Health Insurance Exchanges Under the Patient
Protection and Affordable Care Act (ACA)

Bernadette Fernandez
Specialist in Health Care Financing
Annie L. Mach
Analyst in Health Care Financing
January 31, 2013
Congressional Research Service
7-5700
www.crs.gov
R42663
CRS Report for Congress
Pr
epared for Members and Committees of Congress

Health Insurance Exchanges Under the Patient Protection and Affordable Care Act (ACA)

Summary
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 law 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 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. States had to declare their intentions to
establish their own exchange no later than December 14, 2012; to date, 17 states and D.C. have
received conditional approval from HHS to operate a state exchange. States interested in pursuing
a partnership exchange must declare their intentions no later than February 15, 2013.
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,
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Health Insurance Exchanges Under the Patient Protection and Affordable Care Act (ACA)

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.

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Health Insurance Exchanges Under the Patient Protection and Affordable Care Act (ACA)

Contents
Introduction ...................................................................................................................................... 7
ACA Exchanges ............................................................................................................................... 8
Establishment of ACA Exchanges ................................................................................................... 9
State Exchanges ....................................................................................................................... 10
Operational Structure of a State Exchange ........................................................................ 11
Governance of a State Exchange ....................................................................................... 12
Federally-Facilitated Exchange ............................................................................................... 12
What Exchanges Do....................................................................................................................... 13
Eligibility and Enrollment ....................................................................................................... 14
Individual Exchange .......................................................................................................... 15
SHOP Exchange ................................................................................................................ 20
Plan Management Responsibilities .......................................................................................... 21
Consumer Assistance and Accountability ................................................................................ 22
Financial Management ............................................................................................................ 23
Federal Responsibilities for Establishment and Administration of All Exchanges........................ 24
Federal Oversight .................................................................................................................... 24
Federal Financial Assistance ................................................................................................... 25
Coverage Offered through the Exchanges ..................................................................................... 26
Coverage Levels and Benefits ................................................................................................. 26
Essential Health Benefits .................................................................................................. 27
Cost-Sharing Requirements ............................................................................................... 29
Levels of Plan Generosity ................................................................................................. 29
Exchange Health Plans ............................................................................................................ 30
Qualified Health Plans ...................................................................................................... 30
Multi-State Plans ............................................................................................................... 31
Child-Only Qualified Health Plans ................................................................................... 31
Consumer Operated and Oriented Plans ........................................................................... 32
Catastrophic Plan............................................................................................................... 33
Stand-Alone Dental Benefits ............................................................................................. 33
Cost Assistance ........................................................................................................................ 34
Premium Tax Credits ......................................................................................................... 34
Cost-Sharing Subsidies ..................................................................................................... 35
Interaction with Other ACA Provisions ......................................................................................... 36
Individual Mandate .................................................................................................................. 36
Employer Requirements .......................................................................................................... 36
Reforms to Private Health Insurance Markets ......................................................................... 37
Medicaid .................................................................................................................................. 37

Tables
Table 1. Criteria for Determining Eligibility for Enrollment in a QHP ......................................... 15
Table 2. Criteria for Determining Eligibility for Subsidies Through an Exchange ....................... 17
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Table 3. Criteria for Determining or Assessing MAGI-Based Eligibility for Enrollment in
Medicaid and CHIP .................................................................................................................... 19
Table 4. Criteria for Determining Eligibility for Enrollment in a BHP ......................................... 20
Table A-1. Selected Upcoming Exchange Implementation Dates ................................................. 39
Table B-1. Description of Reinsurance, Risk Corridors, and Risk-Adjustment Provisions
of ACA ........................................................................................................................................ 40

Appendixes
Appendix A. Selected Exchange Implementation Dates ............................................................... 39
Appendix B. Risk Mitigation Programs Under ACA .................................................................... 40

Contacts
Author Contact Information........................................................................................................... 41

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Health Insurance Exchanges Under the Patient Protection and Affordable Care Act (ACA)

Introduction
A health insurance exchange is a structured marketplace for the sale and purchase of health
insurance. “Customers” can include individuals and businesses. The insurance companies
(“issuers”) that choose to sell their products through an exchange may be required to comply with
consumer protections, such as offering insurance to every qualified applicant. Exchanges,
however, are not issuers; rather, exchanges contract with issuers who will make insurance
products available for purchase through exchanges. Essentially, exchanges are designed to bring
together buyers and sellers of insurance, with the goal of increasing access to coverage.
This rather broad definition allows for a great deal of latitude, and therefore variance, in the
number and scope of responsibilities covered in a particular exchange. For example, the role of an
exchange may be more or less administrative: facilitating the sale and purchase of health
insurance. An administrative-only exchange may function similar to websites that allow
individuals to find airline travel options and purchase tickets (e.g., Kayak). Such an approach
does not necessarily change or establish standards for the products being sold (whether they are
health plans or airline tickets), or limit the types of buyers and sellers participating in the
exchange, beyond what already exists in the private market. An example of a minimalist health
insurance exchange is the Utah Health Exchange. Essentially, Utah’s exchange is an Internet
portal that is “designed to connect consumers to the information they need to make informed
health care choices, and in the case of health insurance, to execute that choice electronically.”1
At the other end of the spectrum, an exchange may have multiple functions beyond the role of
insurance marketplace. 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. An exchange may be responsible for
determining eligibility for exchange plans and government-provided subsidies. An example of a
more regulatory-oriented exchange is the Health Connector (“Connector”) in Massachusetts.
Similar to Utah’s exchange, the Connector provides an online tool to allow consumers and others
to find commercial health insurance options available to them. In addition, the Connector also
manages a publicly subsidized coverage program for low-income state residents, and offers
certificates to exempt individuals from the state’s individual mandate, among other duties.2
An exchange may occupy a physical location and/or be virtual (i.e., performing its functions on
the Internet). It may be governed by a public agency, a private entity, or a hybrid organization.
The insurance options offered through an exchange may also vary across insurance markets3 and
plan types. 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. Thus
an exchange allows for “one-stop shopping” with respect to health insurance.

1 “Utah Health Exchange,” http://www.exchange.utah.gov/about-the-exchange.
2 “Health Connector,” https://www.mahealthconnector.org/portal/site/connector.
3 The private health insurance market is made up of three segments—the large group, small group and nongroup
(individual) markets. The nongroup market refers to insurance policies offered to individuals and families buying
insurance on their own. Group insurance refers to health plans offered through a plan sponsor, typically an employer.
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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. While ACA places many
restrictions on the design and function of exchanges, the law also leaves many operational
decisions to the states. Such flexibility will likely lead to variation in exchange models across the
states. 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.
States had to declare whether they will have a state exchange by December 14, 2012. By
February 15, 2013, states must declare whether they will operate an exchange in partnership with
the federal government. The initial open enrollment period for all exchanges will begin on
October 1, 2013, and all exchanges are to be operational and offering coverage on January 1,
2014.
This report looks at the requirements for exchanges established in ACA and provides information
on the requirements and choices available to states for the establishment, functions, financial
responsibilities, and coverage of the ACA exchanges. It also includes a brief discussion of the
interactions between exchanges and other provisions in the law.
ACA Exchanges
ACA intends exchanges to be marketplaces where qualified individuals and small businesses can
“shop” for private health insurance coverage.4 The coverage offered through exchanges will be
comprehensive5 and meet all applicable private market reforms6 specified in ACA. Such plans
offered through the exchanges will be certified as “qualified health plans” or QHPs.7
ACA explicitly states that enrollment in exchanges is voluntary and no individual may be
compelled to enroll in exchange coverage.8 While the main purpose of the exchanges will be to
facilitate the offer and purchase of health insurance, nothing in the ACA prohibits qualified
individuals, qualified small businesses, and insurance carriers from participating in the health
insurance market outside of exchanges.9

4 Before 2016, states will have the option to define “small employers” either as those with 100 or fewer employees or
50 or fewer employees. Beginning in 2016, small employers will be defined as those with 100 or fewer employees.
Beginning in 2017, states may allow large employers to obtain coverage through an exchange (but will not be required
to do so).
5 With the exception of stand-alone dental plans that are allowed to be offered in the exchanges.
6 For additional information about ACA’s private market reforms, see CRS Report R42069, Private Health Insurance
Market Reforms in the Patient Protection and Affordable Care Act (ACA)
, by Annie L. Mach and Bernadette
Fernandez.
7 As discussed in the “Plan Management Responsibilities” section of this report, a plan has to meet certain statutory
requirements to be certified as a QHP. Certain plans offered through exchanges (e.g., stand-alone dental plans) do not
necessarily meet all of the criteria to be certified as a QHP; however, the plans are required to meet some criteria and
are considered QHPs for the purpose of how the exchange interacts with the plan. For example, while a stand-alone
dental plan cannot meet criteria related to benefits to qualify as a QHP (because the plan only offers dental benefits), a
stand-alone dental plan is still required to meet the QHP standard to annually provide benefit and rate information to
the exchange.
8 §1312(d)(3)(B) of ACA.
9 §1312(d)(1) of ACA.
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For individuals seeking coverage, exchanges will not only create marketplaces where qualified
individuals can purchase QHPs in the nongroup (individual) market, but exchanges will also
assist individuals with obtaining federally subsidized premium and cost-sharing assistance to help
low to middle income individuals offset the cost of both purchasing and using health insurance.
Exchanges will also screen individuals for eligibility for certain public insurance programs (e.g.,
Medicaid) and connect them with appropriate agencies.
Small businesses seeking coverage for their employees will be able to use the small business
health options program (SHOP) exchange. The SHOP exchange is designed to assist qualified
small employers and their employees with the purchase of QHPs offered in the small group
market. Qualified small employers will be able to select QHPs available in the SHOP to offer to
their employees, and they will be able to set the amount they will contribute to QHP premiums.
ACA requires exchanges to be established in every state by January 1, 2014. Exchanges must be
established by the state itself or by the Secretary of HHS,10 and they must carry out the general
functions described above for both individuals and small businesses. Additionally, exchanges will
be expected to perform a number of other functions relating to managing the QHPs offered
through the exchanges and assisting individuals and small businesses in accessing and obtaining
coverage.
Establishment of ACA Exchanges
ACA provides general direction regarding the establishment and administration of an exchange.
ACA is supplemented by the final regulation on the establishment of exchanges and other
guidance produced by federal agencies, particularly HHS.11 Taken together, these documents set
forth some requirements and minimum standards that various stakeholders—including
consumers, states, issuers, and employers—must meet to be part of or to participate in an
exchange.
One factor that could influence a number of determinations related to how an exchange is
implemented is whether the exchange is established by a state or HHS. States have the option of
establishing their own exchanges (“state exchange”) as a governmental agency or a non-profit
entity. If a state wants to operate its own exchange beginning January 1, 2014, it had to submit a
“Declaration Letter” and an “Exchange Blueprint” application12 to HHS by December 14, 2012.
Eighteen states and D.C. submitted letters and applications prior to the deadline; to date, HHS has
conditionally approved applications from 17 states and D.C.13

10 §§1311(b) and 1321(c) of ACA.
11 77 Federal Register 18310, March 27, 2012.
12 §1311(b) of ACA. Instructions for submitting the Declaration Letter and the Exchange Blueprint application are
available at http://cciio.cms.gov/resources/files/hie-blueprint-081312.pdf.
13 Seventeen states and D.C. have received conditional approval to operate a state exchange: CA, CO, CT, HI, ID, KY,
MD, MA, MN, NV, NM, NY, OR, RI, UT, VT, and WA. Mississippi is the only other state that submitted an
application to operate a state-based exchange; HHS is withholding a decision on the state’s application until state
officials settle an internal dispute regarding who has the authority to act on behalf of Mississippi to establish an
exchange.
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If a state’s exchange is not approved, or if a state chooses not to establish its own exchange, the
HHS Secretary has the authority to establish and operate an exchange in that state directly, or
through an agreement with a non-profit entity.14 In a “federally-facilitated exchange,” HHS will
carry out all functions of the exchange and have authority over the exchange. HHS gives states
the option to enter into a hybrid type of exchange—somewhere between a state exchange and a
federally-facilitated exchange. This option is referred to as a “partnership” with a federally-
facilitated exchange, whereby certain state-designed and operated functions are combined with
federally designed and operated functions. While HHS and states share responsibility for carrying
out functions in partnerships within federally-facilitated exchanges, HHS retains authority over
these exchanges.15 If a state wants to have a partnership exchange, it must submit to HHS a
Declaration Letter and an Exchange Blueprint application by February 15, 2013.
Regardless of whether an exchange is established by a state or the federal government, the initial
open enrollment period for an exchange will be October 1, 2013, through March 31, 2014.
Exchanges must begin offering coverage to qualified individuals and small businesses on January
1, 2014.16
State Exchanges
The HHS Secretary must approve the operation of a state exchange 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;17 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.18
A state exchange is responsible for creating and implementing its structure and governing system
according to the guidelines outlined in the statute and regulations, as discussed below.

