Advocates for Evidence-Based Health Policy Speakers
Insurance Exchanges
An insurance exchange provides managed competition through the use of “sponsors” or collective purchasing agents who negotiate with insurers and offer individuals a menu of choices among different health insurance plans.
Insurance exchanges provide information on each plan’s price and quality of care including, but not limited to, customer satisfaction, provider networks, benefits covered, specialized care programs, and geographic coverage. The sponsor is the broker and the individual consumer can purchase as they see fit. Insurers are required to accept any individuals who wants to purchase health coverage, so that risk avoidance is no longer a tool to control the costs of providing care. The goal of a health insurance exchange is to shift the traditional market for health insurance from competition based on risk to competition based on price.
In order for an insurance exchange to be successful in reducing costs, improving quality, and expanding coverage, there are several mechanistic issues that are to be considered.
1) Everyone must be a part of the risk pool. Without an individual mandate, those who find it advantageous to go without coverage will avoid contributing when healthy and will impose costs when sick. Healthy people opting out of the market raises average premium for those who remain. Penalties are therefore necessary in order to make the mandate effective. The mandate could be imposed on employers, building on the current employment-based system, though this does not guarantee universal coverage and it removes the competitive use of health benefits in the job market.
2) Risk adjustment must be effectively implemented. Insurance plans with high-cost enrollees would be balanced by those with low-cost enrollees, and therefore insurers would be forced to compete based on cost and quality – not risk selection. Adjustment is difficult however, as the reasons for high costs would need to be parsed out. Are the enrollees sicker? Or is the care provided inefficient?
3) Benefits must be standardized. There must be standardization of benefits to some degree in order to allow for plans to be comparable for both consumers and policy makers.
4) Subsidies must be available to offset costs. Subsidies can be offered in order to ease the impact of insurance costs on vulnerable communities. The exchange should not offer less generous benefit plans with lower premiums as it would eventually shift costs to those plans with the sickest enrollees. Debate persists over who should qualify for subsidies and how to fairly pay for them.
5) Rate variation can be fair. There must be some variation in premiums based on specific demographics (age, gender, health behaviors such as smoking) in order to account for variation in costs. Variation cannot occur on an individual level as that decreases the risk pool and increases transaction costs.
6) Guaranteed issue is required. Insurers must be required to sell coverage to any individual or family seeking it. With a guaranteed issue of insurance, high-risk individuals cannot be excluded from the market. Incentives must therefore be put into place in markets that are less desirable to insurers.
7) Market failure exists. There must be options for coverage in geographic areas that lack private insurers. This fallback coverage might be fulfilled through a buy-in program for a common public plan such as Medicare or Medicaid.
The exchange will not be enough to solve our current predicament alone. The escalating costs of health care must be contained. Even with the expansion of coverage through an exchange, the long-term outcomes of such changes will be unsuccessful if both the costs and the quality of services are not radically altered. The writers argue that an efficient information infrastructure, accountability for health outcomes as opposed to care processes, and optimized payment systems must be in place.
There are possible implications to employment-based health benefits with the adoption of a health insurance exchange. Employers offer health benefits in order to remain competitive in the labor market, a factor that becomes less important in a weak economy. In addition, the costs of offering health benefits are significant for employers. As an affordable health insurance market becomes available, employers may feel overtly comfortable with directing employees towards this cheaper option. Such flight might be avoided by including an employer mandate. Employers traditionally play the role of a watchdog and advocate for their employees, and can maintain a significant role in coverage decisions as an intervening party between insured and insurer.
Commentary
The recently approved health reform legislation includes the following:
1. An individual mandate with penalties barring some exceptions: financial hardship, religious objections, American Indians, those without coverage for less than three months, undocumented immigrants, incarcerated individuals, those for whom the lowest cost plan option exceeds 8% of an individual’s income, and those with incomes below the tax filing threshold
2. The creation of state-based insurance exchanges and additional exchanges for small businesses
3. Subsidies for individuals/families with income between 133-400% of the federal poverty level
4. An employer mandate with exceptions for small employers (less than 50 employees)
5. Standardized minimal benefit plan to be updated annually through a transparent and public process
6. Risk adjustment solely based on age, geographic area, family composition, and tobacco use (not gender)
This legislation provides an excellent initial approach to true reform. Per the EBRI analysis, the reform includes many strong components. The RAND corporation has released its analysis of the reform overall – the number of uninsured would be reduced 53-57%, or roughly 30 million. An additional number will be eligible for Medicaid. Several questions remain however – what is the true impact of the exceptions to the individual mandate, the full extent of the expansion of coverage, and the true impact on health care spending? As with all major policy changes, this serves as the first of many incremental steps – and hopefully the political climate can remain amenable to further change.
by
Kameron L. Matthews, MD, Esq.