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State vs. National Exchanges – Why it Matters

Does it matter whether health insurance exchanges are state-level or national? I used to think that it wasn’t a major issue, but my opinion has changed.

During the health reform debate early in 2009, I thought that other exchange design issues were more important than whether they are organized at the state or national level. In my view, who is eligible to join (all small business employees or just those who receive subsidies?), whether the exchange is the exclusive market for individuals and small groups, and how the exchange will be protected from an adverse selection “death spiral” are critical design features and will determine whether the exchanges are successful.

It seemed to me that the arguments put forward by advocates of a national exchange were not compelling. The most common argument was that a national exchange was needed in order to gain sufficient size, which would supposedly give the exchange more bargaining power with health insurers. But I always thought that size was more important at the local level. Health insurers negotiate provider contracts locally, not nationally, and they gain leverage based on their size locally regardless of how big they are nationwide. In addition, the “bargaining power” argument is relevant only if the exchange is negotiating rates with insurers. In an “all comers” model, the exchange isn’t negotiating rates; it relies on healthy competition among insurers to drive down premiums.

There is another argument, however, for a national-level exchange. A problem with state-level exchanges is the likelihood that they would be different from each other in variety of ways: participation rules, quality standards, enrollment processing, payment coordination, management effectiveness, etc. In other words, they would be non-standardized, and this would create a serious barrier for participation by large, multi-state employers. This isn’t an immediate problem, since the current health reform bills permit only individuals and employees of small employers to use the exchange in the near term. But the lack of standardization would effectively limit the exchanges to these groups for the long term. Most large, multi-state employers would look at the patchwork of state-level exchanges and decide that it wouldn’t be worth the hassle. (One of the reasons that these employers fiercely defend ERISA’s federal preemption of state insurance regulations is the administrative complexity caused by the differences in state laws.) If the exchanges were administered nationally, however, some large employers might seriously consider participating.

One of the major goals of the current reform bills is to put in place the framework for an effective health insurance system. If the framework is robust and flexible, we can make improvements and allow the system to evolve. If we get it wrong, however, a flawed framework can block the evolution. We don’t have to decide right now if we want the exchanges to completely replace the employer-based system in the long run, but shouldn’t we at least give large employers the option to use the exchange if it makes sense to them? We can do that with a nationally administered exchange; it won’t work with a 50 state approach.

(Note: I should be clear about definitions. This is not a single nationwide exchange including only insurers who have provider contracts throughout the U.S. It is a nationally administered exchange, with insurers choosing to participate in selected locations. There could be local administrative organizations to which the national exchange administrator could delegate certain tasks, e.g., health plan certification, coordination with state Medicaid programs, etc. There would be some national insurers in the exchange, of course, but it would also include insurers who have only a local or regional presence. People would have a choice among several national insurers as well as the local insurers that participate in their area. This is the model used successfully by FEHBP and nearly all large, multi-state employers.)

Bill Kramer is an independent health care consultant, focusing on health care management, finance and public policy. Bill served as a senior executive with Kaiser Permanente for over 20 years, most recently as Chief Financial Officer for Kaiser Permanente’s Northwest Region. More information about Bill may be found at his website. You can read more of his commentaries on health care management and policy at his blog, Now’s the Time, where this post first appeared.

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p90x workoutHenry MassingalePeterRhondaJordan Recent comment authors
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p90x workout
Guest

what about Medicare ?

Henry Massingale
Guest

To show the people of the United States that there is a plan to cover the sick and the poor, but to get Government Officials to see is a concept alone. To help cover the sick and the poor is a FASC Concept that states that to build a Health Care Forum within our Government Institution is a Peoples right to do so and this is Protect Under the Constitution as a Human and Civil Right. So in plan words if the poor and the sick could only afford to pay $5.00 to $10.00 per month this would to bring… Read more »

Henry Massingale
Guest

My My My, To build a United Health Care Forum you must unite all the people as one. I once wrote to President Obama and stated to take the words of 250 million people of what Health Care should do for them, and place this before all on tv, remove this force pay concept, the pick and choose the best and dump the rest, all issues that are not of a moral building block of Bill To Law. But to do this you must step out side of the Artificial Intelligence within Government of what the dollar is next to… Read more »

Henry Massingale
Guest

As it would seem this Health Care issue now is based on DNA Testing. That maybe at birth to see if you can be covered by Health Care. The moral building block of what Health Care stood for is lost and now it is a way to make money off of the sick the dieing and the old. But now it seems that this is not enough. DNA testing so that Insurance Companies can pick and choose those who are of a certain cost figure. This story I found on The New York Times / blog and it is very… Read more »