14 §1321(c) of ACA.
15 77 Federal Register 18310, March 27, 2012. The law also requires that the HHS Secretary creates a process whereby
states that were operating exchanges before January 1, 2010, can receive assistance from federal agencies to bring their
exchanges into compliance with the requirements under ACA (§1322(e) of ACA).
16 Selected exchange implementation dates are shown in Table A-1. It should be noted that the final rule on exchange
establishment (77 Federal Register 18310, March 27, 2012) provides for ways in which states can change the type of
exchange established in the state. For example, if a state chooses not to establish an exchange for 2014, it still may elect
to do so in the future.
17 For a comprehensive discussion of the premium tax credits, see CRS Report R41137, Health Insurance Premium
Credits in the Patient Protection and Affordable Care Act (ACA)
, by Bernadette Fernandez and Thomas Gabe.
18 77 Federal Register 18310, March 27, 2012.
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Operational Structure of a State Exchange
A state that is approved to establish its own exchange has a number of decisions to make
regarding the exchange’s operational structure. A state must determine whether its exchange will
be a governmental agency or a non-profit established by the state. The terms “governmental” and
“non-profit established by the state” have not been defined; instead, it seems these terms are
subject to state interpretation.19
A state can choose to independently operate an exchange, or a state can enter into contracts with
other states (regardless of whether the states are contiguous) to operate a regional exchange.20
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.21 In other words, while states have a great deal of leeway in
establishing how the exchange is divided up geographically, they must serve the entire population
in their state. Furthermore, regional exchanges and subsidiary exchanges must meet all exchange
requirements.
A state exchange must operate both the individual and SHOP exchanges, but a state can either
merge the exchanges and operate both under the same administrative and governance structures,
or elect to create separate administrative and governance structures for the individual and SHOP
exchanges.22 Additionally, regional and subsidiary exchanges must perform the functions of a
SHOP exchange. If an exchange chooses to operate an individual exchange and a SHOP
exchange under two different governance and administrative structures, a SHOP exchange must
cover the same geographic area as the regional or subsidiary individual exchange.23
States also have the authority to allow a state exchange to contract with the entities described
below to carry out one or more responsibilities of the exchange.24 States can grant this authority
to state exchanges independent of whether an exchange is a governmental agency or a non-profit
established by the state. For example, a state exchange that is a non-profit established by the state
could contract with a state agency that meets the criteria below to carry out certain consumer
assistance functions for the exchange.
A state exchange 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

19 In responding to requests for clarification regarding what would be considered “governmental,” HHS has said that it
will not offer further clarification of “governmental” in deference to existing state classifications. HHS has not
commented on the definition of a non-profit established by a state.
20 §1311(f)(1) of ACA. Each state participating in the regional exchange must permit the operation of the regional
exchange, and the HHS Secretary has to approve the regional exchange before it can begin operation.
21 §1311(f)(2) of ACA. The area served by a subsidiary exchange must be at least as large as a rating area approved by
the HHS Secretary for purposes described in §2701 of the Public Health Service Act (PHSA).
22 §1311(b)(2) of ACA.
23 77 Federal Register 18310, March 27, 2012.
24 §1311(f)(3) of ACA and 77 Federal Register 18310, March 27, 2012. If an exchange contracts out any function of
the exchange, the exchange is responsible for ensuring that the contracted entity meets all federal requirements related
to the function.
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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.
Governance of a State Exchange
Generally, a state exchange must have a governing board that meets certain requirements; the
board must25
• be administered under a publicly adopted operating charter or by-laws;
• hold regular meetings that are open to the public and announced in advance;
• ensure that the board’s membership includes at least one voting member who is a
consumer representative and is not made up of a majority of voting
representatives with conflicts of interest (e.g., representatives of issuers); and
• ensure that a majority of the voting members on its governing board have
relevant experience in the health care field (e.g., in health benefits administration,
or in public health).
In addition, a state exchange is required to have in place and make publicly available a set of
governance principles that include ethics, conflict of interest standards, transparency and
accounting standards, and standards related to disclosure of financial interests. A state exchange
must also implement procedures as to how members of the governing board will disclose any
financial interests. The state exchange’s governance principles are subject to periodic review by
HHS.26
Federally-Facilitated Exchange
If a state chooses not to operate its own exchange or if a state does not have approval to operate
its own exchange, the HHS Secretary is required to establish a “federally-facilitated exchange” in
the state.27 A federally-facilitated exchange can be implemented by HHS alone, or a state can
enter into a “partnership” with a federally-facilitated exchange, combining state-designed and
operated functions with federally designed and operated functions.28 Partnerships are considered a
subset of federally-facilitated exchanges, indicating that HHS has authority over partnerships in
federally-facilitated exchanges.29 States interested in pursuing a partnership exchange effective in

25 77 Federal Register 18310, March 27, 2012.
26 Ibid.
27 §1321(c) of ACA.
28 The partnership model is discussed in an HHS fact sheet published September 19, 2011, available at
http://www.healthcare.gov/news/factsheets/2011/09/exchanges09192011a.html. The partnership model and the
federally-facilitated exchange model are both discussed in the final rule on establishment of exchanges (77 Federal
Register
18310, March 27, 2012). Finally, more information is provided about federally-facilitated exchanges,
including partnerships, in guidance released May 16, 2012, available at http://cciio.cms.gov/resources/files/
FFE_Guidance_FINAL_VERSION_051612.pdf.
29 77 Federal Register 18310, March 27, 2012.
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2014 must submit to HHS a Declaration Letter and an Exchange Blueprint application by
February 15, 2013.30
The final rule on the establishment of exchanges does not include provisions specific to federally-
facilitated exchanges (instead saying that information for these exchanges will be provided in
future guidance). However, the final rule does indicate that federally-facilitated exchanges are
required to carry out many of the same functions as state exchanges. Additionally, federally-
facilitated exchanges and state exchanges must adhere to many of the same standards outlined in
ACA and the final rule. For example, state exchanges and federally-facilitated exchanges are both
required to offer the same tools to help consumers access an exchange and assess their plan
options through an exchange.
HHS has published some guidance that generally describes how a non-partnership federally-
facilitated exchange will operate within the framework established by ACA and the final rule.31 A
detailed analysis of the guidance is beyond the scope of this report; however, the guidance
generally describes how a non-partnership federally-facilitated exchange will determine which
plans will be offered through an exchange, how it will conduct eligibility and enrollment
activities, and how it will operate the SHOP exchange. The guidance also indicates that further
guidance on non-partnership federally-facilitated exchanges is forthcoming.
With regard to the partnership exchange, HHS retains authority over the exchange, but it expects
states to assume responsibility for certain exchange activities.32 To enter into a partnership
exchange, a state must either manage activities related to plan management or consumer
assistance or both. If a state elects to administer plan management activities, the state will be
responsible for recommending plans for certification to be offered through an exchange and
managing day-to-day administration and oversight of exchange plans. If a state elects to perform
consumer assistance activities in a partnership exchange, then the state will be responsible for
providing in-person assistance to individuals applying for or enrolled in coverage offered through
the exchange and can choose to be responsible for outreach and educational activities. If a state
elects to administer both the plan management and consumer assistance activities within the
partnership, then the state will carry out all of the activities described above.33
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.34 These

30 Instructions for submitting the Declaration Letter and the Exchange Blueprint application are available at
http://cciio.cms.gov/resources/files/hie-blueprint-081312.pdf.
31 Center for Consumer Information and Insurance Oversight, General Guidance on Federally-facilitated Exchanges,
May 16, 2012, http://cciio.cms.gov/resources/files/FFE_Guidance_FINAL_VERSION_051612.pdf.
32 Ibid.
33 On January 3, 2012, HHS published guidance on partnership exchanges, available at http://cciio.cms.gov/resources/
files/partnership-guidance-01-03-2013.pdf.
34 The framework for this section is adapted from a report co-authored by Deborah Bachrach and Patricia Boozang,
titled, “Federally-Facilitated Exchanges and the Continuum of State Options,” available at http://www.nasi.org/
research/2011/federally-facilitated-exchanges-continuum-state-options.
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functions are not necessarily exhaustive of exchange responsibilities; rather, this section is
intended to provide a general overview of an exchange’s responsibilities. Unless otherwise noted,
both state and federally-facilitated exchanges are required to carry out the functions described in
this section. Additionally, some responsibilities may be different for individual exchanges and
SHOP exchanges, so the following discussion provides information for both.
Eligibility and Enrollment
Exchanges are responsible for a variety of functions related to determining an applicant’s
eligibility (whether an individual’s or an employer’s) for various plans/programs and for enrolling
eligible applicants into those plans/programs. Exchanges must verify the information received
from applicants and re-determine eligibility as necessary. Exchanges are expected to have secure
electronic databases in place that support exchanges’ eligibility and enrollment responsibilities by
allowing information to be shared among state and federal agencies.35 An exchange’s
responsibilities to determine eligibility and to enroll eligible individuals are different, but related,
for the individual exchange and the SHOP exchange (for small business employees).
Flexibility Related to Eligibility and Enrollment Systems
ACA intends to create a seamless eligibility and enrol ment system for individuals seeking health insurance coverage in
the nongroup market and/or through public programs (e.g., Medicaid). The system would allow individuals to fill out a
single application that collects the information necessary to screen the individual for multiple types of coverage and
financial assistance. The system would then facilitate the enrollment of the individual in the appropriate plan/program.
States have some flexibility in designing and implementing this streamlined system. The flexibility is related to how
eligibility and enrollment responsibilities will be shared among entities, including individual exchanges. ACA requires
that the system is able to determine an applicant’s eligibility for enrollment in a QHP36 and for insurance affordability
programs (IAP),37 which include Medicaid, the State Children’s Health Insurance Program (CHIP), the Basic Health
Program (BHP),38 advanced payment of premium tax credits, and cost-sharing reductions.
ACA and regulations allow different entities to participate in the eligibility and enrollment system. For example, the
system can be designed to enable one entity (e.g., the individual exchange) to determine eligibility for and effectuate
enrol ment in QHPs and all IAPs. Alternatively, the system can be designed so that one state agency determines
eligibility for one IAP (i.e., the state’s Medicaid agency determines Medicaid eligibility) while another entity or other
entities determine eligibility for other plans/programs.
Descriptions of the potential variations in eligibility and enrollment systems that may occur as a result of this flexibility
are beyond the scope of this report. However, it is important to note that this section generally describes how an
individual exchange would handle its eligibility and enrollment functions if it were to carry out the functions. The
summaries of eligibility requirements for enrollment in plans/programs described in Table 1, Table 2, Table 3, and
Table 4 are the same regardless of which entity determines eligibility.

