Why States Should Move Forward with Health Insurance Exchanges

Imagine that you’re being required to buy a car. You will have to pay for most of it, but you can’t choose exactly what you want. There are so many restrictions on your options that you’re forced to choose from a few used, four-cylinder, two-door sedans with manual transmissions. And there’s one more catch: If you don’t choose one yourself, the dealer will decide for you.

It’s not an enviable position to be in, but most of us would grudgingly decide that if we have to get one of the cars, it’s better to have a small say in what we get than to have someone else decide for us.

This is the same predicament that many state policymakers find themselves in regarding the creation of health insurance exchanges.

Health insurance exchanges are a key part of the health reform law. Supporters argue that exchanges will provide consumers with valuable information on their coverage options, while at the same time providing stricter regulation of health insurers. They are also the only way people can benefit from the lavish subsidies included in the law.

On Monday, the Department of Health and Human Services released a final rule governing the exchanges. The rule sets an ambitious timeline for getting the exchanges up and running in every state by January 1, 2014. Between now and then, states can either build their own exchanges and tailor them as much as federal law will allow or decide not to build exchanges at all.

But there’s a catch: If states don’t build their own exchanges, the federal government will do it for them.

Governors like Bobby Jindal in Louisiana and Rick Scott in Florida, who are not only national conservative leaders but health care experts, are staunchly against any state action on exchanges. Legislators in other states, such as Oklahoma, Wisconsin and Missouri, have blocked efforts to build exchanges in their states.

That is a principled and understandable position. Many see building an exchange as an endorsement of the law, which virtually all conservatives are loathe to do, particularly those who represent states that have filed suit against the law.

Many, like Bob McDonnell, governor of Virginia and chairman of the Republican Governors Association, say the rules are overly prescriptive: “The regulations issued today by the Department of Health and Human Services extend the federal government’s reach into the states and will cost the states millions of dollars annually to operate.”

Still, if states do not move forward on their own, the federal government will. Because of this fact alone, states should move forward with creating their own exchanges. It’s better for states to exert some control over the structure of their exchanges than to abdicate control to Washington.

Plus, no one knows what a federal exchange would look like.

Take, for example, the treatment of high-deductible health plans with health savings accounts. A state exchange could and should include them as an option. They have proven to lower costs and expand consumer choice. But considering that many on the left oppose consumer-directed plans, a federal exchange may very well exclude them.

Perhaps a federal exchange will lard mandate upon mandate on participating plans, driving costs through the roof. Perhaps it will be so restrictive in its plan eligibility that only a few options will be available. Perhaps HHS will offer a public option.

We simply don’t know what a Washington-controlled exchange will look like — but it’s safe to assume that folks in states like Oklahoma won’t like it.

Unless and until the law is repealed by Congress or overturned by the Supreme Court, all health care stakeholders — including state policymakers — need to prepare for it as though it will be the law of the land forever. Wishing the law away is not a strategy. Hoping that it is overturned is not a plan.

Brian Robinson, a spokesman for Georgia Governor Nathan Deal, captured it best last year: “The governor has to follow federal law as it stands. If Georgia must have an insurance exchange under federal law, the governor wants to ensure that our exchange is established by and run by Georgians. The alternative is having an exchange established by and run by Washington bureaucrats. The governor considers the latter unacceptable.”

There is no doubt that state lawmakers are in a bad position, and neither choice is a good one. But controlling what they can and keeping Washington out as much as possible is what’s best for their states’ residents.

David Merritt is the former CEO of the Center for Health Transformation and the Gingrich Group and currently a senior adviser at Leavitt Partners.

19 replies »

  1. if the current system is better then the proposed reform plan doing nothing is the best course of action.

    If we hadn’t done Medicare we would be 40 trillion further ahead today. If we didn’t do Solyndra we would be 500 million further ahead. Doing something isn’t always better, unless your trying to win an election.

