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Health care reform bill 101: What's a health 'exchange'?

The health care reform bill calls for each state to set up an 'exchange,' or marketplace, where people not covered through their employers would shop for health insurance at competitive rates.

An unemployed woman examines forms at a federally funded job training center in San Jose, Calif., on March 9. Under the healthcare reform bill, a 'health exchange' would allow the unemployed and those seeking to buy insurance for themselves to shop for health insurance.

Marcio Jose Sanchez/AP

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The healthcare reform bill would require most people in the US to buy insurance. It would help some of them pay for it, too, with subsidies for lower- and middle-income individuals and families.

We talked about these topics in the first and second installments of our "in plain English" series on healthcare reform.

The legislation also would set up new places to shop for health insurance. They would be called “exchanges,” and they’re the subject of this piece.

Healthcare 101: What the bill means to you

Not everyone could use exchanges, and they won’t be open for some time. But they’re an attempt to inject some retail competition into a marketplace that today is not exactly teeming with bargains.

Theoretically, they’d allow individuals and small businesses to band together and get better prices and more variety in health insurance options – the kinds of breaks that big corporations can negotiate for their employees today.

How would they work? Would they be actual stores, in a mall, next to Hot Topic? Would they be Internet sites, or toll-free phone lines? What?

They would at least have to have call centers. So you could try to get them on the phone. But for the most part, their design is up to the states.

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How many exchanges would there be?

The House’s original version of healthcare reform would have created a national exchange, but that particular bill is gone with the wind. Instead, the reform that’s now on the edge of passage (or defeat, who knows?) would have states set up health option exchanges administered by either a government agency or a nonprofit organization.

The federal government would provide states with start-up money for exchange establishment. The exchanges are supposed to be open for business by 2014. If a state declines to open one, Uncle Sam can step in and open an exchange himself.

Who will the customers be? Not you, if you work for a medium or large company, and if your employer offers health insurance benefits. That sort of arrangement is grandfathered in, according to the legislation, and can continue pretty much as before.

In their initial years, the exchanges will be open only to those who work for firms with 100 or fewer employees, and to individuals looking to buy insurance for themselves. Because they’re self-employed, for instance. Or unemployed. Or retired but not yet eligible for Medicare.

As all who have tried to buy health insurance on their own know, currently most policies available are much more expensive than comparable products offered to big firms. Partly, this is because big firms can offer lots of customers, both healthy and less so, so that insurers know they can spread their risk.

The exchanges are meant to be cooperatives that allow these individuals to band together and, for health insurance purposes, become like their own big firm.

What oversight duties do exchanges have?

The exchanges themselves would inspect offered policies to make sure they meet government standards. They’re supposed to make sure the plans are “in the interest” of buyers, according to the healthcare reform bill.

They are prohibited from setting premiums. They can, however, ask insurers to justify rate hikes – and if they’re unsatisfied with the answer can use price as a reason to ditch that particular plan from their product lineup.

Then the exchange would offer approved policies to interested buyers, in the same way that a food coop offers oranges (“Ten for $5! Florida sunshine!”), free-range chicken, and bag-your-own rolled oats.

They're supposed to have four levels of plans to offer, of declining expense. The levels would be labeled "platinum," "gold," "silver," and "bronze." (We guess somebody spent a lot of time watching the Winter Olympics.)

Yes, you would be able to buy health insurance for yourself outside the exchanges. They would not be monopolies. But an insurer would have to charge the same rates outside the exchange as it does inside, for comparable plans, among other new regulations.

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Health Care Reform Bill 101:

Introduction: What the bill means to you

Part 1: Who must buy insurance?

Part 2: Who gets subsidized insurance?

Part 3: What's a health 'exchange'?

Part 4: How long will reform take?

Part 5: Who will pay for reform?

Part 6: What will it mean for business?

Part 7: What does it mean for kids and families?

Part 8: What does it mean for seniors?

Part 9: Rules for preexisting conditions

Part 10: Will it make health care more effective?


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