How Congress might change the way you buy health insurance

All the reform bills would establish a nationwide system of government-run insurance exchanges. Here's how they'd work.

Healthcare reform efforts in the House and Senate are proposing to alter profoundly the way in which many people in the US would shop for and purchase their health insurance policies.

Details differ, but the big health bills now under consideration in both chambers would establish a nationwide system of insurance exchanges – government-run, Web-centered marketplaces intended to make it easy for consumers to compare the costs and benefits of available insurance options.

These exchanges perhaps haven’t received the attention paid other aspects of the Obama administration’s push to pass healthcare reform legislation. But proponents say they would be a vital piece of the new US healthcare delivery system, serving as subsidy dispensers and insurance regulators as well as places to buy and sell coverage.

“They would be like a supermarket, and a food stamp office, and an FDA [Food and Drug Administration] that oversees food safety, all rolled into one,” says Karen Pollitz, a project director at Georgetown University’s Health Policy Institute.

Insurance exchanges (they’re called “gateways” in the Senate Health, Education and Labor committee bill) are intended as a way to implement healthcare reform’s central change: Everybody in the US would have to get health insurance from somewhere. This individual insurance mandate would be the law of the land.

But when it comes to buying health insurance, right now big companies have an advantage over small firms and individuals who buy health insurance on their own. The market power of large corporations enables them to get lower prices and better benefit packages from insurance firms that are competing for their business. That’s the theory, anyway.

Insurance exchanges would be places where individuals shopping on their own – plus employees of small firms – would be able to go to get better health insurance deals. By banding together, they would be able to command lower prices and a wider benefit selection. (Again, that’s the theory.) Plus, government might regulate the price and nature of the available insurance products.

The exchange might set rules for a range of allowable deductibles and co-payments, for instance, so that consumers are presented with choices that are not so dissimilar as to make it impossible to figure out which is the best deal.

“We’ve learned over the years that health insurance is a very complex product, and that it’s very easy for people to make poor choices,” says Ms. Pollitz.

The exchanges would also be the place where lower-income Americans go to receive a government subsidy to help them pay for their insurance coverage. Currently, the House and Senate health panel bills would subsidize individuals or families with incomes up to four times the poverty level. So the exchanges might be much more than a Travelocity or Orbitz for health plans.

“They are really important parts of the overall bills,” says Sarah Lueck, a policy analyst at the Center for Budget and Policy Priorities.

As to differences between the chambers, the House bill would establish a national insurance exchange. The Senate would set up state-based “gateways,” though the feds could step in and run gateways in less-populated areas or states that struggle to establish their rules.

To proponents, one important aspect of exchanges is relative exclusivity. In their view, the more Washington allows insurance firms to sell their products outside an exchange, the more the exchange might be weakened.

“If it’s not designed carefully, such a system could lead to a concentration of poorer and less-healthy people in the exchange,” says Edwin Park, a senior fellow at the Center on Budget and Policy Priorities.

Critics, however, score the proposed insurance exchanges as simply another possible layer of government bureaucracy in a marketplace that is already highly regulated. The draft House bill, for instance, would set rules about how extensively insurance plans could engage in marketing. It would regulate such things as the relative cost between policies for younger and older people.

The so-called “public option” – a purely government-run nonprofit insurance plan intended to compete with private insurers – probably will not be able to pass Congress. But it might not have to, say critics, as insurance exchanges could give Washington a back-door way to accomplish the same thing.

“We will get a highly regulated health insurance exchange which creates the equivalent of a public plan through private intermediaries that only look private and are mostly taking their orders from the rulebook made in Washington,” said Thomas Miller, an American Enterprise Institute fellow and former senior health economist for the Congressional Joint Economic Committee, at an AEI seminar on healthcare reform earlier this summer.

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