35 §§1413 and 1561 of ACA. The most recent guidance (May 2011) produced by Centers for Medicare & Medicaid
Services (CMS) addressing the electronic databases is available at http://www.medicaid.gov/Medicaid-CHIP-Program-
Information/By-Topics/Data-and-Systems/Downloads/exchangemedicaiditguidance.pdf.
36 For more information about QHPs offered through an exchange, see the “Qualified Health Plans” section of this
report.
37 The term and definition of “insurance affordability programs” is adopted from a definition in the final rule on
exchange establishment (77 Federal Register 18310, March 27, 2012).
38 §1331 of ACA requires the HHS Secretary to create a basic health program (BHP), which is a health insurance
program for low-income individuals who are not eligible for Medicaid, and is offered in lieu of eligible individuals
obtaining coverage through an exchange. States have the option to implement the BHP, and therefore, exchanges will
interact with BHPs in only those states that choose to implement a BHP.
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Individual Exchange
To determine eligibility, an individual exchange must use a single, streamlined application to
collect information from an applicant and verify that information according to procedures
identified in regulation. For example, an individual exchange is expected to verify an applicant’s
social security number by transmitting the number to HHS, which will consult the Social Security
Administration and the Department of Homeland Security, as needed, to verify the number.39
An individual exchange is expected to re-determine an enrollee’s eligibility if the individual
exchange receives and verifies new information relating to the enrollee. This information can
come from the enrollee, as enrollees are required to report any change with respect to eligibility
standards within 30 days of the change, or it can come from information the individual exchange
finds through its required periodic examination of available information that might affect
eligibility (e.g., whether an enrollee has died). An individual exchange is also expected to re-
determine or re-assess the eligibility of all enrollees on an annual basis. However, re-
determinations and re-assessments due to changes in status do not fully satisfy the requirement
for annual re-determinations and re-assessments.40
Eligibility for Enrollment in a QHP
An individual exchange is required to determine an applicant’s eligibility for enrollment in a
QHP. If an applicant is determined eligible for a QHP, the individual exchange is expected to
facilitate the applicant’s enrollment into the QHP selected by the individual. Table 1 shows the
criteria an individual exchange must use to determine eligibility for enrollment in a QHP.
Table 1. Criteria for Determining Eligibility for Enrollment in a QHP
An individual exchange must determine an applicant eligible for a QHP if
the applicant meets the following criteria:
Enrollment in a

Citizen, national, or noncitizen who is lawfully present in the United Statesa
QHP

Not incarcerated, other than pending the disposition of charges

Meets applicable state residency standards
Source: CRS analysis of ACA (as amended) and 77 Federal Register 18310, March 27, 2012.
a. Only lawful residents may obtain exchange coverage; unauthorized aliens will be prohibited from obtaining
coverage through an exchange, even if they could pay the entire premium without a subsidy.
Eligibility for Premium Tax Credits and Cost-Sharing Subsidies
Certain individuals who purchase a QHP through an individual exchange will be eligible for
financial assistance to help them off-set the cost of the coverage and to defray some costs
associated with using health services. ACA provides assistance, for the purchase of exchange
coverage, in the form of premium tax credits. (A tax credit is a reduction that is applied to the
amount an individual (or family) owes, if any, when filing income taxes.) Premium tax credits are
advanceable, meaning instead of having to wait until after the end of the tax year to receive the

39 77 Federal Register 18310, March 27, 2012.
40 Ibid.
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credit, the individual may receive the payments in advance to coincide with when insurance
premiums are due (usually on a monthly basis).
In addition to the premium tax credits, ACA provides cost-sharing subsides to certain individuals
to help them pay costs related to the use of health services. (Cost-sharing generally refers to costs
that an individual must pay when using services that are covered under the health plan that the
person is enrolled in; common forms of cost-sharing include copayments and deductibles.) Both
premium tax credits and cost-sharing subsidies are discussed later in this report under the section
“Cost Assistance.”
Because the premium tax credits are advanceable, it will be necessary to determine an
individual’s eligibility for the credits at the time the individual applies for coverage through an
exchange. In regard to advanced payment of premium tax credits, an individual exchange may
either determine an applicant’s eligibility directly or implement a determination of eligibility
made by HHS.41 Determining eligibility directly is similar to determining eligibility for QHPs;
the individual exchange reviews an applicant’s information and makes a determination of
eligibility. If an individual exchange chooses to determine an applicant’s eligibility for advance
payment of premium tax credits, the exchange must calculate the amount of the advance payment
in accordance with Section 36B of the Internal Revenue Code. An individual exchange may only
provide the advance payment if the applicant meets the eligibility criteria (see Table 2).
Similarly, an individual exchange may either directly determine eligibility for cost-sharing
subsidies, or it may implement a determination made by HHS. If an individual exchange chooses
to determine an applicant’s eligibility for cost-sharing subsidies, the exchange must do so
according to the criteria outlined in Table 2.
If an individual exchange decides not to directly determine eligibility for advanced payment of
premium tax credits or not to directly determine eligibility for cost-sharing subsidies but rather
implements HHS determinations, then an individual exchange is expected to transmit all collected
and verified information to HHS. The individual exchange does not make a recommendation in
this process; rather, the individual exchange shares information with HHS and then is expected to
adhere to the determination of eligibility made by HHS.42

41 These provisions were included as “interim final” rather than in the final rule on exchange establishment (77 Federal
Register
18310, March 27, 2012), and comments were accepted on both provisions through May 11, 2012. The
preamble of the final rule indicates that further guidance on these provisions is forthcoming.
42 The eligibility criteria for advance payment of premium tax credits and cost-sharing subsidies are the same regardless
of whether an individual exchange makes the determination or HHS makes the determination.
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Table 2. Criteria for Determining Eligibility for Subsidies Through an Exchange
An exchange or HHS may determine an applicant eligible for the subsidies below
according to the following criteria:
Advanced payment of

Meets the criteria for eligibility for enrollment in a QHP through an
premium tax credits
exchangea

Not eligible for minimum essential coverageb other than

through the individual health insurance market; or

employer-sponsored insurance that is “unaffordable” or does not
provide “minimum value”c

Is part of a tax-filing unit

Is enrol ed in a QHP offered through an exchange

Has household income that either

is between 100% and 400% FPL; or

is not greater than 100% FPL and is an alien lawfully present (but not
eligible for Medicaid because of duration of U.S. residency)d
Cost-sharing subsidiese

Meets the criteria for eligibility for enrollment in a QHP through an exchange

Meets the criteria for eligibility for advance payment of premium tax credits

Is enrolled in a silver plan through an exchangef

Has household income between 100% and 400% FPLg
Source: CRS analysis of ACA (as amended) and 77 Federal Register 18310, March 27, 2012.
a. These criteria are detailed in Table 1.
b. The definition of minimum essential coverage is discussed in CRS Report R41331, Individual Mandate and
Related Information Requirements under ACA, by Janemarie Mulvey and Hinda Chaikind.
c. For the purpose of this provision, ACA considers an employer-sponsored plan “unaffordable” if the
employee’s premium contribution to the employer’s self-only plan exceeds 9.5% of household income. An
employer-sponsored plan does not provide “minimum value” if it covers less than 60% of total allowed
costs (on average).
d. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L. 104-193) determined
that most individuals who are not citizens but are lawful y present in the United States are barred from
Medicaid for the first five years that they are in the United States.
e. ACA establishes different eligibility criteria for cost-sharing subsidies for certain American Indians and
Alaska Natives. For more information, see CRS Report R41152, Indian Health Care: Impact of the Affordable
Care Act (ACA)
, by Elayne J. Heisler.
f.
A description of the different tiers of coverage offered through an exchange is included in the “Coverage
Levels and Benefits” section of this report.
g. The cost-sharing subsidies reduce the annual caps on out-of-pocket expenses for individuals with income
between 100% and 400% FPL. Additional y, ACA requires QHP issuers to further reduce cost-sharing
requirements for individuals with income between 100% and 250% FPL. For more information, see CRS
Report R41137, Health Insurance Premium Credits in the Patient Protection and Affordable Care Act (ACA), by
Bernadette Fernandez and Thomas Gabe.
Eligibility for Medicaid and CHIP
An individual exchange may either determine or assess an applicant’s eligibility for enrollment in
Medicaid and/or CHIP. If an individual exchange determines eligibility for Medicaid and/or
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CHIP, then the individual exchange is also responsible for the enrollment of eligible applicants.
Once an applicant has been determined eligible, the individual exchange must transmit the
applicant’s information to the state Medicaid or CHIP agency, thus effectuating enrollment.
An individual exchange may only assess eligibility for Medicaid/CHIP. If an applicant is assessed
eligible for a program the individual exchange is required to transmit all collected and verified
information to the state Medicaid or CHIP agency to enable the agency to make a final
determination of the applicant’s eligibility. In this case, the exchange is only making a
recommendation and sharing information with the appropriate agency; it is not responsible for
making a final determination of eligibility. The individual exchange is expected to adhere to the
final determination made by the agency.
The final rule on Medicaid eligibility changes under ACA indicates that the state Medicaid and/or
CHIP agency will decide whether an individual exchange will determine or assess eligibility for
its program(s).43 Additionally, the rule clarifies that some individuals have financial eligibility for
Medicaid based on modified adjusted gross income (MAGI), while others do not have financial
eligibility based on MAGI.44 The rule provides that a state’s Medicaid agency can separately
decide on the individual exchange’s role in determining or assessing Medicaid eligibility for
MAGI and non-MAGI populations. Table 3 shows criteria an individual exchange must use to
determine or assess eligibility for individuals whose financial eligibility is based on MAGI. It is
beyond the scope of this report to detail the criteria used to determine or assess eligibility for
individuals whose financial eligibility is not based on MAGI.

