	Introduction

A health insurance exchange is a structured marketplace for the sale and purchase of health insurance. For instance, an exchange may be responsible for implementing regulatory standards, such as requiring standardization of all products offered through it or imposing requirements on exchange participants. Nonetheless, while the authority and responsibilities of an exchange may vary, its fundamental purpose is to provide a venue where insurance companies may sell their insurance products and purchasers can compare and choose from multiple options available to them. The exchange concept was included in the Patient Protection and Affordable Care Act (ACA, P.L. 111-148 , as amended), as a means to increase access to health insurance. For example, a state may decide to operate an exchange by itself, establish an exchange in partnership with the federal government, or leave this work entirely to the federal government. The coverage offered through exchanges will be comprehensive and meet all applicable private market reforms specified in ACA. ACA explicitly states that enrollment in exchanges is voluntary and no individual may be compelled to enroll in exchange coverage. While the main purpose of the exchanges will be to facilitate the offer and purchase of health insurance, nothing in ACA prohibits qualified individuals, qualified small businesses, and insurance carriers from participating in the health insurance market outside of exchanges. Small businesses seeking coverage for their employees will be able to use the small business health options program (SHOP) exchange. States that enter into a partnership exchange are required to carry out certain functions and activities related to plan management or consumer assistance or both. State-based Exchange (SBE)

The HHS Secretary must approve the operation of a SBE if it meets the following standards:
the exchange is able to carry out the required functions of the exchange as established in the law and regulation, which include making QHPs available to qualified individuals and qualified employers; the exchange is capable of carrying out the information reporting requirements related to sharing information with the federal government in order to determine an individual's eligibility for a premium tax credit; and either the entire geographic area of the state is covered in the exchange or the state has established multiple exchanges that cover the entire geographic area of the state. Operational Structure of a SBE

A state that is approved to establish its own exchange has a number of decisions to make regarding the exchange's operational structure. States can also establish one or more subsidiary exchanges in the state if each exchange serves a geographically distinct area and if the area served by each exchange meets the geographic size requirement established in the law. A SBE may contract with
an entity, including a state agency other than a Medicaid agency, incorporated under and subject to the laws of at least one state, that has demonstrated experience on a state or regional basis in the individual and small group health insurance markets and in benefits coverage, but is not an issuer; and/or a state Medicaid agency. In general, FFEs are required to carry out many of the same functions as SBEs. Additionally, FFEs and SBEs must adhere to many of the same standards outlined in ACA and regulations. What Exchanges Do

Exchanges are required to carry out a number of different functions, including determining eligibility and enrolling individuals in appropriate plans; conducting plan management activities; assisting consumers; ensuring plan accountability; and providing financial management. Federal Responsibilities for Establishment and Administration of All Exchanges

ACA requires federal agencies, primarily HHS, to oversee the exchanges, thus carrying out a number of responsibilities related to the establishment and administration of exchanges. Coverage Levels and Benefits

Generally, exchange plans must (1) cover "essential health benefits" (EHBs), at a minimum; (2) limit cost-sharing, including out-of-pocket costs; and (3) provide coverage that meets one of four levels of plan generosity based on actuarial value (defined below). Cost Assistance

To make exchange coverage more affordable, certain individuals will receive premium assistance in the form of federal tax credits. Moreover, some recipients of premium credits may also receive subsidies towards cost-sharing expenses.
The fundamental purpose of a health insurance exchange is to provide a structured marketplace for the sale and purchase of health insurance. The authority and responsibilities of an exchange may vary, depending on statutory or other requirements for its establishment and structure. The Patient Protection and Affordable Care Act (ACA, P.L. 111-148, as amended) requires health insurance exchanges to be established in every state by January 1, 2014. ACA provides certain requirements for the establishment of exchanges, while leaving other choices to be made by the states.
Qualified individuals and small businesses will be able to purchase private health insurance through exchanges. Issuers selling health insurance plans through an exchange will have to follow certain rules, such as meeting the private market reform requirements in ACA. While the fundamental purpose of the exchanges will be to facilitate the offer and purchase of health insurance, nothing in the ACA prohibits qualified individuals, qualified employers, and insurance carriers from participating in the health insurance market outside of exchanges. Moreover, ACA explicitly states that enrollment in exchanges is voluntary and no individual may be compelled to enroll in exchange coverage.
Exchanges may be established either by the state itself as a "state-based exchange" or by the Secretary of Health and Human Services (HHS) as a "federally-facilitated exchange." A federally-facilitated exchange may be operated solely by the federal government, or it may be operated by the federal government in conjunction with the state, as a "partnership" exchange. All exchanges are required to carry out many of the same functions and adhere to many of the same standards, although there are important differences between the types of exchanges.
ACA and regulations require exchanges to carry out a number of different functions. The primary functions relate to determining eligibility and enrolling individuals in appropriate plans, plan management, consumer assistance and accountability, and financial management. ACA gives various federal agencies, primarily HHS, responsibilities relating to the general operation of exchanges. Federal agencies are generally responsible for promulgating regulations, creating criteria and systems, and awarding grants to states to help them create and implement exchanges.
A state that is approved to operate its own exchange has a number of operational decisions to make, including decisions related to organizational structure (governmental agency or a nonprofit entity); types of exchanges (separate individual and Small Business Health Options Program (SHOP) exchanges, or a merged exchange); collaboration (a state may independently operate an exchange or enter into contracts with other states); service area (a state may establish one or more subsidiary exchanges in the state if each exchange serves a geographically distinct area and meets certain size requirements); contracted services (an exchange may contract with certain entities to carry out one or more responsibilities of the exchange); and governance (governing board and standards of conduct).
In general, health plans offered through exchanges will provide comprehensive coverage and meet all applicable private market reforms specified in ACA. Most exchange plans will provide coverage for "essential health benefits," at minimum; be subject to certain limits on cost-sharing, including out-of-pocket costs; and meet one of four levels of plan generosity based on actuarial value. To make exchange coverage more affordable, certain individuals will receive premium assistance in the form of federal tax credits. Moreover, some recipients of premium credits may also receive subsidies toward cost-sharing expenses.
This report outlines the required minimum functions of exchanges, and explains how exchanges are expected to be established and administered under ACA. The coverage offered through exchanges is discussed, and the report concludes with a discussion of how exchanges will interact with selected other ACA provisions.