Health Insurance Exchanges in the House and Senate Health Reform Bills

1. Health Insurance Exchanges in the House and Senate Health Reform Bills Sara R. Collins, Ph.D. Vice President, Affordable Health Insurance The Commonwealth Fund Alliance for Health Reform, Briefing on Health Insurance Exchanges January 8, 2010

2. Congressional Health Reform Bills as of December 2009 Note: GI = guaranteed issue; CR = community rating. Actuarial value is the average % of medical costs covered by a health plan. Source: S.R. Collins, et al., The Health Insurance Provisions of the 2009 Congressional Health Reform Bills, The Commonwealth Fund, January 2010

3. Source of Insurance Coverage Under Current Law and House and Senate Bills, 2019 54 M (19%) Uninsured 16 M (6%) Other 162 M (57%) ESI 4 M (1%) Exchange (Public Plan)* 23 M (8%) Uninsured 15 M (5%) Nongroup 24 M (9%) Uninsured 18 M (6%) Uninsured 17 M (6%) Exchange (Private Plans) 26 M (9%) Exchanges (Private Plans) 35 M (12%) Medicaid 16 M (6%) Other Current Law 16 M (6%) Other 9 M (3%) Nongroup 168 M (60%) ESI 158 M (56%) ESI 10 M (4%) Nongroup 50 M (18%) Medicaid 50 M (18%) Medicaid House Senate Among 282 million people under age 65 *CBO estimates 20% of people enrolled in exchange will choose public plan under House bill. Employees whose employers provide coverage through the exchange are shown as covered by their employers (9 million in the House bill and 5 million in the Senate bill), thus about 30 million people would be enrolled through plans in the exchange under both bills. Note: ESI is Employer-Sponsored Insurance. Source: Revised Estimate of the Affordable Health Care for America Act, Congressional Budget Office Letter to the Honorable John Dingell, November 20, 2009, http://www.cbo.gov/doc.cfm?index=10741. The Congressional Budget Office Analysis of the Patient Protection and Affordable Care Act, Incorporating the Manager’s Amendment, Dec. 19, 2009, http://cbo.gov/doc.cfm?index=10868.

4. Purpose of An Insurance Exchange in a Mixed Private-Public Approach to Health Reform • Individual and small group insurance markets are poorly organized • Substantial barriers to obtaining coverage; • Market rules and consumer protections vary widely across states, most states allow underwriting on basis of health in individual market; • Wide variation in marketing practices and product design • Products are often difficult to understand: contributes to consumer surprises about coverage limits later on • Large percentage of premium dollar goes to administrative costs • Lack of economies of scale: more expensive to write individual policies as opposed to large group • Market competition based on avoiding risk rather than enhancing value • Exchanges can be designed to provide structure and oversight to insurance markets with goals of: improving consumer protections, enhancing transparency, lowering premium growth, reducing health care costs including administrative costs, promoting efficiencies, changing the competition dynamic from risk to value

5. Key Components of Insurance Exchanges In Health Reform • Strong market reforms inside and outside exchange • Broad risk pooling and individual requirement to have insurance • Benefit standards to ensure comprehensive coverage, informed choice • Sliding scale premium and cost-sharing subsidies to ensure affordability, no underinsurance, available only for exchange plans • Authority of exchange to negotiate premiums, set rules of participation for health plans • Structured choice of high value health plans: Potential for provider payment reforms and lower administrative costs; could help promote market competition on basis of innovative benefit design, payment reform, cost reduction • Standards for medical loss ratios

6. Congressional Health Reform Bills: Exchanges Source: T. Jost, Health Insurance Exchanges in Health Care Reform: Legal and Policy Issues, The Commonwealth Fund, December 2009; S.R. Collins, et al., The Health Insurance Provisions of the 2009 Congressional Health Reform Bills, The Commonwealth Fund, January 2010

7. Key Issues • Federal vs. state operation: • Federal control: larger risk pool, less duplication/lower administrative costs/scale economies, greater regulatory leverage and resources, experience running national exchanges; • State control: seamless transitions between Medicaid/private coverage, local market knowledge • Exclusivity: • Replacing individual and small group markets with exchange would maximize enrollment and risk pooling and allow exchange to be active purchaser • Authority of exchange to negotiate with plans over price, set rules of participation for health plans • Plan participation rules for exchange aimed at encouraging innovation and value in health plan design and quality improvement • Risk adjustment mechanism that will promote competition based on value