Health Insurance Exchanges: Better United Than Divided

A Working Health Insurance Exchange Must be Federally-Run, Not State-Run

• Exchanges organize the health insurance market, creating large risk pools, making it less costly and easier to compare and choose health insurance.
• House Tri-Committee Bill: Health Choices Administration: independent federal agency to establish and oversee national exchange, while allowing states or groups of states to form their own exchanges with permission.
• Risk adjustment to ensure premiums calculated based on health of members in different plans
• Exchange available to people without employer-sponsored coverage and small employers initially. After year three, Commissioner could open it up.
• Federal government determines which individuals are eligible for premium subsidies up to 400% FPL.
• Senate HELP Bill: Federal government would give states money to establish exchange or “gateway.” There could be multiple non-overlapping gateways in a state or states could band together to establish multi-state gateways. If states preferred, Federal government could establish a gateway for them.
• States oversee exchange to ensure compliance with federal regulations.
• States determine which employers are able to participate in exchange.
• States determine which individuals are eligible for subsidies up to 300% FPL
• Reform not uniform throughout the country

State-by-State Approach to Insurance Reform Tested; It Has Not Worked
• Health Insurance Portability and Accountability Act of 1996: States asked to adopt reforms in individual and group insurance markets; federal fallback authority, like the HELP bill. Many states failed to implement individual market reforms. Federal fallback implementation was slow and uneven.
• Federal compliance oversight has not worked well.
• State regulation of insurance market inadequate to protect consumers and uneven.
• Quality of Medicaid and CHIP programs also varies considerably among the states.
• Some states lack will and/or resources to ensure eligible individuals enrolled in these programs.
• State programs also not helpful to people who are living and working in multiple states.

Medicare, however imperfect, has shown us that we can accommodate local needs while having a national insurance program. From both an efficiency and a consumer satisfaction perspective, establishing a truly national program of exchanges and insurance regulation, as the House draft bill has done, is a far smarter way to go.

Health Insurance Exchanges: Better United Than Divided

While much of the debate about health care reform in recent weeks has focused on public plan choice, another key component of reform–the health insurance exchange–has received much less attention. Yet many experts would argue that successful reform rests on whether the health insurance exchanges work. And, the evidence suggests that in sharp contrast with the House tri-committee federally-run exchange concept, the Senate HELP committee exchange concept—which confers substantial responsibility on the states—will not work.

Health insurance exchanges are entities that organize the market for health insurance by assembling individuals and small businesses into larger pools that spread the risk for insurance companies, while facilitating the availability, choice and purchase of health insurance. The exchange concept is relatively noncontroversial and will almost certainly be included in reform legislation.

As is often the case with legislation, however, the devil is going to be in the details with health insurance exchanges. The House legislation establishes a “Health Choices Administration,” a new independent federal agency responsible for administering much of the reform legislation. This agency would establish a single national exchange. States or groups of states could ask for permission to form their own exchanges, but could get permission only if they met statutory requirements.

The Commissioner of the Health Choices Administration would be responsible for enforcing new regulatory requirements imposed on insurers, such as a ban on preexisting conditions clauses or on discrimination based on health status. The Commissioner would also administer the exchange, negotiating contracts with qualified health benefit plans. The Commissioner would work out a risk adjustment scheme to adjust premium payments to insurers based on their risk pool. The exchange would be available to individuals who did not otherwise have “acceptable coverage” and, initially to small employers, but after the third year to all employers as permitted by the Commissioner. Premium subsidies would be provided through the exchange for individuals and families with incomes below 400 percent of the poverty level. The Commissioner would determine eligibility for premium subsidies.

Under the Senate HELP legislation, funds would be available for states to establish exchanges, called gateways. States could elect to establish their own gateways or request the federal government to establish a gateway in their state. Gateways could be state or multi-state based, or several gateways could be established within different parts of a state. Eligibility for employees to participate in the exchange would be determined on a state-by-state basis. If a state failed to establish a gateway within four years, the federal government could step in and establish a gateway itself. The states would be responsible for enforcing the federal regulations on insurance underwriting and benefit packages, and only if a state failed to enforce the laws for four years could the federal government step in to enforce them. Premium subsidies would be available through the gateways, and responsibility for determining eligibility would be delegated to the states.

In sum, with the House bill we get national healthcare reform with federally run exchanges; with the HELP bill we will get reform on a state-by-state basis, eventually, if the states cooperate, with some state exchanges, some regional exchanges, some states with multiple exchanges, and some federally-run state-specific exchanges. Reform will not be uniform throughout the country.

We have tried the state-by-state approach to reform before and it has not worked. The Health Insurance Portability and Accountability Act of 1996 invited the states to adopt reforms in the group insurance market and individual insurance market. Like the HELP bill, HIPAA gave Department of Health and Human Services “fallback” authority to implement the reforms in states that failed to adopt the reforms themselves. Most states had already implemented the group market reforms and those that had not already done so adopted them quickly. The states had been much less active in regulating the individual market and a number of states failed to implement these reforms. Implementation of the law by HHS under its fallback authority was slow and uneven. Testimony presented to the House Oversight Committee last year revealed that compliance oversight by HHS of state compliance has largely ceased. Insurance company regulation continues to vary radically from state to state, with many states doing an inadequate job of protecting consumers. See Families USA, Failing Grades, and Insurance Company Rules, Where is the Referee.

Our experience with the Medicaid and CHIP programs should also give us pause in relying on the states to bring reform. These programs have in certain respects been very successful, making health care available to millions of Americans who would otherwise have been uninsured. But, the quality of the programs varies considerably among states, with eligibility and coverage varying radically from state to state and some states lacking the will and/or the resources to ensure that eligible individuals are enrolled or to deliver good access to care for these programs. Moreover, as we saw perhaps most vividly after Hurricane Katrina, state-based programs are problematic for people who must be out of state for reasons beyond their control as well as for work or leisure. They often leave people without good access to care.

We are the United States of America, not the divided states of America. We need a streamlined health care system that works consistently wherever we are in the country. Medicare, however imperfect, has shown us that we can accommodate local needs while having a national insurance program. From both an efficiency and a consumer satisfaction perspective, establishing a truly national program of exchanges and insurance regulation, as the House draft bill has done, is a far smarter way to go.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future