Health Insurance Exchanges: Organizing Health Insurance Marketplaces to Promote Health Reform Goals

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Abstract

A health insurance exchange can make it possible to organize health insurance markets more efficiently and effectively than takes place today. Because so many different problems must be addressed in the insurance marketplace in order for all to have meaningful and affordable coverage, an entity like an exchange is needed to coordinate tasks and guide markets to comply with consumer protections and compete in cost-efficient ways. While not a panacea for all that ails the health system, carefully designed, an exchange can be a vehicle that facilitates and monitors the movement of the system toward many national health reform goals.

Introduction

In the national health care reform debate, President Obama has called for the establishment of a health insurance exchange, as has Senate Finance Committee Chairman Max Baucus. A health insurance exchange is a term to describe an organized marketplace for the purchase of health insurance.1 In addition, a central feature of Massachusetts’s state health care reform has been the creation of a “connector” to organize the marketplace for individual and small-group health insurance. The Commonwealth Connector2 has also been used to make health insurance affordable, adequate, understandable, and available to everyone regardless of health status, and to promote competition. Organizing the health insurance market in this way makes it possible for residents to comply with the state’s new mandate that all adults have health insurance.

Private health insurance markets today are not very organized. Individuals and employers voluntarily participate as purchasers, but too often those who would like to buy coverage face barriers to doing so, including problems of affordability and discrimination based on health status. Private health insurance companies and health maintenance organizations (HMOs) must obtain a license to sell coverage but otherwise generally have autonomy in their business decisions to enter or exit a market, as well as significant latitude in their marketing practices and product design. Health insurance policies are highly variable, and some leave policyholders underinsured. Market rules and consumer protections also vary widely across states and products and often are confusing. As a result, consumers face difficulty weighing options and understanding how coverage works. Using exchanges to provide structure and oversight to these markets has, however, been met with some resistance from the insurance industry.

Key goals of health reform that expands coverage substantially and moves the nation toward universal coverage include

• ending discrimination based on health
• status and promoting sharing of health care risk, slowing the rate of health care inflation,
• subsidizing health insurance for low- and modest-income Americans to make it affordable, facilitating enrollment,
• ensuring meaningful coverage, and
• promoting transparency and accountability.
  

A health insurance exchange can be designed to assist in accomplishing these goals, but exchange design choices are critical in determining their outcomes. This paper reviews key problems that face individual and employer purchasers today and ways a health insurance exchange might be designed to address these problems. It also highlights lessons that can be learned from the experience of prior efforts to create and operate exchanges.

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