Health Insurance Exchanges

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

Abstract

Health insurance exchanges were invented to improve accessibility and portability of health insurance. Although the health insurance exchange concept has existed for over a decade, their popularity increased dramatically as a central feature of most 2009 US health reform proposals.

Purpose of health policy or idea

Health insurance exchanges (HIE) were created to improve the accessibility and portability of health insurance. During the United States 2009 health reform efforts, health insurance exchanges have been included in most legislative proposals. They are a way for individuals that historically have purchased insurance individually to purchase insurance as part of a group and to have many different insurers compete for their business. 

The meaning of the term 'health insurance exchange' varies widely and has been used to refer to everything from an information clearinghouse to a highly structured intermediary that contracts with health plans and negotiates benefit packages. In most recent formulations, a health insurance exchange involves a regulating entity (e.g. a state or organization) that contracts with a number of competing health plans based on minimum standards for what constitutes creditable coverage. This entity then negotiates benefit packages and cost sharing requirements with each contracting plan. In most cases an exchange would also regulate the insurance market by setting rules regarding underwriting and rating practices. Individuals then choose among the competing plans. 

Most proposed HIEs target small businesses (usually those with less than 10-20 employees) and individuals purchasing insurance on their own who have been unable to obtain affordable health insurance on the private market.

Main points

Main objectives

The purpose of the health insurance exchange is to improve access to, and portability of, health insurance. The goal is to allow the private market to work by having the information presented in an easily accessible way.

Type of incentives

Health insurance exchanges are usually formulated so as to encourage competition among insurance plans (both local and national plans), with the expectation that it will lead to greater efficiency and lower costs to enrollees because of greater competition.

Groups affected

Government, Insurance companies, Employers, Patients/Consumers, Uninsured, Providers

Degree of Innovation	traditional		innovative
Degree of Controversy	consensual		highly controversial
Structural or Systemic Impact	marginal		fundamental
Public Visibility	very low		very high
Transferability	strongly system-dependent		system-neutral

The final legislation will heavily influence the structural impact and transferability of the policy.

Political and economic background

In their most basic form, health insurance exchanges have been discussed in the policy realm for over a decade. However, the 2008 election cycle (and coincident world-wide recession) brought national attention to the number of uninsured individuals and the high cost of insurance on the individual and small group market in the United States. The election of President Obama and a majority of Congressional Democrats changed the political direction of the U.S. to support health reform. 

Health insurance exchanges have gained wider recognition and visibility as part of a strong commitment by the Obama Administration to work towards increased coverage of the uninsured. Health insurance exchanges are now viewed as a central component of addressing the 46 million uninsured and 25 million underinsured persons in the United States.

 

Change of government

The election of President Barack Obama in 2008 and a Democratic majority in the US House of Representatives and the US Senate, has contributed towards an increasing emphasis on health care reform.

Change based on an overall national health policy statement

Members of both the Democratic and Republican parties have expressed support for expanding health insurance coverage to all Americans.

Purpose and process analysis

Current Process Stages

	Idea	Pilot	Policy Paper	Legislation	Implementation	Evaluation	Change
Implemented in this survey?

Origins of health policy idea

Various forms of health insurance exchanges (HIEs) have been developed and implemented at the state and local level in recent years. Current proposals are based primarily on the health insurance exchange created in Massachusetts. In 2006, the state of Massachusetts passed reform legislation that included the creation of the Massachusetts Health Insurance Connector Authority - a body that operates two health insurance exchanges in the state. Low-income residents have access to Commonwealth Care, a HIE that provides a choice of health insurance plans at subsidized rates. Higher income state residences have access to Commonwealth Choice where they can choose between a number of health insurance carriers and benefit packages. The Massachusetts legislation included two other important features: an individual coverage mandate requiring most residents to obtain coverage and a 'pay or play' feature where employers with 11 or more employees are required to either provide coverage for their employees or pay a penalty. 

Recent national health reform proposals put forth by the Senate Finance Committee and the Senate Health, Education, Labor and Pensions (HELP) Committee as well as legislation in the House of Representatives include HIE mechanisms. 

The Senate Finance Committee's proposal would create a system of state-level HIEs that would be accessible to uninsured individuals and a small group market HIE that would allow small businesses (up to 100 employees) to access coverage for their employees. This proposal would also require guaranteed issue and renewability (regardless of health status), but would allow rating variation based on certain individual characteristics including age, tobacco use, geography, and family composition.

The Senate HELP Committee's proposal would create a system of state-level HIEs where a governmental agency or non-profit organization would serve as the regulating entity. These HIEs would be accessible to only to those individuals that do not have creditable coverage available to them through their employer or through a government program such as Medicare or Medicaid. Like the Senate Finance Committee's proposal this proposal would also require guaranteed issue and renewability, and would allow rating variation based on certain individual characteristics.

The House of Representatives proposals are similar to the Senate versions.

Initiators of idea/main actors

• Government

• Providers: Health care providers generally support policies that reduce the number of uninsured individuals but have concerns about the potential for increased administrative burdens for reimbursements.

• Patients, Consumers: Uninsured individuals support exchanges that improve accessibility and affordability.

• Private Sector or Industry: Insurance companies have concerns about the potential for increased regulation with health care exchanges but support the expansion of their customer pool. Small business owners support having more affordable insurance options.

