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The theory of the exchanges

Matthew Yglesias on the context of health-care reform:

Anything limited to the exchange won’t impact most Americans very much even when reform goes online in 2014. But the exchanges will get much bigger over time. Part of what’s going on in the United States is that the employer-based health insurance system is slowly unraveling. Both the House and Senate versions of reform consist not only of using exchanges to cover the currently uninsured, but also using exchanges to construct a kind of safety net so that as employer-based insurance continues to unravel, people will land softly in exchangeland rather than crashing into the rough ground of the current individual insurance market. The Senate bill will slightly accelerate the decline of employer-based insurance by slowly phasing out the tax subsidy for such insurance.

Which is to say that Bowers is right to argue that “the next play should not be to fight to save the opt-out, ‘level playing field’ public option, but rather to expand the Medicare buy-in to all Americans between the age of 55 and 64 (inclusive)” but it’s important to note that in the long run this is what’s going to happen anyway since over time more-and-more people will be in the exchange. So in addition to pushing for expansion of the buy-in to people outside the exchange, it’s also worth pushing for accelerated opening of the exchange to more-and-more people. In the long run, of course, it’ll also be necessary to fight for further lowering of the age threshold.

Structurally, the exchanges are the whole game. And the better they look from the beginning, the more likely they are to expand as time goes on. That's why it's important to open them to larger employers at the outset, and entice employers in during the early years. If the exchanges seem like a private-sector version of Medicaid -- they mainly serve the poor and the subsidized, and they seem like a safety net rather than a new and improved market -- then it's hard to imagine businesses enthusiastically joining later on.

By Ezra Klein  |  December 9, 2009; 1:00 PM ET
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Exchanges are the whole game for the individual market and potentially small business. For large employers, their value proposition is less clear. They already have good leverage with insurers, and many self-insure making insurance costs even lower. Participating in the exchanges will simply prompt demand to covert health benefits into cash, which they don't want to do. So I'm not sure that opening the exchanges up to large employers would lead to substantial adoption. But I love the idea obviously.

Posted by: wisewon | December 9, 2009 1:16 PM | Report abuse

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