What's a health insurance exchange?

[Greenbeard]

The centerpiece of the insurance-related portion of the new reform law is the creation of state-level health insurance exchanges ("American Health Benefit Exchanges"). Sounds like a pretty importance concept but what is it, why have both Republican and Democratic reform bills called for their creation, and what are they supposed to do?

GWU and Robert Woods Johnson are working together to create Health Reform GPS, a very well put together resource for navigating the implementation of reform. The other day they released a brief on health insurance exchanges that some of you may find helpful.

I'm going to quote some of the background here but if you want more information about what they are, what they're going to be doing and what they're required under the new law to be doing, follow that link. Lots of information.

One of the great challenges in buying health insurance has been a highly fragmented market. Individuals and group purchasers lack a reliable means for seeing their choices in one place and in a manner that allows them to compare what the plans cover, which providers are in various plans’ practice networks, how cost-sharing might differ, and how numerous competing plans might compare on key measures of quality performance. Nor has there been an active, consumer-oriented system for assuring that insurance plans that are offered in the individual and small group markets provide comparable coverage, cover the benefits that are considered essential to any health insurance plan, have accessible provider networks, and are accountable for specific measures of health care quality. State insurance departments play a different role in most states, overseeing health insurers’ solvency and marketing and business practices. But typically insurance departments do not, as part of their work, organize the health insurance market to make it accountable and user-friendly to individual and group consumers.

Health insurance exchanges are designed to help individuals and small employer groups be better positioned to purchase high quality health insurance by creating “organized markets”[1] that simplify the job of selecting and enrolling in coverage and securing performance information about available products. Health insurance exchanges have been a key element of numerous health reform proposals; indeed, the concept of an exchange lies at the core of systems that turn on the competitive selection of health insurance products in the individual and group markets.[2] Massachusetts’ Commonwealth Health Insurance Connector Authority, established as part of the state’s 2006 health reform legislation, is probably the best known example of a health insurance exchange.[3] The Medicare Part D prescription drug benefit also utilizes an exchange concept as the means by which beneficiaries select their prescription drug plans. At the same time, there are several issues that can derail the development and functionality of exchanges, including adverse selection, a low number of participants, over-complexity, transparency and disclosure, and competition, among other things.[4]

A health insurance exchange might carry out numerous functions: helping individual and group purchasers calculate and compare (e.g., individuals versus families; older versus younger individuals; small versus larger employer groups); providing information about the plans and negotiating prices; helping purchasers gain access to available subsidies; and assuring that premium payments to plans are adjusted to reflect the level of health risk among enrollees (a practice known as risk adjustment) in order to assure payment fairness depending on the specifics of their products. For example, health plans may differ on the level of pharmacy benefits covered or may offer provider networks that are broader or narrower. Health plans’ provider networks may also perform differently on key measures of health care quality. Depending on these variations, plans may attract sicker versus healthier populations.[5]

Health insurance exchanges are designed to overcome a basic problem, namely the lack of a robust, organized market for the purchase of health insurance by individuals and small business. In the absence of an organized market, the price of coverage rises because of the additional costs incurred in marketing to and supporting thousands of small customers. In addition, the lack of an exchange means the absence of an organized group of individuals and small business purchasers across whom the cost of coverage can be spread.

 

[Greenbeard]

Some news on the exchanges yesterday. HHS is now requesting input from "states, consumer advocates, employers, insurers, and other interested stakeholders" on the rules and standards that exchanges will be subject to. They also announced the availability of grants to "give states resources to conduct the research and planning needed to build a better health insurance marketplace and determine how their Exchanges will be operated and governed." Implementation is moving forward.

 

[seofriend6]

This was a gr8 article indeed lot to learn..

Emphasis was good.. nice to read.. Thanks for sharing..

..

 

[editec]

The most rational system for insurance in society is a universal system IF the point of the system is to provide the most coverage at the lowest cost to society overall.

Of course since this collectivation of risk goes against the whole concept of capitalism, we cannot find the political will to make that sage decision.

The more balkanized our insurance system the higher the costs (overall to society) it will be.

 

[AVG-JOE]

The most rational system for insurance in society is a universal system IF the point of the system is to provide the most coverage at the lowest cost to society overall.

Of course since this collectivation of risk goes against the whole concept of capitalism, we cannot find the political will to make that sage decision.

The more balkanized our insurance system the higher the costs (overall to society) it will be.

And the higher the profits for insurance companies...

The best 'exchange' I've seen for auto insurance is the TV - why not let every insurance company try to sell their insurance to everyone in America? The biggest problem I see with the status quo is that 'capitalist' ideals have been removed from the picture - if health insurance were a market of competition, we'd see them advertise.

If America doesn't have the political will to remove the middle man, create a truly public option and 'self insure', the least we can do for the consumer is make creating an insurance company easy and let them compete in any market they have the stones to try.