• Political Parties: Both parties support the concept of creating health insurance exchanges, but disagree about what the exchanges should look like.

Approach of idea

The approach of the idea is described as:
renewed: Health care exchanges have been discussed in various incarnations in the US for many years. The most recent debates propose exchanges as a way of improving accessibility and affordability of insurance plans for individuals and small businesses.

Innovation or pilot project

Local level - The Massachusetts Health Insurance Connector Authority operates two health insurance exchanges in the state.

Stakeholder positions

The concept of health insurance exchanges is well accepted within the health reform debate. However, a great deal of debate occurs over the details of how the exchanges would be formulated. In general, Democrats support HIEs that regulate the insurance market tightly, including eliminating prexisting condition exclusions and requiring guaranteed issue and renewability. Some Republicans want a single health insurance exchange for all individuals, where employers would contribute a certain fixed sum toward purchasing a plan and employees would pay the difference for their plan of choice. In this manner competition would be increased while abolishing the current employer tax treatment of health insurance.

Actors and positions

Government
Obama Administration	very supportive		strongly opposed
Providers
Health care providers	very supportive		strongly opposed
Patients, Consumers
Consumers	very supportive		strongly opposed
Uninsured	very supportive		strongly opposed
Private Sector or Industry
Insurance companies	very supportive		strongly opposed
Small business owners	very supportive		strongly opposed
Political Parties
Democrats	very supportive		strongly opposed
Republicans	very supportive		strongly opposed

Influences in policy making and legislation

Health insurance exchanges are folded in with other elements of the 2009 health reform debate in the U.S.

Legislative outcome

pending

Actors and influence

Government
Obama Administration	very strong		none
Providers
Health care providers	very strong		none
Patients, Consumers
Consumers	very strong		none
Uninsured	very strong		none
Private Sector or Industry
Insurance companies	very strong		none
Small business owners	very strong		none
Political Parties
Democrats	very strong		none
Republicans	very strong		none

Positions and Influences at a glance

Adoption and implementation

The government agency or third party that would serve as the administering entity will be the primary actor in the implementation and formulation of the health insurance exchange(s). The potential barriers and incentives will depend on the details of the overall health reform bill eventually passed.

Monitoring and evaluation

The current health reform proposals that include health insurance exchange(s) do not currently propose monitoring or evaluative mechanisms.

Results of evaluation

N/A

Expected outcome

The final formulation of the legislation, and the exact regulatory mechanisms put in place,will affect the outcome of the health insurance exchanges. As implemented in Massachusetts, the health insurance exchange has helped to significantly reduce uninsurance rates, however, at this time insufficient data is available on the overall success of the program in terms of affordability and portability of insurance purchased within the exchange.

Depending on the formulation, it is possible that employers will cease providing insurance as part of their benefits package and leave employees to purchase coverage within the exchange. In addition, without strict regulation, the health insurance exchanges may have little impact on existing problems with the individual and small business insurance markets.

Impact of this policy

Quality of Health Care Services	marginal		fundamental
Level of Equity	system less equitable		system more equitable
Cost Efficiency	very low		very high

If the final legislation is formulated to promote plan competition such that consumers have more affordable choices, the plan would improve equity and cost-efficiency.

References

Sources of Information

• Fronstin P, Ross M. Addressing Health Care Market Reform Through an Insurance Exchange: Essential Policy Components, the Public Plan Option, and Other Issues to Consider. Employee Benefit Research Institute (EBRI); 2009. Available at: http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=4289
• HOUSE COMMITTEES ON WAYS AND MEANS,ENERGY AND COMMERCE,AND EDUCATION AND LABOR. HEALTH REFORM AT A GLANCE: The Health Insurance Exchange.; 2009. Available at: http://74.125.113.132/search?q=cache:ogcRk6ay0rQJ:waysandmeans.house.gov/media/pdf/111/
• exchange.pdf+health+insurance+exchange&cd=4&hl=en&ct=clnk&gl=us&client=firefox-a
• Kaiser Family Foundation. Explaining Health Care Reform: What Are Health Insurance Exchanges?. Washington,  DC: Kaiser Family Foundation; 2009. Available at: http://www.kff.org/healthreform/7908.cfm
• Kaiser Family Foundation. Side-by-Side Comparison of Major Health Care Reform Proposals - Kaiser Family Foundation. Kaiser Family Foundation: Health Reform. Available at: http://www.kff.org/healthreform/sidebyside.cfm
• Merlis M. A Health Insurane Exchange: Prototypes and Design Issues. Washington,  DC: National Health Policy Forum, The George Washington University; 2009. Available at: http://www.nhpf.org/library/details.cfm/2742
• Senate Committee on Finance. America's Healthy Future Act of 2009.; 2009. Available at: http://www.opencongress.org/baucus_bill_health_care.html
• Senate Finance Committee. Expanding Health Care Coverage:   Proposals to Provide Affordable Coverage to All Americans.; 2009. Available at: http://finance.senate.gov/sitepages/legislation.htm
• Massachusetts Commonwealth Connector. Health Connector. Available at: https://www.mahealthconnector.org/

Author/s and/or contributors to this survey

Emily Adrion, Krista Harrison and Gerard Anderson

Suggested citation for this online article

Emily Adrion, Krista Harrison and Gerard Anderson. "Health Insurance Exchanges". Health Policy Monitor, October 2009. Available at http://www.hpm.org/survey/us/b14/1