In Legislation, New National Health Insurance Exchange Emerges

But in 2007, when Massachusetts became the first state in the country to require every resident to carry health insurance, the Boston-area resident found that his plan didn’t meet the state’s minimum requirements. Instead, he chose a new plan from the more than two dozen options offered through the “Connector,” the Massachusetts health insurance clearinghouse.

Now, he pays about the same amount of money each month, but gets a more comprehensive plan with a smaller deductible.

“Overall I think the process was pretty easy,” he says.

Health care analysts are paying close attention to the experiences of Silberberg and other Massachusetts residents, because Massachusetts has proved a testing ground for a concept that could emerge as a centerpiece to national health care reform: a health insurance exchange.

An exchange such as the Connector is, at its most basic, simply a marketplace where people can buy health insurance. But that marketplace can be organized in many different ways, can be given different amounts of authority, and can be open to all consumers or only to select groups.

Right now, Congress is debating the shape of a possible national health insurance exchange — with bills in the House and Senate proposing somewhat different possibilities.

Proponents of a strong health insurance exchange say that structured properly, an exchange could help stimulate competition among insurers, cut costs and increase enrollment in insurance plans.

“I’d like to see the legislation that comes out of this process really provide the exchange with the resources and authority to play a role in cost containment, risk pooling, accountability,” says Linda Blumberg, a health policy analyst at the Urban Institute think tank in Washington, D.C.

In Massachusetts, analysts are finding that the exchange — together with the individual mandate requiring almost all residents to carry health insurance — has certainly increased enrollment: About 97 percent of residents have health insurance. Cost containment, however, has been tougher — the unexpectedly high costs of the program contributed to a $9 billion shortfall in the state’s 2009 and 2010 budgets.

Eligibility Questions
One of the main decisions legislators must make is who will be eligible to participate in a national health insurance exchange. In Massachusetts, the state exchange is open to the self-employed, unemployed and employees of small businesses that don’t offer health coverage.

The proposals under consideration in Congress right now follow that model, opening the exchange mainly to the self-employed and employees of small businesses, at least at first. Employees of large companies who are offered health insurance through their workplace generally wouldn’t be eligible, even if they might prefer one of the plans offered under the exchange to their employer’s plan.

The Senate health committee bill would allow workers whose premiums are more than 12.5 percent of their income to opt in to their version of the exchange, which would be state-run purchasing pools called American Health Benefit Gateways.

Similarly, the House Democrats’ tri-committee bill would set the cutoff line for being able to opt in to its health insurance exchange – which would be nationally run — at 11 percent. The House bill would also allow anyone to opt in to the exchange who was willing to pay unsubsidized premiums. (Those not eligible for employer coverage would receive federal subsidies at incomes up to 400 percent of the poverty level, or nearly $90,000 for a family of four).

The “firewall” that keeps workers with employer coverage out of the exchange is necessary, some analysts say, to keep the employer-based insurance system intact.

“The reason big employer coverage works is because it spreads risk,” says Richard Curtis, president of the Institute for Health Policy Solutions.

If all of a company’s young, healthy workers could migrate to an exchange where they could find better, cheaper individual plans, then the company would be left with only less healthy workers and its costs would shoot up.

The trick, Curtis says, is to balance that reality against the fact that a modest-income worker who receives health insurance through an employer might face much higher costs than his unemployed neighbor who would be eligible for subsidized insurance through the exchange.

“There are a lot of people who are struggling, who maintain coverage now who really can’t afford it. So to do reform and say that we’re going to help your uninsured neighbor but not you – that’s unfair,” he says.

Determining eligibility rules also determines, indirectly, how big the exchanges will be. And the bigger the exchange, the more clout it would have in the marketplace in terms of negotiating premiums, Blumberg says

The Role of the Exchange
One of the most important potential roles of a health insurance exchange, and one way it could reduce costs, both Blumberg and Curtis say, would be to provide oversight of the health insurance market, bringing more transparency to the often-mystifying process of choosing a health insurance plan.

An exchange could collect information on insurers’ performance on claim payments, quality of provider networks and other measures.

“Right now our ability to do effective oversight is incredibly limited,” Blumberg says. “Even at the state level insurance departments, most of the attention is focused on ensuring solvency and licensing. Oversight of the marketplace is a tiny fraction.”

A health insurance exchange could also require insurers to present consumers with standardized plans, making it easier for people to compare their options.

In Massachusetts, for example, the Connector groups plans into three tiers – Gold, Silver and Bronze – based on the total percentage of medical costs covered in the plan. The Senate health committee bill follows that model, creating three tiers of coverage.

After feedback from state residents, Blumberg says, Massachusetts is moving toward even more standardized benefits packages.

Such clear, standardized information could spur competition, Curtis says: “If you structure something so that people can see cost differences, they’ll behave more like consumers in other markets.”

Any exchange would be “a vehicle to make competing plans easy to navigate,” he adds.

But beyond that, many other questions have yet to be answered about how a health insurance exchange would be organized.

The Senate health committee bill envisions state-run exchanges, the “gateways,” that would choose the plans to be offered through the exchange in that state. The House bill, on the other hand, would set up a national exchange.

In both bills, however, a national advisory committee under the department of Health and Human Services — called the Medical Advisory Committee in the Senate Bill and the Health Benefits Advisory Committee in the House — would set minimum requirements for plans that could be offered on the exchanges.

That’s a provision the U.S. Chamber of Commerce, an interest group representing U.S. business, objects to.

“Creation of an unelected but extremely powerful Medical Advisory Council that effectively dictates benefit design, defines affordability, and that is exempt from obligations, is a fundamentally flawed concept,” the group wrote in an open letter to the Senate health committee. “These decisions should remain between doctors, patients, employers, employees, and the plans they choose to purchase from.”

Overall, Blumberg says, “a well-structured exchange could play a substantial role” in effective health-care reform. But, Curtis adds, he believes it’s ultimately the market reforms set up around and within the exchange framework — an individual mandate, rules prohibiting excluding pre-existing conditions, and other reforms — that will determine how much of a difference an exchange can make.

“If you don’t have those rules, marketwise, than you can’t make the exchange work.”