How do the exchanges work?
Throughout the health-care debate, I've been steadfast in my belief that the exchanges are the most important element in the plan. They are, in effect, the bridge between the system we have and the system we want. So how, in the final bill, do they work?
The bill gives states the option of setting up one exchange for individuals and one exchange for small business or simply setting up one exchange that serves both. States can also partner with one another, so you could have California and Arizona and Colorado and Washington operating a single, mega-exchange. (They should name it Sauron.) In 2017, states can decide to open the exchanges to larger employers.
All this is a bit worrying. The exchanges will do better when they are bigger. That will give them a larger risk pool and more power to negotiate with insurers. The smaller and more fractured they are, the more likely you are to see insurance death spirals. But this is, for better or worse, left up to the states.
The bill envisions the exchanges not just as markets for insurance, but as data-rich markets for insurance with regulators providing a skeptical barrier to entry and misbehavior. That, the authors hope, is how you'll get real competition among insurers.
To help this along, the bill's first direction to the exchanges is that they must "implement procedures for the certification, recertification, and decertification." As that implies, the hope is that insurers who raise prices unnecessarily, or behave poorly, will be kicked out and only let back in when they forswear the offending behavior. There's no public option, but there is public oversight. A state with an ambitious exchange administrator could really do a lot with this provision.
Once insurers are actually in the exchange, there needs to be "a standardized format for presenting health benefits plan options in the Exchange." And that doesn't just mean the insurer's brochure. "The Secretary shall develop a rating system that would rate qualified health plans offered through an Exchange in each benefits level on the basis of the relative quality and price. The Exchange shall include the quality rating in the information provided to individuals and employers through the Internet portal." In other words, you should be able to tell the difference between insurance plans and see some numbers on how well they perform.
And the secretary isn't the only one gathering quality data: The bill also develops "an enrollee satisfaction survey system that would evaluate the level of enrollee satisfaction with qualified health plans offered through an Exchange" and post that information on the exchange Web site "in a manner that allows individuals to easily compare enrollee satisfaction levels between comparable plans." As I've put it before, the idea is to make the Amazon.com for health-care plans.
Finally, the exchanges will be the site for all the other elements of the system: That's where the insurance regulations are. That's where the risk adjustment is (an insurer who ends up with sicker applicants gets more money and an insurer who gets a healthier pool is paid less, thus ending the incentive to compete to avoid sick people). That's where the national, nonprofit plans are. And finally, that's where the subsidies are.
But it's not necessarily where all the insurers are. Insurers can still sell health-care insurance outside the exchanges. That raises the possibility of risk selection between the two markets: You could have insurers trying to snap up healthy people outside the exchanges, which leaves the unhealthy in the exchanges. The hope is that the lure of subsidies will give the exchanges a massive customer base from the start, and the promise of rules and competition and clear choices will make it a favored market from then on. As larger and larger employers enter the market, the exchanges will stop being an add-on to the system and become, in effect, the system.
The danger, however, is that they are instead fractured magnets for bad risks and poorer Americans and remain isolated outposts. The state-by-state nature of the administration even makes it possible that the exchanges will become powerful and competitive in some states (or consortium of states) while becoming backwaters in other states. Since the success of the exchanges is the difference between health-care expansion and health-care reform, it's worth watching closely.
March 22, 2010; 5:49 PM ET
Categories: Explaining health-care reform
Save & Share: Previous: Ron Pollack explains how the bill might cover even more than 95% of the country
Next: Uwe Reinhardt: We are not 'off the hook' on costs
Posted by: croceamors | March 22, 2010 6:49 PM | Report abuse
Posted by: lazza11 | March 22, 2010 6:58 PM | Report abuse
Posted by: srw3 | March 22, 2010 7:19 PM | Report abuse
Posted by: bharshaw | March 22, 2010 7:22 PM | Report abuse
Posted by: ab13 | March 22, 2010 8:22 PM | Report abuse
Posted by: bmull | March 22, 2010 8:24 PM | Report abuse
Posted by: pj_camp | March 22, 2010 9:10 PM | Report abuse
Posted by: pj_camp | March 22, 2010 9:13 PM | Report abuse
Posted by: visionbrkr | March 22, 2010 10:20 PM | Report abuse
Posted by: poshaugh | March 23, 2010 8:30 AM | Report abuse
Posted by: chrynoble | March 23, 2010 11:51 AM | Report abuse
Posted by: vvf2 | March 23, 2010 5:09 PM | Report abuse
Posted by: linjian76 | March 24, 2010 12:52 PM | Report abuse
The comments to this entry are closed.