  2. Pretty much the way I feel about the GOP states that are rejecting the state insurance exchanges yet done have any kind of real plan to deal with healthcare reform on a coherent basis in their state.

  3. They wont be huge cost savings but they would lower cost a few percent. I think we need 20-30 solutions that all reduce 1-2%, not one magic bullet.

    If we never did a liver or lung transplant for smoker/heavy drinker it would save money and make the organ available for someone that hadn’t engaged in that activity. I have a case now that is finally getting a lung transplant, hold up was waiting for them to go 6 months without smoking. There needs to be consequences to bad decisions.

    We just need clearly defined rules that we don’t make exceptions to out of pity. If you smoke you do not get a lung transplant period. If your liver fails from alcohol abuse no liver, period. The exception being if you pay for it yourself.

    “could just stop doing them is blatantly, obviously, provably false.”

    This is incorrect with the exception of a few drug addictions and I think alcohol in some sever cases, you can just stop, period. It might not be easy but it can be done. If you lock the person in a jail cell and deny them drugs/alcohol, except in a few cases, they wont die. So it is possible. If it means the person needs to take themselves to a place they can’t get them then so be it. It is absolutely incorrect people can’t just stop. If they are spending their own money then its none of our business, if they are asking for someone else to pick up the tab then someone else has every right to put what ever conditions they want on their money.

    These numbers don’t make sense, I’m not sure I would agree with that.

    “On average, total healthcare costs per enrollee per year for this subset were cut nearly in half – from $8,899 in year one to $4,569 in year three.”

    The average cost of healthcare for a single non medicare person is around $3000, how in the heck was this population spending almost $9000, that is Medicare level cost.

    Further we are talking about denying care to people which is a step further then them getting it free. The person that never gets the lung transplant is not going to be cheaper then the insured person that does. People will die earlier but resources will be spent on the more deserving.

    In another post Steve was talking about all the advancements in healthcare since 1965. All of this healthcare has increased our life expectancy by 6-7 years. At a cost of 1 trillion per year+. After you knock out some of the cheap improvements and diseases we eliminated we are really spending close to 1 trillion per year for 2-3 years of extra life. Most of it borrowed. That is coming to an end if we like it or not. Would you rather a baby get life saving care and liver 60 more years or would you rather a heavy smoker and drinker get their transplant and live another 5?

  4. > self inflicted injuries to not be covered at all, ideally. If someone drinks their liver away I don’t think we should all have to buy them a new one. Same for smoking.

    This is a common idea. There are four assumptions built into it, all three of which have problems:
    1) That the “self-inflicted injuries” that people commonly identify (smoking, drinking, other addictions, obesity) actually are major predictors of cost.
    2) That we can clearly differentiate “self-inflicted injuries” from other medical problems
    3) That to the extent that they are actually “self-inflicted,” the patient could just stop doing them if they just had enough gumption, or enough something.
    4) That if our goal is to cut unnecessary medical costs, refusing medical coverage would cut costs.

    But each of these four is problematic.
    1) The best predictors of medical costs are not smoking, drinking, or obesity, but depression and stress. (“Association Between Health Risks and Medical Expenditures,” http://www.the-hero.org/Research/Studies.htm) So trying to dis-insure “self-inflicted injuries” might miss the target of lowering healthcare costs.

    2) Trying to decide what is “self-inflicted” and what is not presents be a major problem. A friend has a lifelong condition that gives him excruciating pain. He has struggled manfully (and successfully) against addiction to booze and painkillers to ameliorate his pain. He has always felt bitter toward his father because his father was addicted to booze and painkillers. He recently realized that his condition is genetic, and guessing from some symptoms he observed, realized that his father was fighting the same excruciating pain. His attitude toward his late father changed instantly.

    You can easily see other people with addictions and troubles that you don’t have. What you can’t see is what led them to that situation. You may be the very model of the perfect human, with no addictions of any kind, nothing in your life that you don’t want there, and you have never made any mistakes in your life that could have led you down the wrong path. Maybe. But even if you are, who exactly would you want sitting in judgment about which of your medical difficulties are “self-inflicted,” and which are not? Your individual doctor? Or a committee, say? A “death panel?”

