‘Obamacare’ insurance exchanges: Let’s get going

The 2010 healthcare reform law gave states until Jan. 1, 2014, to create “exchanges” in which individuals and small businesses could shop for insurance policies. If the states don’t, the federal government will operate exchanges for them. The requirement poses a quandary for lawmakers who oppose the federal law: Should they start working on an exchange, or count on the law being repealed by the Supreme Court or by a new Republican-controlled Congress and White House in 2013? The answer is that each state should set up an exchange regardless of how its lawmakers feel about “Obamacare,” because it would help ameliorate the very real problems consumers face in the health insurance market.

One of the main goals of the Patient Protection and Affordable Care Act is to extend coverage to millions of Americans who can’t obtain insurance today. These are typically people with preexisting medical conditions or limited incomes whose employers don’t offer health benefits. They may be unable to afford the individual policies sold in their states, or insurers may refuse to cover them because of their history of health problems. Starting in January 2014, the law provides subsidies to help lower-income families buy policies, and it prohibits insurers from excluding applicants with preexisting conditions or charging them higher rates. To deter people from buying coverage only after they get sick, the law also will require all American adults to carry insurance or pay a penalty to the Internal Revenue Service.

The expensive subsidies and the mandate to buy insurance are two of the most hotly disputed elements of the law. Less controversial are the efforts to slow the growth in healthcare costs by making the system more efficient and effective, to shift the incentives in healthcare from treating sickness to promoting health, and to help consumers be smarter shoppers for insurance. That’s where the exchanges come in.

Think of the exchanges like a virtual mall dedicated to health insurance. Insurers offer standardized policies in formats that make them easy to compare with other companies’ offerings. The exchanges can be run by the government or by a private nonprofit. And states can choose to have the exchanges negotiate with insurers for better deals or to let all the insurers’ offerings compete for customers.

The main value for consumers is in the convenience and transparency the exchanges provide. No longer would they have to wander from agent to agent (or website to website) to find out what their options were. Nor would they have to try to translate each insurer’s fine print to measure the total value of its policies. Enabling consumers to compare services and prices should remove some of the artificial barriers to competition in insurance and make it harder for companies to raise premiums.

The exchanges’ role in promoting competition helps explain why the concept has long drawn support from healthcare reformers on both sides of the aisle. One of the first proposals for exchanges was in the bill Senate Republicans offered in 1993 as an alternative to President Clinton’s ill-fated healthcare initiative. And House Budget Committee Chairman Paul Ryan (R-Wis.) has made insurance exchanges a key feature in his proposed overhaul of Medicare.

Nevertheless, the political fight over the Affordable Care Act has deterred numerous states from trying to establish an exchange. According to research by the Urban Institute, California and 13 other states have created exchanges by law or executive order; 15 states have made little progress, if any; and the rest fall somewhere in between. If they don’t make significant headway by January 2013, the act authorizes the federal government to set up and operate exchanges for them — probably the least desirable outcome for the law’s critics.

Repealing the law would eliminate some of the benefits that the exchanges could deliver, most notably the subsidies that make coverage affordable to the working poor and the ban on insurers cherry-picking customers based on their preexisting conditions. Yet state-sponsored exchanges could still push insurers to demand improvements in the way medical care is delivered and paid for — for example, by providing incentives for hospitals to cut readmission rates. At the very least, they would bring much-needed convenience and simplicity to the market for individual and small-group policies. After all, the problems in that market will still be here even if the Affordable Care Act goes away.