The Role of Exchanges in Health Care Reform

1. The Role of Exchanges in Health Care Reform Linda J. Blumberg The Urban Institute

2. Why have an exchange? • Insurance markets are not well organized today; • Barriers to obtaining coverage, result of voluntary participation; • Lots of latitude in marketing practices and product design; • Market rules and consumer protections vary widely across states; • Products are often confusing. • Exchanges can be designed to provide structure and oversight to insurance markets.

3. Goals of Reform • Increased sharing of health care risk; • Slowing rate of health care inflation; • Making coverage affordable; • Facilitating enrollment in coverage; • Ensuring meaningful coverage; • Promoting transparency and accountability.

4. Cost Containment • An environment more conducive to competition has potential to slow the growth in health care spending. • Two factors determine the costs of coverage of a given level: • Underlying costs of providing care; • Higher provider payments may reflect lack of competition in provider & insurance markets. • Administrative costs of insurance.

5. Exchange role in addressing costs of care • Exchange can be given authority to negotiate with plans over price; • Standardized benefit packages promote price comparisons; • Fixed employer contributions promote lower-cost plans; • Public plan could catalyze private plans to be more cost efficient; • Greater insurance transparency will promote more informed consumer choices, incentives for efficiency.

6. Exchange role in addressing administrative costs • Admin costs range from ~7% to 30% of premiums. • Some efficiency potential, but individual admin costs > large groups. • Reduced marketing expenses; • Reduced churning; • Detailed reporting and disclosure of admin costs and operations; • Public plan option could pressure privates to lower their admin costs.

7. Exchange role in delivering subsidies • Affordability is key to substantial expansion of coverage; • Cost of delivering subsidies in non-organized market can be very large. • HCTC example • Centralizing process much more efficient. • Standardized products in exchange: • Same benefits, different cost sharing levels, • Avoids cumbersome out-of-pocket subsidies.

8. Exchange role in facilitating enrollment • Enforcement of an individual mandate should be minimal if enrollment is affordable and barrier free; • Exchange can provide central location for: • Reliable information on options and all processes; • Choosing plans; • Subsidy determination; • Making payments; • Tracking enrollment and disenrollment to minimize coverage gaps.

9. Concluding thoughts • Many different problems in insurance marketplace to address; • Exchange is needed to: • coordinate tasks; • guide markets to compete in cost-efficient ways; • Monitor compliance with consumer protections; • Without one, patchwork of new agencies and new roles for existing agencies necessary, but efficiency would be compromised.