Pennsylvania’s New State Insurance Exchange: Frequently Asked Questions

In July 2019, Pennsylvania passed legislation that will make it possible for the state to set up its own online health insurance marketplace by 2021. 

Why is Pennsylvania creating its own health insurance marketplace? To save millions, improve access to care, and make health care more affordable! Find answers to your frequently asked questions here.

What is the difference between the federal health insurance marketplace and a state-based insurance marketplace?

The federal health insurance marketplace, also called the marketplace or the exchange, is an online service operated by the federal government at healthcare.gov. There, people without public or employer-provided insurance can purchase individual health care coverage. 

The federal marketplace also provides health plan shopping and enrollment services through websites, call centers, and in-person help. 

A state-based insurance marketplace would be modeled after the federal marketplace and allow Pennsylvanians to purchase individual health care coverage. Instead of being operated by the federal government, this system would be run by the state of Pennsylvania.

Are states allowed to create their own versions of the federal health insurance marketplace?

The Affordable Care Act, also known as Obamacare, allows states to set up their own health insurance marketplaces. A number of states, including New York, California, and Maryland, have already opted to do so and created state-based marketplaces for their residents. 

How did Pennsylvania’s state insurance exchange come about?

In July 2019, the Pennsylvania state legislature passed House Bill 3, which established the Pennsylvania Health Insurance Exchange Fund, a state-based health insurance marketplace for Pennsylvania.

The legislation was co-sponsored by House Majority Leader Bryan Cutler, R-Lancaster, and House Minority Leader Frank Dermody, D-Allegheny. Only one lawmaker voted against the bill before it was signed into law by Governor Wolf.

What are the advantages of Pennsylvania creating its own health care exchange?

There are two main advantages to Pennsylvania creating its own exchange rather than using the existing federal marketplace:

          1.  The state saves money. 

    • Currently, insurance companies pay a fee of 3 percent of the premiums for each individual who purchases insurance through the federal exchange. Given that 400,000 Pennsylvanians purchase their insurance through the marketplace, this fee amounts to $88 million per year. When Pennsylvania creates its own online exchange, this money will remain in Pennsylvania and be used to keep premiums and out-of-pocket costs down instead of being sent to Washington, D.C.
  1. 2. The state can better control all aspects of the enrollment process, including visibility and education.
    • In recent years, the federal government has cut funding for education, outreach, and advertising for the federal exchange. When Pennsylvania has its own marketplace, the state will have greater freedom to pursue targeted outreach and education programs. This will make it easier to reach uninsured people who could benefit from coverage.

What will Pennsylvania do with the money it saves?

Pennsylvania’s state-based insurance program is expected to save the state $88 million per year. Since the state already has an information technology system in place, the Pennsylvania Insurance Department estimates the state can run its own marketplace for $30-35 million annually. This leaves approximately $55 million, which the state will use to create a reinsurance program.

What is reinsurance?

The Affordable Care Act allows states to create reinsurance programs that function similarly to a deductible. Once a claim from a very sick individual reaches a set threshold, the government must begin to pay the insurance company for part of the cost. 

Instead of the majority of individuals paying higher premiums to cover the cost of the few who are very sick, the government takes on this responsibility. This ultimately drives down consumers’ insurance premiums and out-of-pocket costs. 

What happens next?

Next, the state will begin to set up the administrative framework for its online insurance marketplace. Pennsylvania expects its insurance exchange will be fully operational by 2021.