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Five Key Questions About an Insurance Exchange

Les Masterson, for HealthLeaders Media, June 30, 2009

Imagine a Web site that allows consumers to compare health insurance plans and select one that best suits their needs.

That just may become a reality if lawmakers include an insurance exchange as part of the larger healthcare reform package. There are a number of different insurance exchange proposals in Washington and they vary in a number of areas.

Supporters of the various insurance exchange programs agree that the program would provide one-stop shopping for individuals to compare available plans. The program would also allow for portability so a person wouldn't lose health insurance because of job loss. After those two highlights, however, there is a lot of disagreement as to the actual makeup of the exchanges.

Here are five tough questions lawmakers will have to answer if the insurance exchange remains part of a larger health reform package.

1. Does it include a public plan?
The most hotly contested healthcare reform topic in Washington has been a public insurance plan. Supporters say a public option is one key way to reduce health costs because private insurers would need to cut costs in order to compete against a public plan with lower overhead.

Public plan foes, however, say the government should not create a public plan that would pay doctors and hospitals less and potentially hurt private insurers. They argue that a public plan, paying at rates similar to Medicare, would actually cause doctors and hospitals to transfer more costs onto private insurers.

Robert E. Moffit, PhD, director of the Center for Health Policy Studies at The Heritage Foundation, wrote in 2006 after about 15 state legislatures introduced statewide health insurance exchanges. Moffit supports an exchange that would make health insurance portable by having employers pay tax-free contributions to the exchange for their employees' healthcare.

He says creating a health insurance exchange to work in concert with a public insurance plan, on the other hand, will mean the end of private insurance.

"In my view, we're talking about something that looks like the Roman Coliseum where all the private plans are the Christians and the public plan is the lion. So the national health insurance exchange becomes a giant killing field for private health insurance, which is what I think they want to do," he says.

2. Is it a federal or a state program?
An insurance exchange could be a federal program or a state-run program that would launch with federal seed money.

Most experts agree that the exchange would need to be run at the state level because there are so many variations in mandates, laws, and insurers by state that a national exchange would be impossible.

Janet Trautwein, executive vice president and CEO of the National Association of Health Underwriters, says most of the insurance exchange proposals would create an exchange that would not preempt state law. Another option is to let individuals choose between policies with state-mandated policies and ones without those mandates.

Trautwein says lawmakers must make sure that insurers are treated the same whether outside or inside an exchange, such as offering the same subsidies to each. A level playing field is needed or people could flee their employer-based plans to take advantage of subsidies in the exchange.

"It is very important if we have an exchange that the rules be the same whether people purchase inside or outside the exchange—otherwise it could really upset the market," she says.

3. Will it include an individual coverage mandate?
An individual coverage mandate has been the cornerstone of Massachusetts' health reform and state officials say they wouldn't enjoy such low uninsured numbers without the mandate.

But others think federal lawmakers should not require all Americans to have health insurance. They instead would rather a health insurance exchange that is similar to eHealthInsurance, which is a Web site that allows consumers to compare health plans. Joseph Antos, Wilson H. Taylor Scholar in Health Care and Retirement Policy at American Enterprise Institute for Public Policy Research, says lawmakers don't need to mandate insurance to accomplish that kind of system.

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