Insurance exchanges key to expanding coverage

September 1, 2009

Exchanges could channel subsidies, specify plan design and provide an efficient way to enroll members

The Massachusetts Health Connector, for example, has helped achieve nearly universal coverage in the state by offering individuals and small businesses access to a range of coverage options. Many states and the federal government operate what are essentially exchanges for employee benefit plans, and Medicare serves as an exchange for seniors seeking coverage through Medicare Advantage plans.

Exchanges can channel subsidies to low-income individuals, specify plan designs and coverage, and provide an efficient way to educate and enroll large populations.

REFORM PROPOSALS

Health reform bills before Congress establish various exchanges to carry out those functions. The Senate Health, Education, Labor and Pensions (HELP) Committee bill proposes an Affordable Health Benefit Gateway in each state. The Senate Republicans also opt for state-based exchanges, while the House bill creates a national Health Insurance Exchange that will sell plans to individuals, phasing in small and large employers over time.

Exchanges have many features in common. They identify individuals who are eligible to purchase coverage through the program and ensure that health plans offer essential benefits and meet coverage requirements. They can distribute subsidies or tax credits to help lower-income individuals purchase coverage and create a vehicle for enrolling millions of individuals in plans.

There also is variation in how exchanges are governed, how they relate to other health programs such as Medicaid, and the process for private plans to market services through the exchange.

Analysts note a number of trade-offs in how exchanges may affect the healthcare system, says Avalere Health Manager Caroline Pearson. If the exchange lets in larger employer groups, it expands the risk pool, but can erode current coverage options. Providing subsidies only to individuals who purchase through the exchange ensures a large customer base, but one that is sicker and riskier.

State exchanges can respond better to local preferences, while federal operations may achieve more economies of scale and support portability. Flexibility in benefit design may expand choices for consumers, but lead to risk selection within the exchange. There is debate about whether the exchange should negotiate plan bids or serve as a passive operator that merely lists qualifying plans.

The most contentious issue of course is whether an exchange should offer a public plan, as proposed by Congressional Democrats. Opponents claim that private plans cannot compete on a level playing field with a government-run operation. Instead, legislation should establish exchanges that offer private plans operating under new market requirements and see how well that approach provides quality coverage.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.