The Exchange (aka marketplace, Obamacare) is a federal and state-run program established by the Affordable Care Act (ACA) to help individuals and small employers purchase health insurance. The program offers coverage to those who do not qualify for Medicare or Medicaid and do not have employer-provided insurance. The exchanges function as online marketplaces where individuals can compare and purchase health insurance plans, often with access to subsidies or tax credits based on income to make coverage more affordable. Some states run their own marketplaces, while others use the federal platform (HealthCare.gov).

The exchange is growing rapidly, from only 8M beneficiaries in 2014 to a record high 21M beneficiaries in 2024; however, this population size still doesn’t measure up to Medicare and Managed Medicaid (each 55M+). This population often moves into the exchange because they lost their job, have moved below the poverty line, and will likely come back above it. In one study performed in California, 41-46% of beneficiaries disenrolled in plans within one year. This transitory dynamic makes it difficult for health plans and their providers to develop long-lasting relationships that lead to cost reduction over time.

Biden-Era enhanced ACA subsidies are likely to expire in late 2025 with the new Administration. Enhanced ACA subsidies under the Biden administration halved premiums for millions and doubled enrollment, especially in Southern red states. If Congress doesn't extend them, premiums will rise by an average of 79%. The CBO projects marketplace enrollment could drop from 22.8 million in 2025 to 18.9 million in 2026, and as low as 15.4 million by 2030.

Profit margins for ACA plans have evolved significantly. Insurers initially faced losses (~10% in 2015) due to market uncertainties but adjusted over time, achieving profitability by 2017 with margins around 3.3%. More recent stable margins have been supported by improved pricing, enrollment stabilization, and regulatory adjustments. Similar to Managed Medicaid, margins are thin and risk scores are normalized to zero, limiting available gains.