    3) The idea that people with “self-inflicted” problems such as smoking, drinking too much, other addictions, or obesity could just stop doing them is blatantly, obviously, provably false. And if it is false, then we have no logical or moral basis for refusing to help people who have those problems. Even if they could have avoided those problems by making better choices in the past, it is very difficult to unmake those choices now. They need a lot of help.

    4) If your goal is to spend less on these people, making sure they don’t get coverage won’t do it. People with coverage cost the system less than people without coverage. In fact, they cost the system half as much. (http://today.uci.edu/news/2012/02/nr_insurance_120209.php). No matter the source of their problems, self-inflicted or not, it costs less to give people with lots of problems more, smarter, earlier care rather than less — unless your plan is to just take them out and shoot them when they show up in the ER.

    So no part of the idea that we can and should reduce healthcare costs by refusing coverage of people with “self-inflicted injuries” is supportable.

  5. Cute apples and oranges article you reference. Americans do not want healthcare…they want concierge medicine on their terms. I can hardly wait until the gov’t tells a Medicare patient “No”. So far it does not happen.

  6. Holding the White House and the Senate and The AP and CBS, NBC, ABC, CNN, MSNBC, CNBC (except Rick Santelli), the left is in power. Glad to help you out.

  7. Governors and legislators do not have either the skills, talent, or political will to spend money their state does not have in forming a business they know nothing about to benefit this loser cause. They are not about to look like they endorse this Obamanation.

    Political suicide is not happening. If it were, they all would be cutting spending, the correct thing to do for the country.

    The longer the left is in power the longer we get to watch the implosion of liberalism. For all you suckers who believe government should buy your birth control, you will soon find out just how screwed you have been.

  8. Pul-eeze.

    Read it, Nate, instead of wasting your time cracking on me. I thought it was pretty good.


    “The court is scheduled to hear the case later this month and issue an opinion in June. But even if the mandate is struck down, many states are still going to move forward with an exchange, and those people who need insurance and qualify for subsidies will still go to the exchange for their coverage.

    In the middle of all of this are the health insurance brokers who are currently trying to sort out what all of this means and how it will affect their livelihood. What we can expect from them this year is a renewed focus on continuing to build their book of business in the individual and group markets.

    Brokers know that these are the same people and groups that two years from now will be exploring what they might be eligible for and reviewing their options relative to state-run exchanges.

    Brokers who are effective in building their books now will be the resource individuals and groups turn to in 2014 for advice and guidance.

    The Congressional Budget Office estimates that more than 8 million people will buy insurance through exchanges in 2014 and the Deloitte Center for Health Solutions foresees an exchange market of as many as 46 million members in 2019 if PPACA is implemented without major changes or surprises.

    While that milestone is a few years away, 2012 is the time that important developments are taking place and an opportunity to understand and prepare for the changes that health insurance exchanges will undoubtedly bring.”

    BTW, here’s a link to PPACA Orals stuff


  9. you link to a 4 page article why? Any specific point to your link or do you just like seeing your name in the comments?

  10. http://www.naic.org/documents/committees_b_Exchanges.pdf

    it is $2000.

    “ACA expands the maximum wellness incentive allowed from 20% to 30% of premium, and permits HHS to make rule changes for incentives up to 50% of premium. What more could you reasonably want?”

    self inflicted injuries to not be covered at all, ideally. If someone drinks their liver away I don’t think we should all have to buy them a new one. Same for smoking. The penalty should be commensurate with the risk. With PPACA, community rating and other government distortions of the market that can be higher then 50%.

    “And if by equal treatment you mean that those who have illnesses or disabilities that make them unable to meet certain incentives must be given an alternative means to achieve them….you realize that almost no one ever requests that, right?”

    I disagree, from experience we do see request for alternatives.

