Health Insurance Exchanges: The Most Important, Undernoticed Part of Health Reform
If I had to choose the most important aspect of health reform, it wouldn't be the public plan. Nor would it be the individual mandate, or the employer mandate, or the employer tax exclusion, or the Medicaid expansion. It wouldn't, in fact, be any of the issues that are dominating the political conversation.
Rather, it would be the Health Insurance Exchange. This idea goes by a lot of different names. Massachusetts has a variant called the Connector. Ted Kennedy's bill talked about Gateways. Ron Wyden and Bob Bennett's legislation calls for Health Help Agencies. The name is fundamentally unimportant. But the concept itself is the bridge between the health system we have and the health system we want.
The central problem facing health reformers is a simple one: America's health-care system is a mess. But a lot of people rely on it very heavily. But how do you merge the need for root-and-branch reform with the public's fear of rapid change?
The answer, put simply, is that you don't institute rapid change. You don't take what people have. But you give them the option to trade up to something better. As the theory goes, if the current system really is so inefficient, and your alternative really is so much better, then the lure of lower costs and better quality will persuade Americans to switch to the new system of their own accord.
This was a little-noticed wrinkle in President Obama's speech to the American Medical Association yesterday. Traditionally, reformers promise that if you like what you have, you'll be able to keep it. Obama echoed that vow. But he also said that "if you don’t like your health coverage or don’t have any insurance, you will have a chance to take part in what we’re calling a Health Insurance Exchange.” That is, in effect, the opposite promise: If you don't like what you have, you'll be able to change it.
The vehicle for that promise is the Health Insurance Exchange.
Imagine that you decided you didn't like your current health insurance and you wanted to change it. Your employer very likely doesn't offer any alternatives. If you do have a choice, it's almost certainly not between more than three different plans.
You could, of course, spit at your employer's offerings and go buy insurance on your own. But the individual insurance market is a scary place. You're on your own, so you have no bargaining power with insurers. Providers can simply refuse to sell you health insurance, or they can jack up your prices because of past illness. They can sell you a plan that's insufficient for your needs and that's thick with loopholes and technicalities. A favored trick, for instance, is to sell plans that don't cover any preexisting conditions: If you go to a doctor complaining of back pain, but it turns out you've felt back pain before, they don't have to cover any costs relating to the ailment.
The Health Insurance Exchange gives you another option. Unlike your employer, it will have a wide array of competing providers offering different plans with varying benefit levels, emphases and price tags. Unlike the individual market, insurers won't be able to discriminate based on your health history or your future risk. Plans will have to be certified as meeting a minimum level of comprehensiveness. Plans that routinely screw over members will lose customers to competing insurers.
The Health Insurance Exchange, combines the benefits of choice that are theoretically available on the individual market with the bargaining power and scale that's generally accessible only in large employers (and the exchange will, in theory, have more bargaining power than even the largest employers, as it will have a much larger base of customers). You also have a space to test out innovative ideas that might make the market better, like Sen. Jay Rockefeller's (D-W.Va.) insurance rating agency, or the public insurance option. You can standardize billing and payment methods and force the adoption of electronic medical records.
And what happens when you introduce productive competition, efficiencies of scale, more innovation and increased consumer power into a market as dysfunctional as the current situation for health insurance? In theory, you get lower prices and higher quality. And if the Health Insurance Exchange has lower prices and higher quality, more individuals will use it and more companies will buy into it. And if that happens, then the efficiencies of scale should increase, and so should the pace of innovation (as the rewards will be greater with more customers), and so the Health Insurance Exchange should further outpace the other markets, thereby attracting yet more customers, thereby further accelerating the virtuous cycle. Eventually, it could become the country's primary insurance market.
To be sure, the exchange faces considerable difficulties. At the beginning, it's likely to be limited to individuals, the self-employed, and small businesses. Otherwise, experts worry -- probably correctly -- that only businesses with sick and expensive workers will buy in, and the costs of the exchange will start high. Instead, the hope is to get it on stable footing and then progressively open it to new groups. Its success isn't a sure thing. It's a theory. But it's arguably the best one we've got.
(Photo of Obama speaking before the AMA by Pablo Martinez Monsivais of AP Photo)
June 16, 2009; 3:24 PM ET
Categories: Health Coverage , Health Reform , Health Reform For Beginners
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