43 77 Federal Register 17144, March 23, 2012.
44 On June 28, 2012, the United States Supreme Court issued its decision in National Federation of Independent
Business v. Sebelius
. The Court held that the federal government cannot terminate current Medicaid program federal
matching funds if a state refuses to expand its Medicaid program to include non-elderly, non-pregnant adults under
133% of the federal poverty level. If a state accepts the new ACA Medicaid expansion funds, it must abide by the new
expansion coverage rules, but, based on the Court’s opinion, it appears that a state can refuse to participate in the
expansion without losing any of its current federal Medicaid matching funds. This decision did not affect the ACA
requirement that modified adjusted gross income (MAGI) would be the new income test for most of Medicaid’s
covered populations beginning in 2014. For a legal analysis of the Court’s decision on Medicaid, see CRS General
Distribution Memorandum, Selected Issues Related to the Effect of NFIB v. Sebelius on the Medicaid Expansion
Requirements in Section 2001 of the Affordable Care Act
, by Kathleen S. Swendiman and Evelyne P. Baumrucker. For
a comprehensive discussion about MAGI and ACA, see CRS Report R41997, Definition of Income in ACA for Certain
Medicaid Provisions and Premium Credits
, coordinated by Janemarie Mulvey.
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Table 3. Criteria for Determining or Assessing MAGI-Based Eligibility for Enrollment
in Medicaid and CHIP
An individual exchange may determine an applicant eligible or assess an applicant’s eligibility for MAGI-
based Medicaid and CHIP according to the following criteria:

Determination Assessment
Enrollment in

Meets the non-financial criteria for

Makes the assessment based on the applicable
Medicaid
Medicaid for populations whose eligibility
Medicaid MAGI-based income standards and
is based on modified adjusted gross
citizenship and immigration status, using
income (MAGI)a
verification rules and procedures consistent
with Medicaid statute, regardless of how such

Has a household income that is at or
standards are implemented by the state
below the applicable Medicaid MAGI-
Medicaid agency
based income standard

Must adhere to state Medicaid agency’s final

Is either a pregnant woman, under age 19,
determination of applicant’s eligibility
a parent or caretaker of a dependent
child, or is under age 65 and not entitled
to or enrolled in Medicare Parts A or B
Enrollment in CHIP

Meets the requirements for children to

Makes the assessment based on the applicable
enroll in CHIPb
CHIP MAGI-based income standards and
citizenship and immigration status, using

Has a household income at or below the
verification rules and procedures consistent
applicable CHIP MAGI-based income
with CHIP statute, regardless of how such
standard
standards are implemented by the state
CHIP agency

Must adhere to state CHIP agency’s final
determination of applicant’s eligibility
Source: CRS analysis of ACA (as amended) and 77 Federal Register 18310, March 27, 2012.
a. For information about populations whose Medicaid eligibility is, in part, based on MAGI-based income, see
CRS Report R41210, Medicaid and the State Children’s Health Insurance Program (CHIP) Provisions in ACA:
Summary and Timeline
, by Evelyne P. Baumrucker et al.
b. For more information about children’s eligibility for CHIP, see CRS Report R40444, State Children’s Health
Insurance Program (CHIP): A Brief Overview, by Elicia J. Herz and Evelyne P. Baumrucker.
Eligibility for Enrollment in a BHP
The Basic Health Program (BHP) is a health insurance program for low-income individuals who
are not eligible for Medicaid, and is offered in lieu of eligible individuals obtaining coverage
through an exchange. States have the option to implement the BHP, and therefore, exchanges will
interact with BHPs in only those states that choose to implement a BHP.
If a state chooses to establish a BHP, an individual exchange is expected to determine an
applicant’s eligibility for a BHP, and facilitate the applicant’s enrollment in the program. Table 4
shows the criteria an individual exchange must use to determine eligibility for enrollment in a
BHP.
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Table 4. Criteria for Determining Eligibility for Enrollment in a BHP
An individual exchange must determine an applicant eligible for a BHP if
the applicant meets the following criteria:
Enrollment in the

Resident of a state and not eligible for the state’s Medicaid program
Basic Health
Program (BHP)

Not eligible for minimum essential coverage or is eligible for employer-sponsored insurance
(ESI) that is not affordablea

Has not attained age 65 at the beginning of the plan year

Has household income that either

exceeds 133% of the federal poverty level (FPL) but does not exceed 200% FPL; or

is not greater than 133% FPL and is an alien lawfully present (but not eligible for Medicaid
because of duration of U.S. residency)b
Source: CRS analysis of ACA (as amended) and 77 Federal Register 18310, March 27, 2012.
a. The definition of minimum essential coverage is discussed in CRS Report R41331, Individual Mandate and
Related Information Requirements under ACA, by Janemarie Mulvey and Hinda Chaikind. ACA considers
employer coverage “unaffordable” if the employee’s contribution toward the employer’s lowest-cost self-
only premium exceeds 9.5% of household income.
b. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L. 104-193) determined
that most individuals who are not citizens but are lawful y present in the United States are barred from
Medicaid for the first five years that they are in the United States.
SHOP Exchange
As the exchange for small businesses, the SHOP has responsibilities similar to the individual
exchange in that the SHOP is also responsible for collecting and verifying information from
employers and employees (both considered applicants), determining eligibility, and facilitating
enrollment. An employer and each of its employees seeking coverage must submit an application
to the SHOP. The SHOP must process the applications, and if the employer and employees are
determined eligible, the SHOP must facilitate the enrollment of qualified employees into QHPs
offered through the SHOP.
A qualified employee is an employee who receives an offer of coverage from a qualified
employer. A qualified employer is a small group employer45 that elects to make, at a minimum, all
full-time employees eligible for one or more QHPs offered in the small group market through an
exchange, and has its principal business in the exchange service area or offers coverage to each
eligible employee through the SHOP serving the employee’s worksite.46
The SHOP is required to verify applicants’ eligibility as outlined in regulation.47 The SHOP must
permit an employer to purchase coverage for employees at any time during the year, but the
employer’s plan must consist of a 12-month period beginning with the employer’s effective date

45 Before 2016, states will have the option to define “small employers” either as those with 100 or fewer employees or
50 or fewer employees. Beginning in 2016, small employers will be defined as those with 100 or fewer employees.
46 Beginning in 2017, a state may also allow an issuer of coverage in the large group market to offer QHPs in the large
group market through an exchange. If that is the case, then a qualified employer would also include an employer in the
large group market.
47 77 Federal Register 18310, March 27, 2012.
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of coverage. Employees must adhere to annual open enrollment periods as determined by the
SHOP, with special allowances for newly qualified employees.
Employers are not required to offer all the plans in an exchange to their employees. The SHOP
must allow an employer to limit the selection of plans.48 An employer who uses the SHOP is not
required to contribute to employees’ premiums; additionally, neither ACA nor regulations specify
whether a SHOP can require a minimum contribution from employers.49
Plan Management Responsibilities
Exchanges are required to ensure that QHPs are certified.50 An exchange may certify a plan as a
QHP if the plan meets the required minimum criteria and if the exchange determines that it is in
the best interest of qualified individuals and employers to have such a plan available.51 The
minimum certification criteria outlined in ACA and further defined through regulation include
requirements related to marketing, choice of providers, plan networks, accreditation,52 and other
features.53
In addition to certifying QHPs, an exchange must establish processes for recertification and
decertification of QHPs. The recertification process, at a minimum, must include a review of the
general certification criteria and must be completed on or before September 15 of the applicable
calendar year. The decertification process must, at a minimum, include the following
requirements: the ability for an exchange to decertify a plan at any time if the exchange
determines that the QHP no longer meets the certification requirements; an exchange must
establish a process for the appeal of a decertification; and an exchange must provide a notice of
the decertification to all affected parties, including the QHP issuer, the exchange enrollees, HHS,
and the state insurance department.
An exchange has additional plan management functions. For example, the exchange must require
plans seeking certification as QHPs to submit justification for premium increases before it takes
effect, and the plans will have to post the information about their premium increases on their
websites.54 Also, the HHS Secretary is required to create a system that rates QHPs on the basis of

48 Ibid. If a state merges its individual and small group risk pools, as is allowed under §1312(c)(3) of ACA, then the
SHOP may permit an employee to enroll in any QHP (including one offered in the individual market), as long as the
QHP meets certain requirements for small group market plans.
49 This information was confirmed through correspondence with analysts from the Center for Consumer Information
and Insurance Oversight (CCIIO) in September 2012.
50 §1311(d)(4)(A) of ACA.
51 Except that, according to §1311(e)(1)(B) of ACA, the exchange may not exclude a plan because it is a fee-for-service
plan, through the imposition of price controls, or on the basis that the plan provides treatments necessary to prevent
patients’ deaths in circumstances the exchange determines are inappropriate or too costly.
52 In the final regulation on entities for the accreditation of exchange plans, HHS stated that the National Committee for
Quality Assurance and URAC (formerly known as the Utilization Review Accreditation Commission) would serve as
accrediting entities during the first phase of the accrediting process. HHS will consider other accrediting bodies and
individual states at a later time. 77 Federal Register 42662, July 20, 2012.
53 §1311(c)(1) of ACA and 77 Federal Register 18310, March 27, 2012.
54 §1311(e)(2) of ACA.
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relative quality and price. An exchange is expected to assign a rating to each QHP according to
the HHS Secretary’s criteria and provide the quality rating information through its website.55
Consumer Assistance and Accountability
Exchanges have a number of responsibilities related to assisting consumers in accessing and
obtaining coverage, including providing tools to help consumers access the exchange, helping
consumers determine which plan or program to enroll in, and helping consumers determine their
potential financial responsibility for a QHP offered through an exchange.56 Additionally,
exchanges are expected to adhere to accountability practices to increase an exchange’s
transparency.
The following are some of an exchange’s responsibilities related to assisting consumers and being
accountable to stakeholders, including consumers. An exchange must
• Provide for operation of a toll-free telephone hotline that addresses the needs of
consumers requesting assistance and informs individuals with disabilities and
limited English proficiency of the availability of services to assist them.
• Maintain a website which, among other things, provides standardized
comparative information on each QHP available through the exchange and
allows qualified individuals to select a QHP in which to enroll.57
• Make available an electronic calculator (through its website) that facilitates the
comparison of available QHPs (including the impact of any advance payments of
tax credits and cost-sharing subsidies in the individual exchange and the impact
of any employer contribution in the SHOP exchange).
• Conduct outreach and education activities that will educate consumers about the
exchange and insurance affordability programs (IAPs) to encourage
participation.58
• Establish a Navigator program with grants to eligible individuals and entities to
provide information about the exchange and help individuals select a QHP.
Navigators are also required to conduct activities to raise awareness of an
exchange.59

55 §1311(d)(4) of ACA. In the final rule on the establishment of exchanges (77 Federal Register 18310, March 27,
2012) it is indicated that the rating system will be addressed in future rulemaking.
56 HHS more specifically describes the consumer assistance functions of federally-facilitated exchanges, including
partnerships, in guidance available at http://cciio.cms.gov/resources/files/
FFE_Guidance_FINAL_VERSION_051612.pdf.
57 The standard format an exchange is expected to use to present QHPs is required to include the uniform outline of
coverage as established under §2715 of the PHSA (§1001 of ACA). For more information about the uniform outline of
coverage, see CRS Report R42069, Private Health Insurance Market Reforms in the Patient Protection and Affordable
Care Act (ACA)
, by Annie L. Mach and Bernadette Fernandez.
58 The final rule on exchange establishment (77 Federal Register 18310, March 27, 2012) does not specify the content
or quantity of these outreach and education activities, but it does require that the activities must be accessible to all
audiences, including to individuals with disabilities and those with limited English proficiency.
59 §1311(i) of ACA and 77 Federal Register 18310, March 27, 2012.
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• Include results on its website from the Secretary’s survey on enrollee satisfaction
with the QHPs offered through the exchange, in a manner that allows for easy
comparisons of enrollee satisfaction levels.60
• Regularly consult with stakeholders regarding the accessibility and
administration of an exchange. These stakeholders include enrollees of QHPs;
individuals and entities with experience in facilitating enrollment in health
insurance coverage; advocates for hard to reach populations (e.g., individuals
with substance abuse problems); small businesses, large employers, and self-
employed individuals; state Medicaid and CHIP agencies; federally recognized
Tribes; public health experts; issuers; and health insurance agents and brokers.61
• Share financial information on its website, regarding: any regulatory fees or other
payments required by the exchange; administrative costs of the exchange; and
monies lost to waste, fraud, and abuse.62
• Determine the role of agents and brokers in the exchange. An exchange may
allow agents and brokers to be Navigators, provided they otherwise meet the
Navigator eligibility criteria.63 An exchange may also allow agents and brokers to
enroll individuals and employers in QHPs offered through an exchange if the
agents and brokers meet certain requirements.64
Financial Management
Exchanges are responsible for financial management and are expected to be self-sustaining by
2015. They have been given authority to generate funding to support their operations; however,
while the law and regulation describe this authority, neither specify how an exchange may or may
not generate funding.65 An example provided in regulation is that exchanges could charge
participating issuers assessments or user fees.66
Exchanges are expected to play a role in collecting premiums and distributing the premiums to
issuers. ACA requires exchanges to perform certain functions relating to financial oversight and
integrity, including keeping an accurate accounting of all financial activities and submitting a
report annually to the HHS Secretary concerning such accountings. Exchanges are also required
to cooperate with investigations into the affairs of exchanges, conducted by the HHS Secretary in
coordination with HHS Inspector General.67

