Healthcare.gov is a public health insurance exchange, as are other state-based exchanges that run under the Affordable Care Act. People can also purchase insurance on a private exchange. While both have many similarities, there are some key differences. Here's what you need to know about public vs. private exchanges.
What is a health insurance exchange?
At a basic level, a health insurance exchange can be compared to a store or shop that sells health insurance policies.
Today's health insurance exchanges typically include the following components:
- A choice of two or more health insurance options or health insurance plans
- Advice and recommendation about how to decide on the best health insurance option for your needs
- Automated billing for the chosen health insurance plan premium(s)
- Ongoing support for the chosen health insurance plan(s)
Public vs. private exchanges
The primary difference between public and private exchanges is the entity running the exchange and the regulatory requirements for plans offered on those exchanges.
What is a public health insurance exchange?
A public health insurance exchange is a health insurance exchange run by a government (or government-contracted) entity. In the US, Healthcare.gov and the state-based exchanges are public health insurance exchanges. Plans sold on a public exchange are sometimes referred to as “on-exchange.”
All plans sold on these exchanges must be “qualified” as meeting the Affordable Care Act’s requirements for Minimum Essential Coverage, which are as follows:
- Have an actuarial value of at least 60%, meaning the plan covers at least 60% of costs (with the insured person, or participant, covering the rest).
- Cover the following 10 essential health benefits:
- Prescription Drugs
- Pediatric Services
- Preventive and Wellness Services and Chronic Disease Management.
- Emergency Services
- Mental Health and Addiction Services
- Pregnancy, Maternity, and Newborn Care
- Ambulatory Patient Services
- Laboratory Services
- Rehabilitative and Habilitative Services and Devices
Plans that meet public exchange requirements can offer additional advantages, namely:
- A public exchange can calculate and apply premium tax credits that subsidize the cost of premiums and expenses for lower income employees. Plans purchased on Healthcare.gov offer subsidies for those making up to 400% of the Federal Poverty Line (FPL). Some state-based exchanges extend subsidies even higher. For example, California residents are eligible for subsidies if their income is up to 600% of the FPL.
- A public exchange can support individuals under a Health Reimbursement Arrangements benefit, like a QSEHRA or ICHRA. While private exchanges usually offer plans qualified for HRAs, a public health insurance exchange may have more experience working with HRAs. For example, staff should understand that receiving an offer of an HRA qualifies a participant for a Special Enrollment Period to buy health insurance outside of the annual open enrollment time frame.
What is a private health insurance exchange
A private health insurance exchange is a health insurance exchange run by a private company, typically an insurance carrier or brokerage firm. Plans sold on a private exchange are sometimes referred to as “off-exchange.”
Following are some key differences between private exchanges and public exchanges:
- Plans sold on private exchanges often offer more choices and more competitive prices. For example, off exchange policies do not have to meet the MEC requirements that plans on public exchanges do.
- Private exchanges can sell both individual or group insurance policies. Whereas public health insurance exchanges sell only to individuals, private exchanges can also sell traditional group plans to employers. These group plans may have minimum contribution and/or participation requirements. In addition, individual plans sold on private exchanges might place restrictions based on the participant’s income.
- Private exchanges can support individuals under a Health Reimbursement Arrangements benefit, like a QSEHRA or ICHRA. Since private plans are typically more affordable than public plans, a qualifying off-exchange plan is a great way to make your HRA dollars go farther, especially if you are either not eligible for a premium tax credit (PTC) or you are eligible but have been offered an ICHRA allowance that is considered “affordable” under regulations, which will mean you will not be able to use your PTC under any circumstances, even if you opt out of participating in your employer’s ICHRA. You will just want to be sure that your broker or private exchange provider is up to speed on HRAs and how they work for you.
The advantage of this approach for consumers is that they might be able to find more targeted coverage, at more affordable rates, than they can on the public exchange. Importantly, many private exchanges do offer coverage that meets MEC requirements and this information is available in the Summary of Benefits and Coverage documents for the plan. These MEC plans do make a participant eligible for benefits like an ICHRA, but cannot be subsidized with premium tax credits. If you are interested in purchasing an off-exchange plan, it’s a good idea to work through a licensed agent or a broker who can help ensure you will get what you need from a plan.
Public exchanges are government, or government-contracted, entities that sell individual health insurance policies that meet certain regulatory requirements. Private exchanges are run by insurance carriers or brokerage firms that can give participants greater choice, but also require additional homework on the part of the consumer.
Learn how you can use an HRA to reimburse employees for the individual insurance premiums and medical expenses.
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This post was originally published on May 7, 2014. It was last updated November 17, 2020.