Health Insurance Exchanges

A health insurance exchange is a vehicle to provide a variety of health plans to potential purchasers.  Exchanges can fill a number of roles and functions.  Under the new reform law, they are designed to be the primary vehicle for expanding coverage outside of Medicaid and the exclusive avenue for getting subsidies or tax credits.  Past experience suggests that some exchanges have worked well and others have failed.  A Commonwealth Fund Report details a number of issues that should be addressed in establishing the exchanges.  (Commonwealth Report)

Key issues identified by the report include avoiding adverse selection; creating large risk pools, keeping administrative costs low for the exchanges and participating health plans, enhancing competition among health plans, creating effective governance structures and providing value to the small employers who are supposed to benefit from the exchanges.  The researchers express cautious optimism about the value of the exchanges and this report will be followed up with one which has more specific recommendations on several of the issues discussed.

This is a very informative report.  Although the authors wouldn’t characterize it this way, the most likely outcome if the exchanges go into effect is that they do nothing to reduce costs, but in fact add more administrative cost through their own operation and costs they impose on the health plans utilizing the exchanges.  The Massachusetts exchange, for example, has added 3% to insurance costs.  Just more regulation and bureaucracy.  And the authors are overly optimistic about the ability of exchanges to lessen health insurance costs by increasing competition.  The primary driver of health insurance costs is higher provider costs and neither the reform law nor the exchanges does anything about that.