60 §1311(c)(4) of ACA. The survey is only for those QHPs that had more than 500 enrollees in the previous year. To
date, HHS has not released any information about this survey.
61 §1311(d)(6) of ACA.
62 §1311(d)(7) of ACA.
63 77 Federal Register 18310, March 27, 2012.
64 Ibid.
65 §1311(d)(5) of ACA.
66 77 Federal Register 18310, March 27, 2012.
67 §1313 of ACA.
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ACA Risk Mitigation Programs
Exchanges are expected to deal with the potential for adverse selection. Adverse selection occurs when a large
number of individuals who expect or plan for high use of health services enrol in more generous and often more
expensive health plans (i.e., a woman who plans to become pregnant switches from a plan with less generous
maternity benefits to a plan with more generous maternity benefits), while simultaneously individuals who expect
or plan for low use of health services enrol in more modest plans, both in terms of price and benefits. Adverse
selection can lead to health plans that have risk pools with a large number of high-cost individuals, which can lead
to higher costs for individuals in the pool, and in extreme instances, possible dissolution of the pool due to an
increasingly expensive risk pool.
ACA establishes three risk programs to help mitigate the potential impact of adverse selection: reinsurance, risk
corridors, and risk adjustment. The first two programs are temporary and are intended to provide some
protection against risk in the short term before a ful risk adjustment program can be developed. None of the
programs are specific to exchanges; rather, they are tools that can be used both inside and outside the exchanges
to mitigate the impact of adverse selection. For more information about ACA’s risk programs, see a.
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. Many of
these responsibilities require federal agencies to create systems and criteria. For example, the
HHS Secretary is required to develop the minimum criteria an exchange will use to certify QHPs
to be offered through an exchange.68 The HHS Secretary is also required to grant financial awards
to states to be used to establish exchanges.
Federal Oversight
Federal agencies, primarily HHS, have oversight and other responsibilities for exchanges. These
responsibilities not only relate to the general operation of the exchange, but they also relate to
how an exchange is expected to share information and coordinate its duties with federal agencies.
It is beyond the scope of this report to detail all of the responsibilities ACA gives to federal
agencies;69 however, the following are general examples of duties required of federal agencies.
Other examples are included in this report, where appropriate.
• The HHS Secretary is required to promulgate regulations relating to, among other
things, setting standards for the establishment and operation of exchanges, the
offering of QHPs through exchanges, and the establishment of the reinsurance
and risk adjustment programs established by ACA.70

68 These criteria are included in the final rule related to the establishment of exchanges (77 Federal Register 18310,
March 27, 2012).
69 For an overview of the rulemaking authority given to federal agencies under ACA, see CRS Report R42431,
Upcoming Rules Pursuant to the Patient Protection and Affordable Care Act: Fall 2011 Unified Agenda, by Maeve P.
Carey and Michelle D. Christensen.
70 §1321(a)(1) of ACA.
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• The HHS Secretary is expected to coordinate efforts between the exchange and
other federal agencies (such as the Social Security Administration) to verify
information collected by the exchange from applicants and related to eligibility
for the exchange and other programs (e.g., premium tax credits).71
• The HHS Secretary is expected, through consultation with other entities (such as
the National Association of Insurance Commissioners), to develop and maintain
tools and set minimum standards for tools that exchanges may use to assist
consumers with accessing the exchange.72
Federal Financial Assistance
While exchanges are expected to be self-sufficient by 2015, there is some limited federal
assistance provided to states to help them as they develop their exchanges.73 ACA requires the
HHS Secretary to award planning and establishment grants to states for the purposes of activities
related to establishing exchanges.74 ACA gives the HHS Secretary the authority to determine the
amount of the grants and to renew the grants if a state is making sufficient progress toward
establishing an exchange. No planning and establishment grant may be awarded after December
31, 2014.75
Planning grants were given to 49 states and the District of Columbia.76 These grants of up to $1
million each were intended to provide resources to states to help them conduct research and
planning related to establishing exchanges. Establishment grants have also been awarded to a
number of states. Level one establishment grants are annual awards to states that are still in the
initial phases of developing exchanges, and level two establishment grants are multi-year awards
intended to assist states that have made significant progress in implementation of exchanges. To
date, 34 states and the District of Columbia have received level one grants, and 11 states and the

71 §1411(c) of ACA.
72 §1311 of ACA.
73 The CRS Congressional Distribution (CD) memorandum, “Patient Protection and Affordable Care Act: Health
Insurance Exchange Planning and Establishment Grants” by C. Stephen Redhead and Annie L. Mach, includes a table
that shows the federal grants (discussed in this section) that have been awarded to each state and the District of
Columbia. The memorandum is available upon request from the memorandum’s authors.
74 §1311(a) of ACA. Some contend that the law does not contain explicit appropriation authority for the operation of
federally-facilitated exchanges, as §1311 only says that the Secretary may award planning and establishment grants to
states. However, in regard to the federally-facilitated exchange, the law does say that, “…the Secretary shall (directly
or through agreement with a not-for-profit entity) establish and operate such exchange within the state and the
Secretary shall take such actions as are necessary to implement such other requirements” (§1321(c)(1)(B)).
75 All exchanges are expected to be self-sustaining by January 1, 2015. In guidance, however, HHS clarified that
planning and establishment grants awarded through December 31, 2014, may be used for approved establishment
activities after that date. For more information, see http://cciio.cms.gov/resources/files/Files2/11282011/
exchange_q_and_a.pdf.pdf.
76 Alaska is the only state that did not apply for a planning grant. Three states, Florida, Louisiana, and New Hampshire,
have stated that they plan to return some or all of their planning grant funds. For more information about which states
have received grants, see http://www.healthcare.gov/news/factsheets/2011/05/exchanges05232011a.html.
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District of Columbia have received level two grants.77 In total, the states and the District of
Columbia have received about $3.5 billion in establishment grants.78
The HHS Secretary is also required to award grants to eligible entities to help them develop and
adapt technology systems to be used by an exchange to determine eligibility and process
enrollment.79 These “early innovator” grants were given to seven entities to help them design and
implement the information technology infrastructure needed to operate an exchange.80 The grants
were awarded to entities that have “demonstrated their technical expertise and ability to develop
these IT systems on a fast track schedule, and their willingness to share design and
implementation solutions with other states.”81 The seven entities combined have received more
than $249 million in early innovator grants.82
Coverage Offered through the Exchanges
Most private health insurance plans sold through exchanges must include a comprehensive set of
benefits. The law specifies standards for the types and levels of coverage that can be offered
through 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).83 These requirements will
become effective beginning in 2014, to dovetail with the establishment of exchanges. The
following discusses them in greater detail.

77 The 34 states that have received a level one grant so far are: AL, AZ, AR, CA, CO, CT, DE, HI, ID, IL, IN, IA, KY,
ME, MD, MA, MI, MN, MS, MO, NE, NV, NJ, NM, NY, NC, OR, PA, RI, SD, TN, VT, WA, WV, and D.C. The
states that have received level two grants, to date, are CA, CT, KY, MA, MD, NV, NY, OR, RI, VT, WA, and D.C.
78 For more information, see CRS Congressional Distribution Memo, “Patient Protection and Affordable Care Act:
Health Insurance Exchange Planning and Establishment Grants,” by Annie L. Mach and C. Stephen Redhead. The
memorandum is available to congressional staff upon request from the authors.
79 §1561 of ACA: §3021 of PHSA.
80 The seven grantees are Kansas, Maryland, New York, Oklahoma, Oregon, Wisconsin, and a multi-state consortium
led by the University of Massachusetts Medical School (which includes Connecticut, Maine, Massachusetts, Rhode
Island, and Vermont). Three states, Kansas, Oklahoma, and Wisconsin, have since stated their intention to return some
or all of the grant. For more information, see http://www.cbpp.org/files/CBPP-Analysis-on-the-Status-of-State-
Exchange-Implementation.pdf.
81 HealthCare.gov, “States Leading the Way on Implementation: HHS Awards “Early Innovator” Grants to Seven
States,” press release, February 16, 2011, http://www.healthcare.gov/news/factsheets/2011/02/
exchanges02162011a.html.
82 Center for Consumer Information and Insurance Oversight, “Affordable Insurance Exchanges: Update and
Upcoming Implementation Forums,” press release, May 16, 2012, http://cciio.cms.gov/resources/factsheets/
affordable_insurance_exchanges.html.
83 §1302(a)-(d) of ACA.
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Essential Health Benefits
ACA does not explicitly list the benefits that comprise essential health benefits (EHBs). Instead,
the law identifies 10 broad benefit categories which must be included in EHBs, at a minimum:
• ambulatory patient services;
• emergency services;
• hospitalization;
• maternity and newborn care;
• mental health and substance use disorder services, including behavioral health
treatment;
• prescription drugs;
• rehabilitative and habilitative services and devices;
• laboratory services;
• preventive and wellness and chronic disease management; and
• pediatric services, including oral and vision care.
States may impose additional benefit mandates beyond what is required under EHBs. However,
any state that requires health plans to offer benefits beyond EHBs must assume the total cost of
providing those additional benefits, for all the plans, and regardless of whether or not an
individual is receiving any financial assistance with premiums or cost-sharing. The state must
make payments either directly to the individuals enrolled in health plans affected by the state
benefit mandates, or to such plans on behalf of enrolled individuals.84
The bulk of the responsibility for defining EHBs is given to the HHS Secretary, who must then
notify the public and provide the opportunity for comment. The HHS Secretary has certain
guidelines that must be followed in developing the EHBs, including ensuring that the scope of
EHBs is equal to the scope of benefits under a “typical” employer-provided health plan (as
certified by the Chief Actuary of the Centers for Medicare & Medicaid Services), and that EHBs
meet equity and other standards specified in the law. To assist the HHS Secretary in this
determination, the law requires the Secretary of the Department of Labor (Labor) to conduct a
survey of employer-provided health coverage.85
ACA did not specify a deadline for when the Secretary is required to define EHBs. As of the
cover date of this report, HHS has not issued regulations defining EHBs; however, in a bulletin
and in proposed rules, HHS indicated that the EHBs would be defined by a benchmark plan
selected by each state.86 HHS identified four benchmark plan types that a state could use for the
purpose of defining EHBs in that state:

