Health Insurance Exchanges: Insights into the Resistance

The Patient Protection and Affordable Care Act (PPACA) is officially "on the books". By upholding PPACA as constitutional, the Supreme Court paved the way for health insurance exchanges to begin operating. As one of the key pieces of Obama's health reform, health insurance exchanges were created primarily to address the issue of affordable access to healthcare for the uninsured, primarily those not covered through an employer-offered program, or taxpayer-funded assistance program (such as Medicaid).

Unfortunately, exchanges merely add layers of bureaucracy and burden to the states, and limit the choices available to consumers. Without a truly market-based model for healthcare - one that is founded on transparency, increased accountability and competition - we will not achieve better health outcomes at lower costs. It's completely understandable that many of the states would resist these "online marketplaces", as they are likely to just add cost and complexity to an ever-growing problem.

Recently, the Galen Institute asked me to conduct research on "What's Wrong With Health Insurance Exchanges..." . The paper, as described in the abstract, explains "why the health insurance exchanges defined in PPACA won't work, won't increase access to affordable health care, and won't do anything to improve health outcomes or increase value." At their core, the exchanges will create barriers to competition and place additional regulations on healthcare that will ultimately make coverage even more unaffordable.

In the paper, I describe several aspects of health insurance exchanges as detrimental to improving healthcare. Costs will increase due to a need for intensive data-gathering responsibilities to determine eligibility. Further compounding the problem, states will be forced to take on onerous costs, as they will be required to operate as a "financial clearinghouse" and watchdog. And current estimates indicate roughly $30 to $40 million in development costs, plus $25 to $50 million in annual operating costs per state.

Additionally, by defining minimum coverage through Essential Health Benefits (EHBs), health insurance exchanges create a limited choice in plans. This poses a problem because it requires consumers to purchase insurance for things they don't need, adding to their list of unnecessary costs. And in cases where the states set even higher minimums, this could result in more financial responsibility placed back on the states, as they would have to fund the cost of those additional benefits.

Finally, there is risk that employers may drop coverage because plans will become more expensive (and the penalty for no coverage is more cost-effective). Employers that don't offer "qualified" coverage would be subject to fines of $2,000 or $3,000 per employee based on circumstances. In most circumstances, fines based on the first 30 employees would be waived. Compared to the average cost of offering coverage under today's standards, approximately $3,800 per employee, the math favors not offering coverage. For example, an employer with 55 employees would have to choose between paying a $75,000 fine (25x$3,000) or funding $209,000 (55x$3,800) in health plan costs!

Consequently, states have been leery of health exchanges from the beginning. As I note in the paper, only ten states and the District of Columbia have enacted exchange laws (as of May 1, 2012), and three others have the authority to do so by executive order. But a majority of states were either waiting for the Supreme Court ruling on PPACA, or actively rejected establishing exchange laws... even though the federal government will implement federally run exchanges (at the state's expense) with or without their assistance by January 2013.

Now that PPACA has been upheld by the Supreme Court, several states continue to oppose the creation of exchanges. Six governors - Bobby Jindal (R-Louisiana), Rick Perry (R-Texas), Bob McDonnell (R-Virginia), Rick Scott (R-Florida), Scott Walker (R-Wisconsin) and John Lynch (D-New Hampshire) - have all recently refused to set up a health insurance exchange within their state. Two (Jindal and McDonnell) indicated they wanted to 'wait and see' if Mitt Romney is elected in the fall and Obamacare is repealed.

Many other states may not have refused health insurance exchanges, but still have not taken action in creating them. This could create a nightmare scenario for the federal government in that they would have to take on the burden of creating all the exchanges for states that have not complied (or demonstrated necessary steps to comply) by mid-November 2012.

These "rogue" states have the right idea. PPACA health exchanges (as mandated) will not work for all of the reasons described above. The exchanges merely add a layer of bureaucracy, create more costs, and create barriers to competition... they just mask the current problems with new ones.

Who's to say whether or not the exchanges (or even PPACA) survive the November election? But the bottom line is that we need to focus on having transparent and accountable care delivery - and significant payment reform - before adding to the complexity of our current problems. States like Texas and Florida understand that health insurance exchanges add unnecessary costs and burdens without focusing on the fundamental issues, and miss the point of creating affordable access to care that delivers better outcomes.

In a future paper, I will be offering recommendations on a framework for finding the right solution for states' unique needs. Stay tuned...

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