Health Insurance Exchanges – Coming to a state near you

With the reelection of President Obama, the talk of repealing Obamacare has quieted down and the schedule for implementation has continued to run. December 14 was the day the states had to declare whether or not they would be participating in one aspect of the new law – the health insurance exchange provisions of the Patient Protection and Affordable Care Act.  As of that date, 19 states had declared state-based exchanges, 7 were planning to partner with the federal government in operating exchanges and 25 were defaulting to the federal exchange.  Washington State was among those to declare they would operate a Washington health insurance exchange.

So, what is a health insurance exchange?  The short answer is that it is a provision in the affordable care act that helps aggregate individuals and small groups into a larger entity that more nearly resembles a large business. Large businesses purchase insurance that is based on their risk. If they have a mix of employees and are generally healthy they have access to insurance at a much lower rate than a private individual. In principle, the healthy people in a large group pay enough into a plan to cover the claims of those who fall ill. In addition, their administrative costs represent savings for insurers in a large group because the group can be administered as a whole. The new health insurance exchanges will attempt to take all of those individuals and small businesses and lump them together, in effect treating them as one large group under the exchange. People or small businesses (under 100 employees) who access these exchanges can shop for the type of plan they need and the price they can afford. Rules within the exchange will help to prevent companies from cherry picking only healthy applicants or creating rules or policies which discourage less healthy applicants from applying.  The state will also reserve the right to select the plans that qualify for inclusion in the exchange.

The law has provided several options for states. They can create their own exchanges and maintain fairly complete control over their operation. They can also elect not to participate and to allow a large federal exchange to be accessed by applicants in their state. Finally, they can work with the federal government to perform a piece of the exchange activities, such as providing information and support for the sign-up. States are still allowed to control the processes of which insurers are allowed to participate in their state.  The objective of the exchanges is to create a competitive marketplace where the risk is shared among a broader base of applicants and where administrative efficiencies can be created.

Oddly enough, once the fervor about repealing the law passed, some commentators are beginning to look at these health insurance exchanges as useful entities. It turns out that while politicians were complaining about European “socialized medicine” the Swiss have been running a pretty reasonable health care system based on an exchange concept and universal health insurance provided by private insurers.  In Switzerland, they spend less than 3 percent of their gross domestic product on health care while here in the US we spend nearly 8 percent.  United States That is beginning to look like an attractive model to some who do not like Obamacare.

Right now, these health insurance exchanges are little known and poorly understood entities, but they could become the next battleground as opponents of a single payer health care system look for alternatives to the Patient Protection and Affordable Care Act. 

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