84 This applies to all exchange enrollees whose insurance is affected by additional state benefit mandates, not just those
exchange enrollees eligible for premium tax credits and cost-sharing subsidies. §1311(d)(3)(B) of ACA.
85 See “Selected Medical Benefits: A Report from the Department of Labor to the Department of Health and Human
Services,” Department of Labor, April 15, 2011, http://www.bls.gov/ncs/ebs/sp/selmedbensreport.pdf.
86 “Essential Health Benefits Bulletin,” Center for Consumer Information and Insurance Oversight, December 16, 2011,
p.8, http://cciio.cms.gov/resources/files/Files2/12162011/essential_health_benefits_bulletin.pdf; Department of Health
(continued...)
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• one of the three largest plans in the state’s small group health insurance market;87
• one of the three largest state employees health benefits plans;
• one of the three largest national plans offered through the Federal Employees
Health Benefits Program (FEHBP); or
• the largest commercial non-Medicaid health maintenance organization in
the state.
To assist states in this effort, HHS conducted studies that identified the largest plans (by
enrollment) for several of the benchmark plan types listed above, and documented the prevalence
of certain benefits in health plans that are currently offered.88 HHS found that the largest national
FEHBP plan, by far, is offered through Blue Cross and Blue Shield; and while small group plans
vary by state, the ones with the largest enrollment generally are offered by large, commercial
insurance carriers.
In general, HHS found that most of the EHB categories specified in ACA are consistently covered
across different health plans and insurance markets, including benefits such as doctor visits,
surgery, hospitalization, transplants, emergency department services, maternity care, mental
health and substance abuse services, therapy, medical equipment, laboratory work, preventive
care, and pediatric and child services. However, there are three EHB benefit categories that are
excluded from many private health plans: pediatric oral care, pediatric vision care, and
habilitative services. For these benefit categories, HHS proposes alternative approaches for
supplementing benchmark plans that do not cover pediatric vision/oral care or habilitative
services.89
HHS required states to specify a benchmark plan by December 26, 2012.90 Each state’s
benchmark plan will apply to their respective exchanges for plan years 2014 and 2015. HHS will
then revisit this issue for the 2016 plan year.91 The default benchmark option, the largest plan by
enrollment in the largest product in the state’s small group market, will apply in cases where a
state did not voluntarily select a benchmark plan.

(...continued)
and Human Services, “Patient Protection and Affordable Care Act; Standards Related to Essential Health Benefits,
Actuarial Value, and Accreditation; Proposed Rule,” 77 Federal Register 70644, November 26, 2012.
87 In the final regulation on data collection to support essential health benefits standards, HHS stated that it will collect
data from the insurance carriers that offer the three largest health plans (by enrollment) in the small group market
within each state. The data collection is for purposes of identifying a potential “default benchmark plan” for each state.
HHS intends to make publicly available the “information on the final state selections of benchmarks…as soon as
possible.” 77 Federal Register 42661, July 20, 2012.
88 See “Essential Health Benefits: Comparing Benefits in Small Group Products and State and Federal Employee
Plans,” Office of the Assistant Secretary for Planning and Evaluation, December 2011, http://aspe.hhs.gov/health/
reports/2011/MarketComparison/rb.shtml; “Essential Health Benefits: List of the Largest Three Small Group Products
by State,” Center for Consumer Information and Insurance Oversight, July 3, 2012, http://cciio.cms.gov/resources/files/
largest-smgroup-products-7-2-2012.pdf.PDF; and “Frequently Asked Questions on Essential Health Benefits Bulletin,”
Centers for Medicare and Medicaid Services, February 17, 2012, http://cciio.cms.gov/resources/files/Files2/02172012/
ehb-faq-508.pdf.
89 Center for Consumer Information and Insurance Oversight, Frequently Asked Questions on Essential Health Benefits
Bulletin, February 17, 2012, available at http://cciio.cms.gov/resources/files/Files2/02172012/ehb-faq-508.pdf.
90 Each state’s proposed benchmark plan is available at, http://cciio.cms.gov/resources/data/ehb.html.
91 Ibid.
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Cost-Sharing Requirements
Cost-sharing includes deductibles and co-payments for services rendered. ACA limits the amount
of cost-sharing that exchange plans generally may impose on enrolled individuals. These cost-
sharing limits prohibit
• any deductible applicable to preventive health services;
• deductibles, in small group health plans, that are greater than $2,000 for self-only
coverage, or $4,000 for any other coverage in 2014 (annually adjusted
thereafter); and
• annual cost-sharing limits that exceed existing limits specified in the tax code,
relating to certain high deductible health plans.92
Levels of Plan Generosity
Health plans that provide the essential health benefits package must tailor cost-sharing to meet
one of four levels of generosity, based on actuarial value.93 Actuarial value (AV) is a summary
measure of a plan’s generosity, expressed as the percentage of medical expenses estimated to be
paid by the issuer for a standard population and set of allowed charges. In other words, AV
reflects the relative share of cost-sharing that may be imposed. On average, the lower the AV, the
greater the cost-sharing.94
Each level of plan generosity is designated according to a precious metal and corresponds to a
specific actuarial value:
Levels Actuarial
Value
Bronze 60%
Silver 70%
Gold 80%
Platinum 90%
While the term actuarial value may imply a high level of precision,
actuarial analysis is inherently an estimation process and hence is somewhat inexact.
Actuarial value estimates will vary by the data sources, projection methods, and assumptions

92 The cost-sharing limits that are part of the essential health benefits package mirror the limits applicable to high-
deductible health plans (HDHPs) that qualify to be paired with health savings accounts (HSAs). For 2012, the cost-
sharing limits for HSA-qualified HDHPs are $6,050 for single coverage, and $12,100 for family coverage. Given that
the existing limits are updated annually and ACA cost-sharing requirements become effective in 2014, the cost-sharing
limits in 2014 will likely be different than the 2012 levels.
93 While actuarial value (AV) is a useful measure, it is only one component that addresses the value of any given
benefit package. AV, by itself, does not address other important features of coverage, such as total (dollar) value,
network adequacy, and premiums.
94 While actuarial value is calculated based on costs for an entire population, it does not mean that every person
enrolled in the same plan will have the same expenses, because in any given group some people use relatively little care
while others use a great deal. Given that actuarial value reflects cost-sharing, such a measure may be useful to
consumers when comparing different health plans.
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used, and there may be a reasonable range of appropriate methods and assumptions used to
develop these estimates.95
Given this, ACA requires the HHS Secretary to promulgate regulations regarding the
determination of the levels of plan generosity. The determination will be based on a benefit
package consisting of essential health benefits and a standard population. To date, HHS issued a
bulletin that described its proposed definition for actuarial value and solicited comments. In the
bulletin, HHS proposes to use a standard data set based on a countrywide standard population,
with the option for individual states to “develop State standard populations based on State claims
data.”96
Exchange Health Plans
Exchanges will offer several types of health plans, as specified in statute and regulation.
Exchange plans will provide a comprehensive set of covered benefits (i.e., the essential health
benefits), except for stand-alone dental plans (which will have to meet a narrow set of benefit
requirements). While most of these comprehensive plans will be available to any individual or
employer who is qualified to enroll in exchanges (such as multi-state QHPs and CO-OP QHPs),97
some plans will be available only to specific subpopulations (child-only QHPs and catastrophic
QHPs).98 Finally, some plans offered in exchanges may also be offered outside of exchanges.99
Qualified Health Plans
In general, exchanges will offer comprehensive coverage that meets the standards to be certified
as “qualified health plans” (QHPs),100 provided it meets requirements related to marketing, choice
of providers, plan networks, and other features, or is recognized by each exchange through which
such plan is offered.101 In addition, all QHPs are required to comply with benefit, cost-sharing,
and generosity components of the essential health benefits package (described above). In addition
to qualified health plans, exchanges will also offer multi-state QHPs, child-only QHPs, and CO-
OP QHPs (described below).102

95 “Critical Issues in Health Reform: Actuarial Equivalence,” American Academy of Actuaries, May 2009, p. 4,
available online at http://www.actuary.org/pdf/health/equivalence_may09.pdf.
96 “Actuarial Value and Cost-Sharing Reductions Bulletin,” Center for Consumer Information and Insurance Oversight,
February 24, 2012, http://cciio.cms.gov/resources/files/Files2/02242012/Av-csr-bulletin.pdf, p. 5.
97 For more information about these plan types, see the “Multi-State Plans” and the “Consumer Operated and Oriented
Plans” sections of this report.
98 For more information about these plan types, see the “Child-Only Qualified Health Plans” and the “Catastrophic
Plan” sections of this report.
99 Plans that are offered both inside and outside of exchanges must charge the same premium. In addition, ACA allows
the types of health plans that are currently offered in the private market to continue to be offered once the exchanges
have been established, as long as those other plan types comply with applicable federal and state law.
100 §1301 of ACA.
101 §1311(c) of ACA.
102 In guidance released December 10, 2012, HHS indicated that a state can allow an issuer that contracts with the
state’s Medicaid agency as a managed care organization (MCO) to offer a QHP in an exchange. The QHP would be
available on a limited-enrollment basis to certain populations, and its availability would be intended to ease
individuals’ transitions between Medicaid or CHIP and private insurance. HHS indicated that further guidance on these
“bridge” QHPs is forthcoming. For more information, see http://cciio.cms.gov/resources/files/exchanges-faqs-12-10-
(continued...)
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An issuer of QHPs must be licensed and in good standing with each state in which it offers
coverage; must offer at least one QHP each providing silver and gold levels of coverage; and
must comply with regulations applicable to exchanges. An issuer may offer QHPs outside of
exchanges as well as inside, but the premiums would have to be the same, even if the QHP is sold
through an insurance agent.103
Multi-State Plans
Multi-state plans (MSPs) are designed to offer nationally available QHPs, so that individuals and
small businesses will all have access to these plans, regardless of where they live. The Director of
the Office of Personnel Management (OPM) will enter into contracts with issuers to offer at least
two MSPs ultimately through every exchange in all the states.104 Any individual eligible to
purchase insurance through the exchange may enroll in an MSP. Enrollment is voluntary, and
individuals may be eligible for premium credits and cost-sharing assistance.
Each contract for an MSP will be for at least one year and can be automatically renewed if neither
party provides notice to terminate. At least one contract will be with a nonprofit entity, and at
least one contract cannot provide coverage for abortion services.105 The OPM Director will enter
into a contract with an issuer if the issuer offers the plan in at least 60% of states in the first year,
at least 70% in the second year, at least 85% in the third year, and in all states thereafter.
An issuer offering a MSP must meet certain requirements and adhere to certain policies. For
example, an issuer offering a MSP must meet the requirements in every state’s exchange, offer a
uniform benefits package in each state consisting of the essential health benefits, and comply with
the minimum standards prescribed for carriers offering health benefits plans under the Federal
Employees Health Benefits Program (FEHBP).106 However, unlike other QHPs offered through
an exchange, which are regulated by a state, MSPs will be licensed by states, but regulated by
OPM. For example, OPM has the authority to certify, recertify, and decertify MSPs for
participation in an exchange. If OPM certifies an MSP, the MSP is deemed certified to participate
in every state’s exchange.107
Child-Only Qualified Health Plans
ACA requires an issuer that offers a QHP through an exchange to also offer that plan as a “child-
only plan.”108 Child-only plans will provide QHP coverage for individuals who are less than 21
years of age. The final regulation on exchanges stated that a child-only plan must be provided at

