Every State Needs A Health Exchange — It’s Time

Originally Published in RMP Advisor, Spring 2012

Posted by David Edman in Blog, February 2012, Healthcare Reform, Healthcare Reform Blog, Monthly Archives, Newsletter Archive on February 13th, 2012 | No Comments »

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It’s 2012 and a Presidential election year, and health care in the United States remains a mess. Do I like Obamacare? No. Should it be repealed? Yes. But, let’s be clear and let’s be honest. Even if Obamacare never existed, EVERY STATE IN THESE UNITED STATES NEEDS A WELL-DESIGNED HEALTH EXCHANGE. And, if Obamacare is declared unconstitutional this summer, or it is repealed in total or in part in the future, the same is true — your state should have a Health Exchange. Why?

Our Health Insurance System Is Broken

We need to take a step back, agree that there is a problem, and establish a set of principles and objectives for the future purchasing of health insurance. It should not matter if you are a Democrat or Republican, liberal or conservative, young or old, rich or poor, sympathize with labor or you support management. We should be able to agree on the following facts about our healthcare system:

• Costs are too high. Per capita spending in the US is far higher than other industrialized countries.
• Despite the higher spending, life expectancy in the US is not significantly better than our competitors and sometimes is worse.
• The cost of health insurance is bankrupting both federal and state governments, and out-of-reach for many individual and businesses who seek to purchase health insurance.

So, we agree that our health insurance system is broken. What do we do next?

Objectives For Improvement

Most Americans agree that we do not want government run healthcare or a single payer system. But, we must be able to prove that a private system of health insurance can work. The best place to start is by helping individual purchasers and small employers (who buy health insurance for their employees), because they are the most negatively impacted by inefficiencies in the current system.

Here is what the health insurance currently looks like for individuals and small employers. As the diagram below illustrates, it is “each man for themselves” in a system that is unwieldy, confusing, and inefficient.

Purchasers deal separately with multiple insurers, each of which has a sometimes dizzying array of products. Can we agree on the need to reduce confusion? Also there must be competition between insurance carriers based on the cost and quality of their products, and purchasers must be able to compare their options using relevant and easily available information.

The Answer — A Well-Designed Health Exchange

I posted a blog entry in April 2011 about why we need health exchanges. Since insurance is based on the “law of large numbers”, a critical first step is to allow, encourage, or perhaps even to require individuals and small businesses to combine into one large risk pool. This can be tricky, but ignoring the need and the basic principles of insurance will not lead to a desirable outcome. Here is what the concept of a well-designed exchange looks like:

On paper, the differences between what exists today and what could exist seem clear. From a health economics perspective, it makes sense for individuals and small employers to create a single, large risk pool and to buy insurance as if they are a single entity. The Health Exchange serves as the marketplace which organizes a set of private health insurance options from which the Exchange participants can choose.

Looks easy? Sounds simple? It’s clearly not, as the many states that are proceeding with Health Exchange development are finding. We have to step back as Americans, and as residents of your particular state, and focus on the big picture. If we check partisanship and our egos at the door, and approach Health Exchange development with honest intentions, clear objectives, and sound thinking, then health reform is possible and better days are ahead. It’s time to have at it.