It's not like 'insurance' is rocket science.... all you need to open an insurance company is a computer and a truck-load of cash.

 

[Skull Pilot]

The most rational system for insurance in society is a universal system IF the point of the system is to provide the most coverage at the lowest cost to society overall.

Of course since this collectivation of risk goes against the whole concept of capitalism, we cannot find the political will to make that sage decision.

The more balkanized our insurance system the higher the costs (overall to society) it will be.

And the higher the profits for insurance companies...

The best 'exchange' I've seen for auto insurance is the TV - why not let every insurance company try to sell their insurance to everyone in America? The biggest problem I see with the status quo is that 'capitalist' ideals have been removed from the picture - if health insurance were a market of competition, we'd see them advertise.

If America doesn't have the political will to remove the middle man, create a truly public option and 'self insure', the least we can do for the consumer is make creating an insurance company easy and let them compete in any market they have the stones to try.

It's not like 'insurance' is rocket science.... all you need to open an insurance company is a computer and a truck-load of cash.

Good point Joe but it's not just insurance that needs to be subjected to the full force of free market pressure but the health care industry as well.

No one knows what anything costs when it comes to their health care. If we knew the menu and the prices, we could shop around and let competition between medical providers drive prices down.

Another issue is insurance companies dictating what doctor one has to see. health insurance should cover you no matter what doctor you visit which would apply even more market pressure to the system.

 

[editec]

The basic conept of insurance is to spread risk.

Obviously the larger the pool the better it works.

Private insurance is not more efficient than universal precisly because it creates more than one risk pool.

Now that universal system doesn't need to be run by government to be more efficient.

It merely needs to be universal.

But any money spent on advertising or sales is money not spent on providing HC.

so here's a collectivist/cpaitalist proposal...

ONE for-profit, public utility insurance company.

It guarantees a modest return on investment but the cost of insurance is set by the government, as are the prices paid to the private HC providers.

And since its the ONLY game in town, this system has the ability to set payments for services rendered.

Now who will be the loser in this system?

Private insurance companies and the providers of HC who will not be able to make enormous amounts of money for their services.

And who will byhe winners be?

Everybody else.

 

[AVG-JOE]

The most rational system for insurance in society is a universal system IF the point of the system is to provide the most coverage at the lowest cost to society overall.

Of course since this collectivation of risk goes against the whole concept of capitalism, we cannot find the political will to make that sage decision.

The more balkanized our insurance system the higher the costs (overall to society) it will be.

And the higher the profits for insurance companies...

The best 'exchange' I've seen for auto insurance is the TV - why not let every insurance company try to sell their insurance to everyone in America? The biggest problem I see with the status quo is that 'capitalist' ideals have been removed from the picture - if health insurance were a market of competition, we'd see them advertise.

If America doesn't have the political will to remove the middle man, create a truly public option and 'self insure', the least we can do for the consumer is make creating an insurance company easy and let them compete in any market they have the stones to try.

It's not like 'insurance' is rocket science.... all you need to open an insurance company is a computer and a truck-load of cash.

Good point Joe but it's not just insurance that needs to be subjected to the full force of free market pressure but the health care industry as well.

No one knows what anything costs when it comes to their health care. If we knew the menu and the prices, we could shop around and let competition between medical providers drive prices down.

Another issue is insurance companies dictating what doctor one has to see. health insurance should cover you no matter what doctor you visit which would apply even more market pressure to the system.

Absolutely. But I'll take baby steps. After introduction of a truly competitive insurance market the spending decisions would need to be returned to the consumer soon or the smaller, leaner insurance companies won't survive getting started and the only change would be the Doctors Union running the cash cow instead of the Insurance Executives good-old-boys club.

 

[AVG-JOE]

The basic conept of insurance is to spread risk.

Obviously the larger the pool the better it works.

Private insurance is not more efficient than universal precisly because it creates more than one risk pool.

Now that universal system doesn't need to be run by government to be more efficient.

It merely needs to be universal.

But any money spent on advertising or sales is money not spent on providing HC.

so here's a collectivist/cpaitalist proposal...

ONE for-profit, public utility insurance company.

It guarantees a modest return on investment but the cost of insurance is set by the government, as are the prices paid to the private HC providers.

And since its the ONLY game in town, this system has the ability to set payments for services rendered.

Now who will be the loser in this system?

Private insurance companies and the providers of HC who will not be able to make enormous amounts of money for their services.

And who will byhe winners be?

Everybody else.

Only if I get an equal voice with everyone else who uses it in selecting those who run it as the years go by..... kind of like the way we vote for boys and girls who run the public utilities that run Social Security, The Airports, National Security, Education, etc. but more efficiently if we can pull it off.

 

[auditor0007]

The most rational system for insurance in society is a universal system IF the point of the system is to provide the most coverage at the lowest cost to society overall.

