20 Jul A glance at the Affordable Care Act’s health insurance exchanges
Overview
A portion of Hope Street Group’s healthcare initiative includes exploring ways to lower costs through such mechanisms as payment reform and efficiency improvements. Another area worth examining is increasing competition and free-market forces to address costs, which is one of the goals of the Health Benefit Exchange provisions included in the Patient Protection and Affordable Care Act.
Background
Now that the Supreme Court has ruled the Affordable Care Act will move forward, states have 18 months to decide how they will offer health insurance to their citizens. The law asks each state to establish some type of health insurance exchange (sec. 1311 of the statute) by 2014 to create a marketplace in which consumers can shop for insurance.
The exchanges just might be the area of the reform law most visible to consumers because those without employer-provided coverage can use them to buy insurance. In fact, the exchanges will make a significant impact on how health insurance is bought and sold in the United States as millions of Americans and many employers, beginning with small businesses, can purchase coverage from an exchange starting in 2014.
Goals
The main objectives of the exchanges include:
- Providing a resource for consumers to learn about health insurance and what is available in their state or region
- Establishing risk pools from which any individual or small business can access and purchase health insurance
- Attempting to drive down premium costs by creating a more competitive marketplace for insurance providers
How the exchanges will work
The idea behind the exchanges is creating competition between insurance providers will drive down costs. Consumers will have the ability to purchase health insurance through an exchange regardless of factors in their medical histories or so-called “pre-existing conditions” that limit individuals from buying coverage today.
Providers will offer their insurance plans through an Internet site and/or a catalog. Consumers can examine coverage plans and prices side-by-side to easily compare premium rates and benefit packages before making a decision. The thinking is providers will have to keep costs down to compete with other providers.
To see an example of how insurance exchanges work, please visit the HealthConnector in Massachusetts, which has been operating for over five years. Massachusetts residents can select from dozens of different plans ranging in prices and coverage options. Utah residents and small businesses also have the opportunity to purchase insurance through a similar concept through the Utah Health Exchange.
Will the exchanges achieve the goals?
It is difficult to predict how the exchanges will ultimately impact premium rates. Critics contend that those with illnesses are more likely to utilize exchanges, which could drive costs higher than comparable plans in the private insurance market.
Healthy individuals or young people without employer-sponsored coverage may decide to forgo health insurance and pay the “penalty” or the “tax” for not carrying coverage required by the new law. The Congressional Budget Office and the Congressional Joint Committee on Taxation do not expect many employers to drop insurance benefits in coming years regardless of the new law, so not many workers with coverage today will look to an exchange. Thus, if a disproportionate number of unhealthy individuals enter the exchange – or those who cannot get insurance elsewhere — costs could tick higher for exchange participants.
On the other hand, if more employers choose to take advantage of exchanges and a lot of young or healthy people decide to buy coverage who do not have it now, costs could drop for the entire insurance pool. Further, many Americans who purchase insurance through an exchange will be eligible for tax credits, which will help make the insurance affordable regardless of the cost of the premium.
State of the States
The vast majority of states do not have experience establishing or operating health insurance exchanges and will likely face obstacles in the process. Questions will include how to operate the exchange in a way that is fair to consumers and to insurance providers, how to maintain quality in coverage, or how to control costs if more sick individuals enter the insurance pool.
Some states are already well on the way to figuring out the details and setting up insurance pools while the majority have yet to decide on a path forward, according to the Kaiser Family Foundation.
What are your thoughts?
How will the exchanges impact insurance premiums in the states and will costs increase or decrease? Will businesses decide to discontinue providing coverage once their employees can purchase their own insurance through an exchange? What will be the impact of the exchanges on the health system overall and will it lead to fewer numbers of uninsured? Will the exchanges lead to improvements or declines in the quality of care in the United States?