The Commonwealth Fund
July 15, 2010
Health Insurance Exchanges and the Affordable Care Act: Key Policy Issues
By Timothy Stoltzfus Jost, J.D.
Health insurance exchanges are the centerpiece of the private health insurance reforms of the Patient Protection and Affordable Care Act of 2010 (ACA). If they function as planned, these exchanges will expand health insurance coverage, improve the quality of such coverage and perhaps of health care itself, and reduce costs. Previous attempts at creating health insurance exchanges, however, produced only mixed results. This report identifies the earlier attempts' problems, enumerates the key issues that are critical for overcoming those problems, analyzes in detail the ACA's provisions addressing these issues, and discusses further policy options.
As part of successfully implementing the new exchanges, the U.S. Department of Health and Human Services (HHS) and the states must address issues that undermined the earlier attempts. These issues are:
• Adverse selection.
• Numbers of participants.
• Market coverage and structure.
• Choice without complexity.
• Transparency and disclosure.
• Administrative costs.
• Market or regulator?
• Administering subsidies and mandates.
• State, regional, or national exchanges?
• Relationships with employers.
• Cost control.
Comment: "Health Insurance Exchanges and the Affordable Care Act: Key Policy Issues," by Timothy Stoltzfus Jost, should be read in full (44 pages) by everyone who cares about the future of our health care system. The Executive Summary alone is not adequate to understand the implications of the issues he discusses. Every page requires attentive reading since each is covered with red flags, far too many to cover in a qotd commentary.
It is an especially important report for those who believe that the health insurance exchange model is a satisfactory compromise for moving forward, while dismissing further efforts to create a public national health program. It is also important for single payer advocates (improved Medicare for all) since it is important to understand the red flags raised by this report, and be able to debate them with others.
Many of the issues listed would disappear under a single payer system. For instance, in spite of the measures in the law, adverse selection (concentrating high-cost patients in health plans) cannot be eliminated by the insurance exchanges, yet it would disappear in a single universal risk pool. That is especially important since adverse selection has destroyed previous insurance exchanges in numerous states.
The numbers of participants in the exchange plans are also crucial. A few unhealthy individuals can wipe out a plan if there isn't a large number of healthy individuals to absorb the costs through the plan premiums. It has been estimated that 24 million people will obtain their coverage through the exchanges. Distribute that amongst the fifty states, and then divide those numbers up amongst the "large" selection of plans in the "robust" markets of the exchanges, and you can see that many plans would likely fail due to the small numbers of insured.
Although an important goal of reform was administrative simplification, insurers will still have most of their administrative costs, as will the physicians and hospitals, and yet another layer of administration is added in the operation of the exchanges.
The premium subsidies, cost-sharing subsidies, and the mandates and penalties, in a system with ever-shifting eligibilities, creates a complex financing structure that is totally unnecessary. It is far simpler to finance the entire health care system through equitable taxes.
The reform act was designed to perpetuate the employer role in providing health care coverage, but increasing costs and increasing fragmentation through various public and private programs is increasing the complexity of the decision process for employers, creating an uncertain future for employer-sponsored plans. It would be far easier to remove the employer as keeper of the health plan, and simply provide a single, comprehensive public plan for everyone.
And cost control? It didn't happen.
You likely don't have time to read the full report now, but download it and read it this weekend, or at any other time that you have a break.