Of course since this collectivation of risk goes against the whole concept of capitalism, we cannot find the political will to make that sage decision.

The more balkanized our insurance system the higher the costs (overall to society) it will be.

And the higher the profits for insurance companies...

The best 'exchange' I've seen for auto insurance is the TV - why not let every insurance company try to sell their insurance to everyone in America? The biggest problem I see with the status quo is that 'capitalist' ideals have been removed from the picture - if health insurance were a market of competition, we'd see them advertise.

If America doesn't have the political will to remove the middle man, create a truly public option and 'self insure', the least we can do for the consumer is make creating an insurance company easy and let them compete in any market they have the stones to try.

It's not like 'insurance' is rocket science.... all you need to open an insurance company is a computer and a truck-load of cash.

Good point Joe but it's not just insurance that needs to be subjected to the full force of free market pressure but the health care industry as well.

No one knows what anything costs when it comes to their health care. If we knew the menu and the prices, we could shop around and let competition between medical providers drive prices down.

Another issue is insurance companies dictating what doctor one has to see. health insurance should cover you no matter what doctor you visit which would apply even more market pressure to the system.

I'll give this a "bravo". Health insurance is a huge mess because the insurance comapanies along with healthcare providers are the ones calling all the shots. I've said this over and over again. The true cost for healthcare is nowhere near what we are paying. Since I was forced to go without health insurance when I moved out of state, I have found that the true cost is drastically less for everything I need compared to what was being paid through insurance companies in the past.

Examples?

Ultrasound of my liver: before through insurance, $1200; currently out of pocket, $220.
Phlebotomy: before through insurance, $400; currently out of pocket, $145.
Basic set of lab tests; before through insurance, $550; currently out of pocket, under $200.

These are just a few procedures that I need personally, but I am quite certain that this could be said of most medical procedures here in the US. If people had to pay out of pocket for most of this crap, they would find the lowest price, and they would understand how the combination of provider and insurance company is collusion at its worst.

This is not to say that there is no need for insurance. Obviously, major illness or major surgery is not something most people can afford to pay out of pocket. However, knowing that the true costs of most procedures is only 25 to 50 percent of what we are actually paying should be a signal that there must be a better way. The real question is how do we find that way? How do we create true competition in healthcare, while still providing adequate protection against catastrophic expenses in the case of serious illness, and how do we allow coverage for everyone? I'm sorry, but I am not one who believes just because you can't afford it, you should be denied medical care. The bottom line is that if we were only paying the true cost of healthcare, then we could easily afford to subsidize those who cannot pay the full amount on their own.

 

[Greenbeard]

Good to see some real discussion going on here. I want to take a quick detour.

I was amused recently to see the Heritage Foundation gushing about Utah's health reform efforts: Consumer Power: 5 Lessons from Utah’s Heath Care Reform. Never an organization to miss the chance to get a partisan shot in, they took some space in there to bash the new reform law.

But, as they go through in that link, what's the centerpiece of Utah's reform? Why, it's a health insurance exchange. In fact, this project just expanded from pilot program to statewide initiative this week:

Employees of participating Utah businesses can now use the exchange to "shop" for health insurance policies that best fit their individual needs, similar to arming employees with a debit card of sorts, to use for health insurance. If an employee desires a more expensive plan than what the employer covers, the employee would then make up the difference themselves. The defined contribution component, according to Utah's Office of Consumer Health Services spokesman Matt Spencer, is the cornerstone of the exchange system.

Rather than have one or two options that are pre-selected by their employers, workers can choose from more than 60 different plans from four of Utah's largest insurance companies: Humana, Regence, Select Health and United Healthcare.

By state statute, all plans offered through the Utah Health Exchange must meet federal standards for employer-sponsored coverage, which ensures all plans offered provide quality coverage from responsible carriers. It is also expected that the element of consumer choice — employees selecting their plans directly from carriers — will put downward pressure on prices and upward pressure on coverage quality.

This is the system Heritage describes as:

Utah’s specific model could yield positive results in other states, but states should adapt Utah’s broader approach to their own individual markets and conditions. Utah’s reform agenda provides a blueprint to empower health care consumers through conservative principles of free enterprise and consumerism. Utah’s experience provides general lessons for every state about how to establish an affordable quality health care system.

They really dig the risk-adjusted insurance exchanges which allowed for defined contributions from employers (i.e. they let employees go into the exchange to choose the plan they want, using the employer's contribution). Does this differ from the federal reform legislation, under which every state will be designing and setting up some form of health insurance exchange? Certainly in its broad contours, no, not at all. There are still some questions to be resolved, as federal guidelines (formulated with state input) still need to be developed. So the question of whether exchanges will allow for defined contributions from employers like Utah--which I would like to see--is still open.

