One of the biggest issues to resolve as the House and Senate reconcile their health care reform bills is one that rarely makes headlines: The type of insurance exchange.
Exchanges, as you may know, are the regulated marketplaces through which people without access to good employer insurance would have access to affordable, comprehensive coverage--regardless of income or pre-existing conditions. Exchanges are part of both the House and Senate proposals, but there's a crucial difference between each chamber's vision. Under the House bill, the federal government would set up a national exchange.In the Senate verison, individual states would set up their own exchanges.
Although expert opinion on this issue is not quite unanimous, the overwhelming majority of people I've consulted favor the House version. And I think they make a persuasive case.
Among the more compelling reasons to support a national exchange is a fear that individual states won't manage their exchanges aggressively enough--either because the people put in charge lack the expertise or the political officials overseeing them are in the pockets of the health care industry. (Believe it or not, industry lobbyists frequently have even more sway at the state level.) In addition, exchanges will likely be responsible for administering subsidies to people who need help buying insurance. But the subsidies will be coming from the federal government, which means states won't have as much incentive to manage the use of those subsidies wisely.
The best counter-argument to the national argument is that state officials would be in a better position to negotiate contracts, since they'll have a much sharper feel for the local markets and what works (or doesn't work) in each one. That might, in theory, allow the exchanges to bargain harder with insurers--or deliver better quality plans.
But that's not an argument against national exchanges so much as it is an argument for allowing states to opt out of the national exchange--and to take over management--once they've demonstrated ability to do the job on their own. And the House plan already includes such a provision, in part because one particular state (Massachusetts) already has a well-functioning exchange. You don't want to interfere too much with what's going on in Massachusetts--and you don't want to get in the way of other states that could similarly manage insurance on their own.
Understood properly, the House plan doesn't actually require all states to be part of the national exchange. It merely sets a high standard for what the exchanges should do--and allows states to handle the job as long as they can meet that standard. That's exactly how it should be.
Update: Wonkroom's Igor Volsky gives a more detailed (and even more compelling!) argument for national exchanges than I do. That's his chart immediately below. Volsky draws heavily on the work of Timothy Jost, who's been making the case for a while.
| House Bill | Senate Bill |
| National exchanges. States (like Massachusetts) can opt-opt out and create their own exchanges. | State-based exchanges. States would have to pass a law establishing the exchange and would be responsible for running it. If a state fails to establish an exchange by January 2014, the federal government could build it. |
| A single national exchange would create a larger risk pool that could lead to lower costs and greater administrative efficiencies. | All 50 exchanges would operate independently. States would receive seed money to establish their exchanges but they would have to fund and maintain the operation using their own funds and would presumably raise that money from a tax on insurers. |
| Uniform implementation, states would not lag behind. | States facing budget problems or political interfighitng would be slow to implement the exchange or effectively regulate the insurance product they sell. |
| To eliminate adverse selection and prevent insurers from attracting the healthiest applicants outside of the exchange, all nongroup policies have to be sold inside the national exchange. | The nongroup market can exist outside of the exchanges. Insurers that participate in the exchange would be required to market the Silver and Gold tier plans in the exchanges but would be exempt from marketing the Bronze plan within the exchange. Insurers could therefore market the lower-cost/high deductible Bronze plan outside of the exchange or stay out of the exchanges altogether and attract healthier people into the non-exchange nongroup market. |
| The exchange can negotiate premiums, administrative costs with insurers, selecting only the most prudent of policies. | The exchanges can take an insurers’ premium history into account. Some discretion for the exchanges to negotiate with plans around premiums. |