time employees eligible for one or more of the QHPs offered through the Exchange.  The employer cost will be $166.67 per employee per month in 2014 (i.e., 1/12 x $2,000). 

An Exchange must have an initial open enrollment period, an annual enrollment period, and certain special enrollment periods.

Employers and Employees
An "offering employer" is one who offers "minimum essential coverage" through an "eligible employer-sponsored plan" and pays any portion of the premium.  A "qualified employee" for an Exchange is one who:

• Does not participate in an employer group health plan, and
• Has household income for the tax year that is not greater than 400% of the federal poverty level (FPL) for a family of the size involved, and
• For whom the required employee contribution for "minimum essential coverage" through an employer plan:
  • Exceeds 8% of the employee's household income for the tax year that ends with or within the plan year, and
  • Does not exceed 9.8% of the employee's household income for the tax year.

Vouchers and Exchanges
An "offering employer" must provide free choice vouchers to its "qualified employees" (as defined above). Employees can then use these vouchers to buy health coverage through an Exchange.  The employer pays the amount to the Exchange, which credits it to the monthly premium the employee must pay for the coverage the employee elected.  The amount of the voucher is the amount the employer would have paid for employee-only coverage under the employer group health plan option for which the employer pays the largest portion of the employee's premium.  If the employee elects family coverage, however, the voucher amount the employee must pay will be the amount the employer would pay for family coverage rather than employee-only coverage.  The voucher amount the employer pays to the Exchange is tax-deductible for the employer and is not included in income for the employee, except that if the voucher amount is greater than the cost of the Exchange coverage elected by the employee, then the excess amount is paid directly to the employee, and that excess amount is taxable income to the employee.

Additional Definitions relating to Exchanges:

• "Qualified health plans" (QHPs)
• "Small employers"