That point is made in this wonderful examination of the policy issues surrounding the new exchanges:

The ACA sets out in some detail the size of the employers that may participate in the exchange but is less clear as to how exactly employer participation would work. A “SHOP exchange” is identified but not described in the legislation. It could possibly be intended as an exchange in which small employers themselves purchase group plans for their employees. This would seem to be consistent with section 1312(f)(2), which defines a qualified employer as an employer “that elects to make all full-time employees of such employer eligible for 1 or more qualified health plans offered in the small group market through an Exchange.”

Elsewhere, however, the ACA seems to countenance an arrangement under which small employers play a more passive role, simply contributing to the premiums used by their employees to purchase insurance as individuals. For example, the law states: “A qualified employer may provide support for coverage of employees under a qualified health plan by selecting any level of coverage under 1302(d) [bronze, silver, gold, or platinum] to be made available to employees through an Exchange.”143 The provision goes on to say that employees may choose any plan within the tier of coverage chosen by the employer.

That second paragraph describes the defined contribution set-up that Utah is currently using and that Heritage (rightly) is very excited about.

It's funny to watch them exclaiming "every every state should do this!" while simultaneously trashing the reform law that paves the way for every state to do exactly this as "deeply unpopular, highly disruptive, unaffordable, and subject to extensive and growing litigation." Right.

 

[code1211]

The basic conept of insurance is to spread risk.

Obviously the larger the pool the better it works.

Private insurance is not more efficient than universal precisly because it creates more than one risk pool.

Now that universal system doesn't need to be run by government to be more efficient.

It merely needs to be universal.

But any money spent on advertising or sales is money not spent on providing HC.

so here's a collectivist/cpaitalist proposal...

ONE for-profit, public utility insurance company.

It guarantees a modest return on investment but the cost of insurance is set by the government, as are the prices paid to the private HC providers.

And since its the ONLY game in town, this system has the ability to set payments for services rendered.

Now who will be the loser in this system?
Private insurance companies and the providers of HC who will not be able to make enormous amounts of money for their services.

And who will byhe winners be?

Everybody else.

The answer to the highlighted question is, "Us."

Without competition, nothing would be as good as it is. The Automobile, the computer, the hamburger, you name it. Competition is what drives improvement and efficiency. Remove competition and you remove improvement. Period.

What product are you thinking of that has suffered from good, strong competition?

What product has become the best without good, strong competition? This is kind of a trick question since, without competition, there is no way to tell how good any product can be. Compare the 1974 Pinto to the 2010 Focus. By any measure, any measure, the Focus is superior and that is due to competition.

Why is the 2010 Focus better than the 1974 Pinto? Second exercise: Compare the 1974 Pinto to the 1974 Honda Accord.

If we had prohibited all competition for the manufacture of Autos, today we would still be driving varients of the 1969 Ford Galaxy 500. In TV's, we'd be paying $3,000 for a Zenith 24" round screen color TV and $10,000 for an updated Commador 64.

The current system has crippled competition in the medical industry and you propose to eliminate it all together. If crippling it makes it bad, what might killing it do?

 

[Greenbeard]

The current system has crippled competition in the medical industry and you propose to eliminate it all together.

I believe editec was referring to the insurance industry, not the medical industry.

 

[code1211]

The current system has crippled competition in the medical industry and you propose to eliminate it all together.

I believe editec was referring to the insurance industry, not the medical industry.

You're probably right, but the costs of the health care industry are paid by insurance and set by the medical institutions.

Right now we are involved in boutique medicine. If you have to ask what it costs, you probably can't afford it. Asking what it costs should be an integral part of the buying process. If price didn't matter, we'd all be eating Lobster tonight at a 4-Star restaurant with valet parking to take care of the Caddy.

Because cost is an issue in most things, we have McDonalds and Ruth's Chris, Yugo and Cadillac, Sach's and WalMart... There are those who need the best and those who need the most available. There are those who can afford the best and those that cannot.

I am one of many people who have various types of insurance. To repair my car, I get three bids. To replace my roof after a storm, I consult with my neighbors, get three bids and proceed. To fix my teeth, I go to "my dentist". No bid process. No shopping. Pretty stupid really.

Same with my doctor. Both seem like really good guys and I'm sure they are doing the best for me that they can, but that doesn't change the fact that both could be overcharging me. In my situation right now, it doesn't really matter.

However, if I need to pay the bills for people that I don't know for procedures that they may not need at costs that are outrageous and uncompetitive, I start to take an interest. That is what the Healthcare Insurance Bill is all about.

Published rates for specific procedures and Angie's List type ratings of medical providers would be a good thing. The approach taken by the government to create a central planning solution to problems which are wide spread, uniquely individual and anti-competitive is obviously badly planned and not at all understood by those who are doing the planning or by those who will be subjected to the results.

We are going to be provided with Yugo levels of health care at Cadillac levels of expense.