Anyone who has been following the U.S. healthcare landscape closely is
well aware that President Obama’s Affordable Care Act of 2010, mandates
U.S. states to set up online insurance marketplaces. The marketplaces or
‘exchanges’ for both individuals and small businesses are to be
addressed as – Health Insurance Exchange (HIX) and Small Business Health
Option Program (SHOP) Exchange, respectively.
The fundamental
principle behind setting such exchanges is to make the U.S. consumers
well-informed about the health insurance choices available to them, so
that they can take an educated decision while purchasing a plan for
themselves, their families or employees. Both HIX and SHOP will serve
the basic purpose of providing affordable insurance options to
individuals, groups and small businesses. The exchanges will allow
consumers to avail of high-quality health plan choices from various
insurers and carriers, albeit at standardized rates.
Although
the basic premise on which both health insurance exchanges and SHOP
exchanges have been proposed remains the same, both the individual
exchanges and SHOP exchanges have a few key administrative differences
between them.
In health insurance exchanges, individuals can
apply for federal subsidies and tax credits if they are eligible, so
individual exchanges need to verify applicants’ income data and also
need to offer an online functionality where consumers can calculate
their net costs after subsidy deductions etc.
SHOP exchanges
have been proposed to primarily cater to the small business community.
Small businesses offering employer coverage through the SHOP exchanges
will not be eligible for premium tax credits except in certain cases
where the premiums from SHOP-coverage exceed 9.5% of employees’ income.
Secondly,
Individual exchanges are not required to act as health premium
collection centers or transfer these collected premiums to health plans.
Also, to reduce the administrative burdens for small employers, the
SHOP exchange may need to collect premiums from employees and transmit
the appropriate amount to the respective health plans.
Health
insurance exchanges and SHOP exchanges also differ with respect to the
time period for which the premium rates of health plans remain fixed. In
Individual exchanges, every new health plan applicant receives the
assurance that his/her premium rates will not increase for a defined
period of time, which is usually set for 6 or 12 months.
On the
other hand, employers usually prefer having a precise idea about their
yearly contributions in employees’ plans, before they even decide to
offer health insurance coverage. So, SHOP exchanges may also need to
devise a clearly defined strategy that addresses the premium rate
escalation concerns of small businesses participating in SHOP exchanges.
Health
Insurance Exchanges and SHOP exchanges were proposed to service
different insurance markets – individual and small business,
respectively. While there are talks about the efficacy of merging both
SHOP exchanges and Individual health insurance exchanges together, it
may not be a viable option as in spite of functional similarities, both
the exchanges differ on several key administrative aspects.
Nevertheless, it would be too early to surmise which insurance exchange
model will be a better option vis`-a-vis´ other models.
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