    “there are rules around how outcomes-based incentives can be set up. That presents some administrative hassle, but I haven’t found it to be insurmountable at all.”

    What about the EEOC guidance on smoking being a disability and you can’t penalize people for it? Pretty insurmountable when the government outlaws it.

    I don’t like the whole premise that people can avoid the penalty just by trying, trying doesn’t lower healthcare cost. At some point we need results and this Kumbaya trying is what matters ain’t going to cut it.

    Trying to stop smoking for 10 years isn’t any better for your lungs then just smoking for 10 years.

    “Mini-meds were no solution to our problems.”

    I disagree.

    “Floersch acknowledged that paid mini-med benefits for McDonald’s hourly employees are low. Yet he noted that about 90 percent of hourly employees don’t reach the annual cap for their health insurance deductibles.”

    for 90% of the employees that buy it the plan is more then they need. Any more coverage would be a waste of their limited resources.

    “McDonald’s does offer a higher-cost comprehensive health insurance plan to hourly workers, Floersch pointed out,”

    Its not an either or, employees had the choice of a more robust full blown insurance plan and made the personal decision to spend less for the limited benefits. I would argue majority of these people make poor lifestyle choices, i.e. what they save in premium they blow on alcohol and tobacco but this is America and its not my place to force them to make smart decisions.

    The cost of coverage and the maximum benefit is not linear, the administrative cost of a $2000 maximum benefit is pretty close to that of a $100,000 maximum. The cost of the PPO for example is the same no matter the benefits. People complain all the time about the cost to the uninsured who are not protected by discounts. Most of the mini meds I have seen discount even non covered services. This means even though the carrier might stop paying at $2000 they still get the benefit of discounts which has imminence value.

    How is a mini med that provides $2000 to $25,000+ in benefits and discounts worse then no insurance? That is the options your looking at. Your saying someone would be better off paying full price and having no benefit, that doesn’t make any sense to me.

    When I have worked with minimum wage workers their needs are different then white collar workers. They live pay check to pay check. If they miss a paycheck they are losing their apartment and things will go bad very quickly. If they are in the hospital for three weeks with what ever they are financially ruined regardless if they have insurance or not. If they are 10K or 100K in debt doesn’t matter, they could never pay either back in their lifetime.

    For most of them short term disability would be more valuable then health insurance anyways.

    For these workers, they also tend to be terrible with budgeting, a predictable monthly cost that comes out of their paycheck is easier to deal with then keeping money in savings in case something happens or saving up to pay off an ER visit. These plans are perfect fits for their needs. They don’t get sick because they can’t afford to but it helps them budget and pay for the basic care they do need.

    If they can’t afford an ER visit what good does catastrophic insurance do them? Ideally they would not smoke or drink and thus be able to afford good insurance, not to mention be in better health but that’s the difference between solutions on paper that don’t work and the real world. Mini meds are a particle solution that addresses a real problem. It’s not ideal but better then nothing.

    Most of these people qualify for Medicaid, ask your self why they would pass up free insurance and take this instead.

  11. High-deductible plans will be limited, but not excluded. If you were under 30 you would be able to buy a $5,000 deductible catastrophic plan. Also, I thought the maximum deductible for Bronze plans would be closer to $3,000 than $2,000. Is that not right?

    How strict the rules on Wellness are depends on your perspective. I’m in NY, and the Federal rules are actually more flexible and allow more innovation than NY state law. Also, the ACA expands the maximum wellness incentive allowed from 20% to 30% of premium, and permits HHS to make rule changes for incentives up to 50% of premium. What more could you reasonably want?

    Yes, there are rules around how outcomes-based incentives can be set up. That presents some administrative hassle, but I haven’t found it to be insurmountable at all. And if by equal treatment you mean that those who have illnesses or disabilities that make them unable to meet certain incentives must be given an alternative means to achieve them….you realize that almost no one ever requests that, right? You just need a policy in place that if someone does protest, you will address it and give them a way. And if that does happen, you don’t have to get fancy. Just set some fairly trivial task as meeting the requirement. It won’t make a dent in the bottom line, so don’t sweat it. Or are there more onerous regulations that I’m not aware of?

