Market dynamics of health benefit exchanges could be profound
Robert Pear writes in today’s New York Times about state health benefit exchanges, a central component of the federal Patient Protection and Affordable Care Act (PPACA). Featured in Pear’s article are two state insurance exchanges, the Massachusetts Connector and the Utah Health Exchange. These two states’ exchanges are up and running well ahead of the Jan. 1, 2013 deadline that states must report to the federal Health and Human Services Agency on their progress establishing the exchanges. The exchanges are to be operational nationwide by Jan. 1, 2014 under the PPACA.
Pear notes “Congress assumed that insurance would also be sold outside the exchange. But federal subsidies, to help pay for insurance, will be available only to people who enroll in health plans through an exchange.”
Going forward, it will be interesting to watch the market dynamics play out between exchange markets and non-exchange markets. In setting up the exchanges, the PPACA effectively creates a subset of the larger insurance market in the hope that the government-instituted and subsidized subset will gain sufficient purchasing power to obtain coverage on terms and conditions favorable to insureds. If the exchanges do so with great success, they would control so much of the market that extra-exchange plans would effectively be crowded out of the marketplace. Particularly if employers opt to pay the $2,000 per employee fine for not providing health coverage to their workers, letting them get individual coverage through the exchanges as Tennessee Gov. Philip Bredensen discusses in a Wall Street Journal op-ed piece last week.
On the other hand, payors might chafe at conditions attached to offering coverage through the exchanges and ramp up their non-exchange plans aimed primarily at healthier people in order to hold down their medical loss ratios. If that trend accelerates, it could doom the exchanges to adverse selection by leaving them less healthy people the insurers and health plans want to avoid, creating even stronger incentive for payors to shun the exchanges and continue business as usual. Finally, if medical treatment costs continue to rise at their current clip, premium rates for all plans will grow increasingly out of reach — even for those subsidized through the exchange.