(...continued)
2012.pdf.
103 §1301(a)(1)(C)(iii) of ACA; and 77 Federal Register 18415, March 27, 2012.
104 §1334 of ACA.
105 §1334(a) of ACA.
106 OPM administers FEHBP and, among other duties, is authorized to negotiate benefit and premium levels with health
plans that participate in FEHBP. For more information about OPM’s role in FEHBP, see CRS Report RS21974,
Federal Employees Health Benefits Program (FEHBP): Available Health Insurance Options, by Annie L. Mach.
107 77 Federal Register 18310, March 27, 2012. To date, OPM has not yet promulgated regulations related to MSQHPs.
108 §1302(f) of ACA.
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the same level of coverage (bronze, silver, gold, or platinum) as a qualified health plan, as
specified in the law.109
Consumer Operated and Oriented Plans
ACA establishes the Consumer Operated and Oriented Plan (CO-OP) program, with an intent to
“foster the creation of qualified nonprofit health insurance issuers to offer qualified health plans
in the individual and small group markets in the states in which the issuers are licensed to offer
such plans.”110 ACA gives the HHS Secretary the authority to grant start-up and solvency loans to
non-profit organizations applying to become qualified issuers.
Health plans offered by a CO-OP loan recipient may be deemed certified as a CO-OP QHP; if a
plan is deemed a CO-OP QHP, then an exchange must recognize the plan as eligible to participate
in an exchange. CO-OP QHPs are eligible to participate in an exchange for two years and may be
recertified every two years after that for up to 10 years following the life of any loan awarded. To
be deemed certified, a CO-OP QHP must comply with the following: standards for certifying
QHPs; all state-specific standards established by an exchange for QHPs operating in that state
(except where those standards operate to exclude loan recipients due to being new issuers or
based on characteristics that are inherent to being a CO-OP); and the standards of the CO-OP
program as set forth in the law and the final rule relating to the CO-OP program.111 CMS, or an
entity designated by CMS, has the authority to deem CO-OP QHPs as certified to participate in an
exchange.
CO-OP loan recipients must offer a CO-OP QHP at the silver and gold levels in every individual
market exchange that serves the geographic regions in which the CO-OP loan recipient is licensed
and intends to provide health care coverage. If offering at least one plan in the small group
market, CO-OP loan recipients must offer a CO-OP QHP at both the silver and gold levels in each
SHOP that serves the geographic regions in which the entity is offering coverage. This indicates
that CO-OP QHPs will be offered in at least the individual market in every exchange that shares a
geographic region with a CO-OP loan recipient.112 Individuals who enroll in CO-OP QHPs
offered through the individual market are eligible for premium tax credits and cost-sharing
subsidies.
The HHS Secretary began awarding CO-OP program loans in January 2012; as of December 21,
2012, 24 non-profits in 24 states had received loans.113 On January 2, 2013, the American
Taxpayer Relief Act of 2012 (P.L. 112-240) was enacted. The Act included a provision that

109 77 Federal Register, 18469, March 27, 2012.
110 §1322(a)(2) of ACA.
111 §1322 of ACA and 76 Federal Register 77392, December 13, 2011.
112 According to the final rule on CO-OPs (76 Federal Register 77392, December 13, 2011), only two-thirds of plans
offered by CO-OP loan recipients must be CO-OP QHPs offered in the individual and small group markets, indicating
that CO-OP loan recipients may offer health plans that will not necessarily be available in the individual and small
group markets, whether inside or outside an exchange (i.e., Medicare managed care plans).
113 Non-profit entities in the following states have received CO-OP program loans: AZ, CO, CT, IA, IL, KY, LA, MA,
MD, ME, MI, MT, NE, NJ, NM, NV, NY, OH, OR, SC, TN, UT, VT, WI. For more information, see
http://www.healthcare.gov/news/factsheets/2012/02/coops02212012a.html.
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rescinded nearly all unobligated funding for the CO-OP program. The only funding that was not
rescinded was an amount set aside for governance and oversight of loans already awarded.114
Catastrophic Plan
Issuers may offer catastrophic plans in the exchanges,115 which will have actuarial values less
than what is required to meet any of the levels of plan generosity for qualified health plans
(described above). These plans are expected to have lower premiums, because they will have less
generous coverage and higher cost-sharing. Catastrophic plans must
• be available only to individuals under 30 years of age, or individuals exempt
from the individual mandate,116 because they do not have access to affordable
coverage or experienced a hardship;
• include coverage for “essential health benefits”;
• include coverage for at least three primary care visits;
• have a deductible equal to existing cost-sharing limits specified in the tax code,
relating to certain high deductible health plans117 (the deductible will not apply to
“preventive health services”);118 and
• be offered only through the individual health insurance market.
Stand-Alone Dental Benefits
ACA allows issuers to offer stand-alone dental benefits through the exchanges, as long as such
benefits include pediatric oral services (as specified under the essential health benefits
provision).119 The final exchange regulation clarifies that stand-alone dental benefits may be
offered in a plan separate from a qualified health plan, or in conjunction with a QHP, as specified
in the law. Exchanges may not limit the offer of stand-alone dental benefits to only one of these
two options. In other words, issuers have sole discretion regarding (1) whether they will offer
stand-alone dental benefits, and (2) the form in which those benefits will be provided (separate
from or in conjunction with a QHP).

114 §644 of the American Taxpayer Relief Act of 2012.
115 §1302(e) of ACA.
116 Beginning in 2014, ACA requires individuals to maintain health insurance, with some exceptions. For additional
information about this provision, see CRS Report R41331, Individual Mandate and Related Information Requirements
under ACA
, by Janemarie Mulvey and Hinda Chaikind.
117 The deductible for exchange catastrophic plans mirror the cost-sharing limits applicable to high-deductible health
plans (HDHPs) that qualify to be paired with health savings accounts (HSAs). For 2012, the cost-sharing limits for
HSA-qualified HDHPs are $6,050 for single coverage, and $12,100 for family coverage. Given that the existing limits
are updated annually and the exchanges become operational in 2014, the deductible for exchange catastrophic plans in
2014 will likely be different than the 2012 HDHP/HSA limits.
118 §1001 of ACA; Section 2713 of the Public Health Service Act.
119 §1311(d)(2)(B)(ii) of ACA.
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Cost Assistance
To make exchange coverage more affordable, certain individuals will receive premium assistance
in the form of federal tax credits.120 (As specified in the law, the Treasury Department will send
monthly payments to the insurance company which issues the health plan in which a credit
recipient is enrolled, to cover all or part of that person’s monthly premium.)121 Moreover, some
recipients of premium credits may also receive subsidies towards cost-sharing expenses.122
Exchanges have some responsibilities, as outlined below, in regard to determining an individual’s
eligibility for cost assistance and calculating the amount of cost assistance provided.
Premium Tax Credits
New federal tax credits were authorized in ACA to help low-middle income individuals pay for
exchange coverage, beginning in 2014. The premium credit will be an advanceable, refundable
tax credit, meaning tax filers need not wait until the end of the tax year in order to benefit from
the credit (advance payments will actually go directly to the issuer),123 and may claim the full
credit amount even if they have little or no federal income tax liability.
To be eligible for a premium credit in an exchange, an individual must
• have household income124 between 100% and 400% of the federal poverty level,
with exceptions;125
not be eligible “minimum essential coverage”126 other than:
• through the individual health insurance market; or
• employer-sponsored insurance that is “unaffordable” or does not provide
minimum value”; 127

120 §1401 of ACA.
121 While a premium credit recipient could choose to wait until the end of the tax year to claim the credit, as part of
filing federal income taxes, the most likely scenario is for that individual to choose to receive the tax credit in the form
of advanced payments, to coincide with the monthly payment of insurance premiums.
122 §1402 of ACA.
123 §1412(a)(3) of ACA.
124 Household income is measured according to the current tax definition for “modified adjusted gross income”
(MAGI). For a comprehensive discussion about MAGI and ACA, see CRS Report R41997, Definition of Income in
ACA for Certain Medicaid Provisions and Premium Credits
, coordinated by Janemarie Mulvey.
125 An exception is made for lawfully present aliens with income below 100% of the FPL, who are ineligible for
Medicaid for the first five years that they are lawfully present. These taxpayers will be treated as though their income is
exactly 100% of FPL for purposes of the premium credit.
126 The definition of minimum essential coverage is broad. It includes Medicare Part A, Medicaid, the State Children’s
Health Insurance Program (CHIP), Tricare, the TRICARE for Life program, the veteran’s health care program, the
Peace Corps program, a government plan (local, state, federal) including the Federal Employees Health Benefits
Program (FEHBP) and any plan established by an Indian tribal government, any plan offered in the individual, small
group or large group market, a grandfathered health plan, and any other health benefits coverage, such as a state health
benefits risk pool, as recognized by the HHS Secretary in coordination with the Treasury Secretary.
127 ACA considers an employer-sponsored plan “unaffordable” if the employee’s premium contribution to the
employer’s self-only plan exceeds 9.5% of household income. An employer-sponsored plan does not provide
“minimum value” if it covers less than 60% of total allowed costs (on average).
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• be enrolled in an exchange plan; and
• be part of a tax-filing unit.
The amount of the tax credit will vary from person to person: it depends on the household income
of the tax filer (and dependents), the premium for the exchange plan in which the tax filer (and
dependents) is (are) enrolled, and other factors. In certain instances, the credit amount may cover
the entire premium and the tax filer pays nothing towards the premium. In other instances, the tax
filer may be required to pay part (or all) of the premium.128
Exchanges are responsible for either determining an individual’s eligibility for advance payment
of premium credits or implementing a determination made by HHS.129 If an exchange makes the
determination, then the exchange is also responsible for calculating the amount of the credit in
accordance with Section 36B of the Internal Revenue Code.
Cost-Sharing Subsidies
Certain individuals who are eligible for premium credits in the exchanges will also be eligible for
subsidies towards service-related cost-sharing. (According to guidance issued by HHS, the
federal government will provide monthly payments to the issuer of the health plan in which the
subsidy recipient is enrolled, to reduce the amount of cost-sharing that individual would be
responsible for when s/he uses health services.)130 An individual who qualifies for the premium
credit and is enrolled in a silver plan131 through an exchange, will also be eligible for a cost-
sharing subsidy. As discussed above, total cost-sharing in exchange plans will be limited
according to amounts specified in the federal tax code.132 Given that most exchange plans will
already be required to meet such limits, the cost-sharing subsidies will further reduce the total
amount those individuals who qualify for the subsidies will pay for using health services.133
Exchanges are required to either determine an individual’s eligibility for cost-sharing subsidies or
implement a determination made by HHS.134 To do this, an exchange is expected to collect and
verify the information necessary to make the determination and share that information with HHS.

