The Health Insurance Marketplaces created by the Affordable Care Act (also known as "exchanges") help individuals and small businesses find qualified insurers to provide coverage. Marketplaces also help individuals learn if they qualify for help with paying for health insurance.
States have the option to develop and host their own Marketplace, or let the federal government operate the Marketplace for them. There is also a hybrid option whereby states manage some aspects of enrollment but use the Federal platform to host the health plan choices. As of 2022, there are 18 State-based Marketplaces; 3 State-based Marketplaces using the Federal Platform; and 30 Federally-facilitated Marketplaces.1
While operation of the Marketplace or exchange entails many types of enrollment and assistance functions, this discussion focuses on the role of the Marketplace in qualifying health plans for participation in the Marketplace. State-based Marketplaces, and states that have chosen to perform some plan-management functions, are each responsible for annually certifying or recertifying plans to be sold in their exchanges as qualified health plans. Certification involves a review of various factors, including the benefits a plan will cover, the network of providers it will include, its premium rates, its marketing practices and its adherence to quality-of-care standards.2
States that operate their own exchanges are able to tailor their approach to their states' particular strengths and circumstances. Some states, like California, Rhode Island and Massachusetts, use what is termed an "active-purchaser" approach where the Markerplace negotiates aggresively with the insurance carriers in order to get the best premiums, networks and benefits for plans sold in the exchange. Other states use the "clearinghouse" approach in which the exchange set the criteria that plans must meet in order to be sold on the exchange, and all plans that meet that criteria are welcome to participate. Approximately ten states use the active-purchaser model.3
By most measures, California is especially stringent with insurance companies. California's Marketplace, Covered California, is an active purchaser that:
The CA exchange excludes plans that have not demonstrated the administrative capability, prices, networks or product designs that improve consumer value. Because it does not accept all comers, the exchange has extra leverage to extract concessions from carriers. Price transparency strengthens active purchasers' contract negotiations by allowing them to identify (and decline to contract with) plans with networks that include many high price providers.
As a condition of participation in Covered California, health plans are required to engage in initiatives to improve the efficiency and quality of the care received by their enrollees. These initiatives span a wide range, from value-based payment methods to price transparency, quality improvement, shared patient-physician decision-making and more.4
A 2018 study found that Covered California has had premium growth rates that have consistently been below national averages.5,6 Another study found that strong authority exercised by Covered California may have moderated premium growth that one might have expected from increasing insurer concentration.7
Rhode Island Example
Like California, Rhode Island is an active purchaser exchange, so the exchange takes an active role in determining which plans will be made available to consumers. However, Rhode Island's market is very small compared to California, with commensurately less opportunity to leverage health plan competition. Fortunately, state regulators have a robust rate review process which works closely with insurers to set rates that are adequate but also competitive.8,9
The Massachusetts exchange predates the Affordable Care Act by several years and is considered quite robust, with significant health plan competition. The exchange determines which plans are offered for sale and restricts the benefit designs that can be offered.
Despite operating in a relatively high-cost medical state, the Massachusetts Health Connector had the lowest average premiums of any Marketplace in the country for 2017 and 2018. Massachusetts' success at keeping Health Connector premiums low is a function of a number of careful state-level policy choises and program design approaches.10
Even states that do not operate their own exchanges can, theoreticaly, use their regulatory authority to aggressively review prices, networks and product designs, and implement strong rules to ensure that products sold in the Marketplace provide good consumer value.11 Smaller and more rural states, however, will always be limited in their negotiating clout because there simply aren't as many providers from which carriers can select to build their networks.12 Encouraging a collaborative approach to providing high-value health coverage can only enhance the efforts described aboce and may be particularly important in smaller and rural states, as the Rhode Island example above shows.
1. Kaiser Family Foundation, State Health Insurance Marketplace Types, 2022.
2. Forsberg, Vanessa C., "Overview of Health Insurance Exchanges," Congressional Research Service (June 2018).
3. Federal funding to establish a state-based exchange is no longer available, but states looking to open their own exchange can make use of the 3% of premiums fee collected from carriers to fund operations and likely have funds left over.
4. Robinson, James C., et al., "Whither Health Insurance Exchanges Under the Affordable Care Act? Active Purchasing Versus Passive Marketplaces," Health Affairs (October 2015).
5. Bingham, Al, et al., "National vs. California Comparison: Detailed Data Help Explain the Risk Differences Which Drive Covered California's Success," Health Affairs (July 2018).
6. Weinberg, Micah and Patrick Kallerman, "A Study of Affordable Care Act Competitiveness in California," Brookings Institution (February 2017).
7. Scheffler, Richard M., et al., "Differing Impacts of Market Concentration on Affordable Care Act Marketplace Premiums," Health Affairs (May 2016).
8. In contrast, California's insurance regulators — the California Department of Managed Health Care and the California Department of Insurance — do not have prior-approval authority over rates. This absence reinforces the need for Covered California's strong negotiation authority with health plans.
9. Norris, Louise, "Rhode Island Health Insurance Marketplace: History and News of the State's Exchange," HealthInsurance.org (December 2019).
10.Massachusetts has many unique features, including merging the non-group and small group markets, making it difficult to disentangle the impact of any one policy. See Gasteier, Audrey Morse, et al., "Why Massachusetts Stands Out in Marketplace Premium Affordability," Health Affairs (September 2018).
11. Norris, Louise, "Why 13 States Have Lower Health Insurance Rates," HealthInsurance.org (November 2019).