    Mini-meds were no solution to our problems. You of all people should not be touting them, since you think catastrophic plans should be the standard. The logic of a mini-med is almost the inverse of a catastrophic plan. For folks who don’t know what we’re talking about: http://www.healthinsurancecolorado.net/blog1/2010/10/08/mini-med-plans-dont-really-help-workers/.

  12. Nice. The author works for Leavitt Partners, who makes money selling consulting services to states on how to set up an exchange.

  13. > Wishing the law away is not a strategy. Hoping that it is overturned is not a plan.

    Well put. Managing healthcare, and healthcare funding. Besides political differences, there are real cultural differences between different parts of the country, as well as genuine debate and uncertainty about what would work best. One of the biggest problems of our continuing debate about how to do this has been the patent refusal of most Americans to imagine that we could learn anything from the many different systems used in other countries. One of our biggest assets, on the other hand, has been that we have 52 different laboratories for trying different variations on the system. And not just Massachusetts, but other states, have tried and are trying a number of different approaches to lowering costs, increasing transparency, and giving better care earlier. It would be a great thing if we had a lot of variation in just how to cover everyone, and then could measure and compare how each approach worked out. That would be a rational discussion, with some real cases to argue from. Let Oklahoma do it one way and Vermont another, and see how the results compare.

    Governors and legislators who refuse to do anything are not showing leadership in bringing their constituents the best outcome possible under the circumstances. Their intransigence is leading their states to exactly what they claim to be against — control from Washington.

  14. “high-deductible plans are not excluded”

    Actually they are, come 2014 I will no longer be allowed to buy the $5000 deductible plan I have. They are capping deductibles at 2000 which is hardly high deductible.

    “innovative wellness incentives are not excluded.”

    Wrong again on this one. There is no more innovation in wellness, the rules are so strict you have very little to work with. The maximum incentive, what your allowed to incent, equal treatment, you now have 1 1/2 hands tied behind your back.

    “why hasn’t the market provided this type of plan already?”

    It was illegal? We have had an over-regulated healthcare system since 1965. I love the idea of capitating primary care, it’s illegal, I either need to get a very expensive HMO license or not do it. Individual employer plans can’t afford to all run out and get HMO licenses.

    There has been a tremendous progression in Captives the last 5-10 years that would allow plans to get much more creative, as soon as that happened though PPACA was passed eliminating all the flexibility in designing plans and funding.

    We have 50 million uninsured people, what dumb ass would out law mini meds and catastrophic plans without something to replace them? How is no insurance better then some? Unless your trying to increase the number of insured and exasperate the problem the justify your solution. I disagree with the course of action PPACA takes but you could see an argument for eliminating those plans and doing away with lifetime limits ONCE the exchanges were in place. PPACA instead increased a problem then promises to solve it 4 years later.

    That is as stupid as Obama outlawing gas cars then promising an electric vehicle will be available in 4 years.

    Why do consumer plans cover preventive at 100%? Birth Control is $9 a month, consumerism would be everyone paying $9 a month instead of $3000 a year.

  15. I agree with the main argument wholeheartedly, though not with the tone.

    In particular: “There are so many restrictions on your options that you’re forced to choose from a few used, four-cylinder, two-door sedans with manual transmissions.”

    This demonstrably mischaracterizes the options in the exchange. Consumer-directed plans are not excluded, high-deductible plans are not excluded, tiered networks are not excluded, value-based benefits are not excluded, bundled payments to spread risk with providers are not excluded, innovative wellness incentives are not excluded. What sort of Jaguar or Elantra health plan is excluded that would transform health care cost or quality?

    Also, why hasn’t the market provided this type of plan already?

  16. “exchanges will provide consumers with valuable information on their coverage options”

    Yea, less coverage means less cost – duh.