128 For a comprehensive discussion of the premium tax credits, including illustrative examples of possible credit
amounts, see CRS Report R41137, Health Insurance Premium Credits in the Patient Protection and Affordable Care
Act (ACA)
, by Bernadette Fernandez and Thomas Gabe.
129 See the “Eligibility for Premium Tax Credits and Cost-Sharing Subsidies” section in this report for more
information.
130 This proposed approach for implementing the cost-sharing subsidies was discussed in a bulletin issued by HHS:
“Actuarial Value and Cost-Sharing Reductions Bulletin,” February 24, 2012, - http://cciio.cms.gov/resources/files/
Files2/02242012/Av-csr-bulletin.pdf.
131 See previous discussion of precious metal designations for exchange plans under the section “Levels of Plan
Generosity” in this report.
132 The cost-sharing limits that are part of the essential health benefits package mirror the limits applicable to high-
deductible health plans (HDHPs) that qualify to be paired with health savings accounts (HSAs). For 2012, the cost-
sharing limits for HSA-qualified HDHPs are $6,050 for single coverage, and $12,100 for family coverage. Given that
the existing limits are updated annually and ACA cost-sharing requirements become effective in 2014, the cost-sharing
limits in 2014 will likely be different than the 2012 levels.
133 For additional information about the cost-sharing subsidies, including illustrative examples, see CRS Report
R41137, Health Insurance Premium Credits in the Patient Protection and Affordable Care Act (ACA), by Bernadette
Fernandez and Thomas Gabe.
134 See the “Eligibility for Premium Tax Credits and Cost-Sharing Subsidies” section in this report for more
(continued...)
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Interaction with Other ACA Provisions
Individual Mandate
Beginning in 2014, most individuals are required to have health insurance or potentially pay a
penalty for noncompliance.135 Generally, individuals will be required to maintain “minimum
essential coverage” for themselves and their dependents.136 Nearly all plans offered through
exchanges qualify as minimum essential coverage. As follows, most individuals who have
coverage through an exchange will meet the requirements of the individual mandate. Other
coverage, such as employer-sponsored insurance and Medicaid, is also considered minimum
essential coverage for the purpose of the individual mandate, so an individual does not have to
enroll in an exchange plan to meet the requirements of the mandate.
Certain individuals will be exempt from the individual mandate. For example, some individuals
will qualify for an exemption based on the affordability of coverage while others will qualify
because of their religious beliefs. In screening applicants for eligibility for QHPs and IAPs,
exchanges are required to determine whether an individual is exempt from the mandate and issue
certificates of exemption accordingly.137
Employer Requirements
While employers are not required to offer health benefits to their employees, certain large
employers may be subject to penalties whether or not they offer health insurance. Large
employers who do not offer health insurance may be subject to penalties if any of their full-time
workers enroll in exchange plans and receive premium credits. While most employers who do
offer health benefits will meet the law’s requirements, some also may be required to pay a penalty
if any of their full-time workers receive a premium credit.138
In the latter scenario, one way that workers with an employer offer of health benefits may be
eligible for premium credits is if the employer plan does not provide minimum value; that is, has

(...continued)
information.
135 The constitutionality of the individual mandate has been the centerpiece of numerous legal challenges to ACA. In
March of 2012, the United States Supreme Court heard arguments related to the constitutionality question, along with
other legal issues. On June 28, 2012, the Court issued its decision in National Federation of Independent Business v.
Sebelius
, finding that the individual mandate in §5000A of the Internal Revenue Code (as added by §1501 of the
Patient Protection and Affordable Care Act (ACA)), is a constitutional exercise of Congress’s authority to levy taxes.
For additional discussion about the Court’s decision, the individual mandate, and other ACA issues, see the CRS Legal
Sidebar posts under “Health and Medicine,” http://www.crs.gov/analysis/legalsidebar/pages/default.aspx?source=
legalSidebar.
136 For a list of the types of coverage that qualify as “minimum essential coverage” and additional information about
the individual mandate see CRS Report R41331, Individual Mandate and Related Information Requirements under
ACA
, by Janemarie Mulvey and Hinda Chaikind.
137 In the final rule on exchange establishment (77 Federal Register 18310, March 27, 2012), HHS indicated that in
future rulemaking it will address the process exchanges will use to provide certificates of exemption.
138 For additional information about employer requirements under ACA, see CRS Report R41159, Summary of
Potential Employer Penalties Under the Patient Protection and Affordable Care Act (PPACA)
, by Janemarie Mulvey.
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an actuarial value that is less than 60%.139 So while employers are not required to offer coverage
through the exchanges, certain large employers may be subject to a penalty if they offer coverage
with an actuarial value lower than a bronze-level plan and one of their full-time workers enrolls in
an exchange and receives a premium credit.
Exchanges are responsible for notifying an employer if an employee has been found eligible for
advance payment of premium credits or cost-sharing subsidies. The exchange must identify the
employee, indicate the employee’s eligibility, explain that the employer may be subject to penalty,
and notify the employer of the right to appeal the determination.
Reforms to Private Health Insurance Markets
ACA includes a number of private market reforms that impose requirements on health insurance
carriers and others. Such reforms relate to the offer, issuance, generosity, and pricing of health
plans, among other requirements. For example, ACA requires most health plans to extend
dependent coverage to children under age 26, with exception.140 Given that health insurance
carriers will be offering plans through the exchanges, ACA’s private market reforms will apply to
exchange plans.141
As discussed under the “Plan Management Responsibilities” section of this report, one of the
responsibilities of exchanges will be to certify that plans meet the criteria for a qualified health
plan, and, therefore, may be offered through an exchange. While the certification process will
consider plan marketing requirements, provider network adequacy, and other features, as
specified in the law, the market reforms are requirements imposed generally on insurance
companies. Since states remain the primary regulators of health insurance, even post-ACA
enactment, states would enforce ACA insurance requirements.
Medicaid
While Medicaid is generally beyond the scope of this report, ACA’s Medicaid and exchange
provisions were originally designed to work in tandem with each other to provide a continuous
source of subsidized coverage for low- to middle-income individuals and families, beginning in
2014. As previously discussed, exchanges are responsible for facilitating enrollment in Medicaid.
As originally enacted, ACA required states to expand Medicaid to certain individuals who are
under age 65 with income up to 133%142 of the federal poverty level (FPL), beginning in 2014.
This reform not only expanded eligibility to a group that generally is not eligible for Medicaid
(low-income childless adults), but also raised Medicaid’s mandatory income eligibility level for
certain existing groups to 133% of the FPL. States were required to do this mandatory expansion
as a condition of receipt of Medicaid federal financial participation. Given that premium credits

139 §1401(a) of ACA; adding a new §36B(c)(2)(C) to the Internal Revenue Code.
140 For additional information about ACA’s private market reforms, see CRS Report R42069, Private Health Insurance
Market Reforms in the Patient Protection and Affordable Care Act (ACA)
, by Annie L. Mach and Bernadette
Fernandez.
141 Note that ACA does not prohibit such carriers from offering coverage outside of exchanges – see §1312 (d)(1)(A) of
ACA.
142 In addition, there is a 5% income disregard, so that the effective limit is 138% of the FPL.
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would be available through all state exchanges at the same time as this Medicaid expansion, the
law envisioned that all individuals with income up to 400% FPL would have access to subsidized
coverage, regardless of their state of residency.
On June 28, 2012, the United States Supreme Court issued its decision in National Federation of
Independent Business v. Sebelius
. The Court held that the federal government cannot terminate
current Medicaid program federal matching funds if a state refuses to expand its Medicaid
program to include non-elderly, non-pregnant adults under 133% of the federal poverty level. If a
state accepts the new ACA Medicaid expansion funds, it must abide by the new expansion
coverage rules, but, based on the Court’s opinion, it appears that a state can refuse to participate
in the expansion without losing any of its current federal Medicaid matching funds. All other
provisions of ACA, including the entire Health Care and Education Reconciliation Act (HCERA,
P.L. 111-152), remain intact. Given that some states may choose not to expand Medicaid, there is
a possibility that some individuals will not have access to either Medicaid or the premium tax
credits.
Regardless of whether or not a state expands its Medicaid program, the rules for coordination and
facilitating enrollment between exchange plans and Medicaid will still apply. For example, an
individual exchange may decide to determine eligibility for Medicaid.143 If a person who has
applied for exchange coverage is determined eligible for Medicaid, the individual exchange must
enroll the person in Medicaid and share the person’s information with the state Medicaid agency.

143 For more information about Medicaid, see the “Eligibility for Medicaid and CHIP” section of this report.
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Appendix A. Selected Exchange Implementation
Dates

Table A-1. Selected Upcoming Exchange Implementation Dates
Date Requirement

December 14, 2012
States seeking to administer a state-based exchange must submit a declaration
letter and an exchange blueprint application no later than this date to be
considered for exchange approval by January 1, 2013.
December 26, 2012
States must specify a benchmark plan to serve as the reference plan for the
essential health benefits (EHB) for coverage years 2014 and 2015.a The default
benchmark option, the largest plan by enrol ment in the largest product in the
state’s small group market, will apply in cases where a state does not voluntarily
select a benchmark plan.
January 1, 2013
Each state-based exchange must be approved to operate by HHS no later than this
date in order to be operational on January 1, 2014.
February 15, 2013
States seeking to have a partnership exchange effective in 2014 must submit a
declaration letter and an exchange blueprint application no later than this date.
October 1, 2013
Open enrol ment must begin for coverage offered through an exchange for the
2014 coverage year.
January 1, 2014
Exchanges must be established and offer coverage in every state.
Source: Table prepared by CRS based on information col ected from (1) ACA (P.L. 111-148, as amended); (2)
77 Federal Register 18310; and (3) Blueprint for Approval of Affordable State-based and State Partnership Insurance
Exchanges,
at http://cciio.cms.gov/resources/files/hie-blueprint-081312.pdf; (3) Letter from Kathleen Sebelius to
State Governors, November 9, 2012, http://www.healthcare.gov/law/resources/letters/exchange-blueprint-
letter.pdf and Letter from Kathleen Sebelius to Republican Governors Association, November 15, 2012.
a. This deadline was included in the proposed rule promulgated by HHS on standards related to the EHB (77
Federal Register 70644, November 26, 2012).
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Appendix B. Risk Mitigation Programs Under ACA
Table B-1. Description of Reinsurance, Risk Corridors, and Risk-Adjustment
Provisions of ACA
Reinsurance Risk
Corridors Risk-
Adjustment
Description Reinsurance typically is
Risk corridors refer to a
Risk adjustment refers to a
thought of as insurance for
mechanism that adjusts
mechanism that adjusts
insurers. When issuing
payments to health plans
payments to health plans to
policies, an insurer faces the
according to a formula based on take into account the risk
risk that the premiums it
each plan’s actual, allowed
that each plan is bearing
col ects wil not be sufficient expenses in relation to a target
based on its enrol ee
to cover its expenses and
amount. If a plan's expenses
population. Plans with
generate profit. Reinsurance exceed a certain percentage
enrollment of less than
shifts the risk of covering
above the target, the plan's
average risk will pay an
high expenses from the
payment is increased. Likewise,
assessment to the state.
primary insurer to a
if a plan's expenses exceed a
States will provide payments
reinsurer. ACA requires all
certain percentage below the
to plans with higher than
health insurance issuers and
target, the plan's payment is
average risk.
third-party administrators of decreased. Under ACA, a QHP
group health plans to
issuer whose gains are greater
contribute to a reinsurance
than 3% of the issuer’s
program administered by a
“projections” must remit
nonprofit reinsurance entity. charges to HHS, while HHS
must make payments to a QHP
issuer that experiences losses
that are greater than 3% of the
issuer’s “projections.”
Objective
Provide funding to plans
Limit issuer loss (and gains)
Transfer funds from lowest
that enroll highest cost
risk plans to highest risk
individuals
plans
Goal
Offset high-cost outliers
Protect against inaccurate rate
Protect against adverse
setting
selection
Who
Non-grandfathered
Qualified Health Plans (QHPs)
Non-grandfathered
Participates individual market plans
in the individual and small group
individual and small group
(inside and outside of
markets (inside and outside of
market plans (inside and
exchange) are eligible for
exchange)
outside the exchange,
payments
excluding self-insured plans)
Time
Three years (2014-2016)
Three years (2014-2016)
Permanent; begins after end
Frame
of benefit year 2014
Source: CRS analysis of ACA.



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Author Contact Information

Bernadette Fernandez
Annie L. Mach
Specialist in Health Care Financing
Analyst in Health Care Financing
bfernandez@crs.loc.gov, 7-0322
amach@crs.loc.gov, 7-7825

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