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What are health insurance exchanges and how do they work?

According to the healthcare reform laws, healthcare exchanges will make the process of purchasing new health plans as transparent and simple as entering geographic data and clicking a mouse.

It’s safe to say that the majority of people who tell pollsters that they want government “out” of the healthcare business probably never had to purchase individual health insurance. As many have learned, the prospect of fending for oneself in the world of medical coverage is totally different than signing up for an employer’s group plan.  And no matter how bad Obamacare may sound to Republicans, conditions for self-employed individuals couldn’t have been much worse before Obamacare.

The need for high-risk pools

The reason why group healthcare coverage is so much less expensive than individual coverage is all about the risk.  As one-person or family-sized risk pools, individuals have no leverage against expensive healthcare costs, making them a much riskier proposition for insurance companies.  This is why individual health insurance premiums are prohibitively expensive.  The concept behind health insurance exchanges is to spread this risk over a larger pool of insured individuals. Unfortunately, the health insurance exchange is also the most overlooked and misunderstood facet of the Affordable Care and Patient Protection Act (a.k.a. Obamacare.)

Healthcare exchanges simplify the buying process

According to the healthcare reform laws, healthcare exchanges will make the process of purchasing new health plans as transparent and simple as entering geographic data and clicking a mouse.  This system blends well with the individual mandate, which requires that every citizen has some form of approved health insurance.  In order to enforce such a law, the government must put systems into place that make it easy to purchase this insurance at affordable rates.  This system would also track the data provided by people who cannot afford to purchase insurance and use it to vet these individuals for the awarding of federal subsidies.

Determining eligibility for subsidized coverage

Many of the details about health insurance exchanges were yet to be determined when Congress passed the Affordable Care Act.  For example, officials had not made a decision on which entity would run the exchanges; federal or state authorities.  Another determination would have to be made about how many people would get to shop there and how they would qualify to take advantage of these rates. When health insurance exchanges go into effect in 2014, the push to drive consumer engagement will be on.  Insurance exchanges will be scrambling to get more customers by offering competitive prices on the exchange

User-friendly portals for choosing healthcare

Overall, the health insurance exchange will create a user-friendly experience for healthcare buyers who must comply with the individual mandate. In this environment it will be much easier for consumers to choose the right policies to meet their individual needs.  Web usability and user experience will be a major factor in the early success of these exchanges so it will be important to stress consumer engagement.

Considering that nearly 33 million Americans are expected to purchase health insurance by 2021, the risk for individuals will be spread over a larger group of people, which will ultimately bring down the cost of insurance for everyone.  Now the pressure is on providers and hospitals to find ways to provide higher quality care that becomes more and more affordable. The question is whether the government can effectively manage enforcement of penalties for individuals who refuse to buy health insurance.

How consumers feel about the exchanges

Ever since the Supreme Court ruled that ACA’s individual mandate was constitutional, public opinion has begun to sway toward acceptance of Obamacare.  In fact, 32 percent said they believed the mandate would reduce the cost of healthcare for individuals and government. Surveys have shown that customers remain split over whether they would take advantage of a healthcare exchange.  Insurance providers have taken advantage of a recent lull to teach consumers the value of using a healthcare exchange.  If the ACA is upheld, the national conversation will soon turn to the next phase of the law, which includes healthcare exchanges and the individual mandate.

Many industry experts are reserving judgment on Obamacare in anticipation of 2014.  Until then, it will be hard to tell how much the law will impact consumers in terms of healthcare accessibility, provider selection and cost.

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