A Primer On Health Insurance Exchanges
Change is coming to our healthcare system, and if you haven’t yet heard of health insurance exchanges, you soon will. As a consumer of healthcare services (and sometime patient), it is a concept that you should learn more about.
First, Just The Facts…
1. Health reform passed by the Obama Administration (the Patient Protection and Affordable Care Act or PPACA) includes a requirement that states establish regional or statewide Health Insurance Exchanges by 2014, or to participate in a federally-run exchange.
2. A Health Insurance Exchange is a “marketplace” where patients/consumers can purchase their health insurance. Individual purchasers are connected to private sector sellers of health insurance.
3. There are a set of ‘rules’ for the Exchange which define how the health insurance will be bought and sold. The rules must be carefully established and enforced in order to meet both public policy objectives and the needs of buyers and sellers in the Exchange.
4. Today, for individual purchasers and small employer groups that are ‘high risk’ (or are perceived to be by insurance companies), health insurance can be unaffordable and sometimes unavailable.
Why Do We Need Exchanges?
The health insurance system in the United States is broken. Healthcare costs and premiums continue to rise disproportionally. It is a fact that approximately 30% of what we spend is wasted dollars (on unnecessary, inappropriate, and poor quality care). And, we are at a major competitive disadvantage in the world economy.
Insurance is driven by the ‘law of large numbers’, and Exchanges address a critical problem by combining individuals and small employers into a large risk pool. There are no exclusions for pre-existing conditions, with designated periods of time (“open enrollment”) when private insurance companies offer to sell their insurance plans to all the participants in the Exchange.
It is here that competition on the basis of cost and quality takes over. There must be transparency—accurate and useful information available to patients and consumers so that they can make informed choices, including: patient outcomes, quality measures, premium and cost information, satisfaction levels, and so forth. Those health insurers that provide the highest quality products at the lowest prices will be the winners in an Exchange model.
Are There Current Examples of Exchanges?
There are examples of Health Insurance Exchanges that already exist, such as the Federal Employees Health Benefits Program, or FEHBP. Under this plan, insurance companies submit competitive bids once a year to the federal government’s Office of Personnel Management (OPM). Federal employees then get information on benefits, costs and services, and can make their annual election of a carrier and a benefits plan. Competition to attract members on the basis of cost, quality and outcomes is what keeps costs down while providing the best possible care. Many states have similar plans for state employees.
Exchanges for private sector employees are also operational in Massachusetts and Utah. They are very different models and there are lessons to be learned from each. The early results from Massachusetts (the Massachusetts HealthConnector) are that the program has succeeded in providing health insurance to nearly all state residents, but has so far failed to address rising healthcare costs. The Utah Health Exchange is designed differently, focusing on ‘defined contribution’ approach, but it is too early in its operations to draw any firm conclusions.
Where Do We Go From Here?
There is much more to be learned and written about Health Insurance Exchanges. However, “perfection is the enemy of the good”, so the time is NOW to start building Exchanges throughout the United States. When designed and implemented properly, they will be a major step forward towards fixing our health insurance system, so let’s get going.