Voluntary Health Insurance Exchanges

VII. Key Issues: Regulation & Reform >> C. Health Reform >> Voluntary Health Reform >> Voluntary Health Insurance Exchanges
     
 

Basic Design

This proposal by Sara Singer, Alan Garber and Alain Enthoven, is the most recent version of Alain Enthoven’s managed competition framework; eligibility for refundable tax credits would be contingent on purchasing coverage through federal, state or private health insurance exchanges designed to encourage high-value health insurance coverage. Thus it combines financing reform with changes in the structure of health insurance markets. This is a voluntary near-universal coverage plan, though in principle, it could be coupled with an individual mandate to make it universal.

  • Eligibility: all U.S. residents except those on Medicare would be given a choice between retaining the tax exclusion for employer-provided health coverage or using a refundable tax credit to purchase coverage through a health insurance exchange. The tax exclusion would be capped at an increasingly restrictive level over time, eventually equaling the 105% of the prior-year premium for the median-cost plan in a geographic area. Medicaid and SCHIP eligibles may retain their coverage or forgo it if they elect to receive a full refundable tax credit. All other low-income individuals (<$31,000) and families (<$51,000) could receive a fully refundable tax credit of 70% of the median-cost plan, but those failing to enroll would be automatically enrolled in a state-run default plan for which the state would receive only 50% of the full refundable tax credit. Middle-income individuals ($31,000-41,000) and families ($51,000-61,000) would receive a partial refundable tax credit phased out to $0 at the top end of the income range.
  • Benefits: all insurance exchanges must offer a “meaningful choice” of plans, defined to mean at least two products from at least two independent companies. Such plans must include at least one product that provides some coverage for treatment by most providers in a geographic area (e.g., a point-of-service plan) and a low-priced alternative (e.g., restricted benefits or catastrophic coverage). Exchanges are permitted to require qualified plans to offer some standardized basic benefits to facilitate comparisons across plans, but all exchange-provided plans would be exempt from state insurance mandates.
  • Freedom of Choice: in general, individuals regardless of employment status would have much wider choice of plans through their local insurance exchange than under current insurance arrangements. Employers not wishing to meet the requirements of insurance exchanges may continue to offer health coverage, but could not participate in the tax credit program. A U.S. Insurance Exchange (USIX) would serve as an insurance exchange for individuals and firms with fewer than 50 employees in areas where no private insurance exchange has emerged.
  • Financing: the administrative and subsidy costs of this proposal would be financed by capping the exclusion of employer-paid health insurance and savings from behavioral changes among consumers and health plans due to great cost-consciousness and competition. Any increase in funding would be financed from general tax revenues.
  • Regulation: a number of rules would govern eligibility for insurance exchanges, which would be certified by an Insurance Exchange Commission (IEC). Large and mid-size employers could be so certified, but only to offer coverage to their own employees and their dependents. Non-employer exchanges must accept all individuals not eligible for Medicare (guaranteed issue) at a flat premium rate (community rating), but otherwise could set their own rules regarding eligibility (e.g., maximum firm size), underwriting restrictions (e.g., waiting periods). Exchanges must perform at least some risk adjustment (initially starting with age) to minimize risk selection and preserve incentives for enrolling and adequately caring for high-cost patients. Exchanges also must require participating plans and providers to meet minimum standards for measuring quality and make available comparative information on plan benefits, pricing, quality measurement, quality improvement initiatives and other plan performance metrics to assist consumers in making informed choices.

 

Theory

The basic theory is that by being part of an exchange that offers multiple plans, insurers will compete more aggressively on price. They would also push for better deals with hospitals and doctors and do better managing potentially expensive diseases. The other appeal of the exchanges is to allow consumers to choose the kind of plan they want instead of having the government or the employer choose a plan for them.

  • Alain C. Enthoven. The History And Principles Of Managed Competition. Health Affairs, Supplement 1993; 12: 24-48. Enthoven’s original consumer-choice health plan (CCHP) originally developed as a potential model for national health insurance while he was serving as a consultant to the Carter administration.

Practice

U.S.

  • Federal Employees Health Benefits Program. FEHBP has used a health insurance exchange (“managed competition”) model since the early 1960′s in numerous geographic locations nationwide.
  • Public Health Benefits Plans. Other public health benefits plans (Wisconsin Employee Trust Fund and California Public Employees’ Retirement System) also have used a model similar to FEHBP’s.
  • Large Private Employers. Large private employers (Wells Fargo Bank, Stanford University) also have used a model similar to FEHBP’s.  Many other private employers have offered multiple plans, but not necessarily used fixed dollar contributions to incent competition among those plans.
  • Private Exchanges. More recently, health insurers and benefits consulting firms (Aon Hewitt, Mercer and Towers Watson) have created private exchanges open to employees across a number of firms. What the private exchanges like the one from Aon do not offer — yet — is an abundance of new entrants, like the co-ops created to offer nonprofit consumer-based alternatives on the state exchanges, or smaller plans offered by a large health system. Benefits consultants and others say the long-term goal is to achieve a diversity of offerings, but the current exchanges now favor large well-established insurers.
    • Aon.  “Aon’s model requires the insurers to assume the risk of paying the employees’ medical bills rather than simply managing claims for the large employers that self-insure. By forcing the insurers to be responsible for the costs of the employees’ health care, “we’re realigning the incentives,” said Ken Sperling, the Aon Hewitt executive who helped lead the effort. Aon says it has now enrolled more than 600,000 employees from different companies…Like the public exchanges, Aon’s private exchange also relies on dividing plans into tiers that offer varying levels of coverage. The bronze plan, for example, has a deductible of $2,500. Premiums vary by employer, depending on that company’s history of medical claims” (New York Times 3.7.14).
  • Trends. According to the New York Times (3.7.14):
    • “Only a small fraction of the 122 million workers now getting coverage through employers is currently enrolled in these private exchanges, but the number could rise to tens of millions by the end of the decade, according to Bruce Ballentine, who recently wrote a report on exchanges for Moody’s Investors Service.”
    • “Companies are turning to exchanges more aggressively for retirees, according to Ron Fontanetta, an executive with Towers Watson, and they are looking closely at the public exchanges for their part-time employees.”

 

Other Countries

  • Netherlands. On January 1, 2006, Netherlands became the first country in the world to adopt a universal coverage system that requires all legal residents to purchase basic health insurance through private insurance companies that operate under a managed competition structure. As the system develops, the current system of heavy regulation of providers and insurers will be gradually relaxed to allow the competitive market to create value for the money. Australia also is considering adoption of a managed competition model.

 

Analysis

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