Peter
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Peter

By Nate: “Here is why 50 exchanges would be better and 1000 would be even better still. Competition,” “the fat never was in insurance” Which is it? Having trouble keeping on point Nate (except for the usual “liberal” demonizing)? “Peter you can’t compare two countries efficency by comparing GDP %. That stat means nothing.” Well the citizens of those single-pay countries certainly don’t think it means nothing. Since insurance rates are largely a result of actuarial statistics, and every insurance company’s actuaries look at the same numbers, rates won’t get too wide apart. Add that to the requirement for insurance… Read more »

Nate
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Nate

Peter you can’t compare two countries efficency by comparing GDP %. That stat means nothing.
the fat never was in insurance, only liberals where ever dumb enough to belive that. The fat is in what is purchased with insurance.
Your making silly generalizations without any regard for reality. Insurance admin is a minute percent of total spending no one outside the left thinks that is where the problem is.

Peter
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Peter

Nate, if you’re measuring “efficiency” by cost then clearly single-pay (or heavily gov. controlled) countries are doing it for about half of U.S. GDP percentage. Too much competition destroys profits and destroys markets, that’s why when there is too much competion industies amalgamate and there settles out a profitable mix of suppliers to consumers. By the way BCBS has never operated anything close to a benevolent non-profit. And, if as you (and others) say, there’s only about 5% profit in insurance then where’s all this fat going to be trimmed by competition? The only competition will be leaner less inclusive… Read more »

Rhonda
Guest

I would love to see all of our issues with health care fixed. However, that is not the world we live in. And certainly the convoluted government system does not lend itself to adequate fixes.
So, in lieu of that I would simply like to see progress. Steps in the right direction to allow Americans access to adequate health care. I’ve been in health care for a long time. From being a nurse at the bedside to a small hospital Administrator.
This I can tell you. The system is broken and needs major work.

Jordan
Guest

I agree with the general premise of the post. However, I would point out that section 1334 of the newest Senate plan appears to be trying to come to a happy medium between an entirely national exchange and an overly-variegated state-based patchwork. This happy medium would be accomplished by allowing for insurers to offer multistate plans, but at the same time requiring those multistate plans to meet certain feder\al requirements that would ensure that there is a floor set to the level of benefits and other characteristics of the multistate plans. This would enable purchasers to have a consistent idea… Read more »

Kim
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Kim

I wonder if proponents of a national exchange (or of single payor, for that matter) realize that Medicare is actually administered by a number of (private) carriers — even our prototypical “national” program is at best regional. And whatever did happen to state regulation of insurance? Granted, some states have not done a great job with that, but the feds don’t have a lot of regulatory success to point to either (seems to me I recall a certain banking crisis recently…)

Nate
Guest
Nate

Michael that would be all and good if you got even a single fact correct. When your argument is 100% false what are the chances your conclusions would be right? Over 50% of private insureds are covered by non profit insurers Something like 60-70% of hospitals are non profit Medicare and Medicaid are non profit for a system supposedly flawed by its profit motive the vast majority of it is in fact non profit. Becuase 100% of healthcare is not elastic we should ignore the 60% that is and over pay for it and consume it in a wasteful manner?… Read more »

NurseBob
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NurseBob

Michael,
I agree.
The most glaring problem with our system. The number of people employed in this system that never touch a sick person.
A patient is a patient, location or “plan” should not matter.

Michael
Guest

Competition is all well and good for goods with elastic demand and supply. Health care isn’t one of them: when you’re sick, or when your young child is sick (and I’m not talking the sniffles here, I’m talking pneumonia, cancer, etc.) you do whatever it takes, and don’t ask the provider for a quote and call around. Nice to do in theory, but totally unrealistic. the reason Medicare is so broke is because of our obsession with competition and with the for-profit/fee-for-service model of health care. Anyways, no one has ever given any evidence that a single-payer system is less… Read more »

Tom Leith
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Tom Leith

> In other words, they would be non-standardized, and
> this would create a serious barrier for participation
> by large, multi-state employers.
So what? Should we erase entirely the role of the states to enable “bigness”? MD as Hell raises a good point, but it is as old as Jefferson and Hamilton. It seems we’re coming down firmly on Hamilton’s side whilst singing Jefferson’s praises…
t

Nate
Guest
Nate

Since Bill and Michael want to bury their head and ignore history let me remind everyone how well single national programs work out for example Medicare. Lets see for starters it’s 34 trillion in the hole. Next up they couldn’t adapt and add drug coverage until 2006. Since it is no ones money they happily live on with 10%+ being lost to fraud and waste. Your both right, a non-accountable, slow to adapt, bank breaker is EXACTLY what we need. That would make things so much better! Here is why 50 exchanges would be better and 1000 would be even… Read more »