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 gt 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.