Expect Few Insurers to Participate in Health Exchanges

Expect Few Insurers to Participate in Health Exchanges
August 24, 2012

Greg Scandlen

Greg Scandlen is a senior fellow of The Heartland Institute and founder and director of... (read full bio)

From time to time we have chronicled the various failures of the Affordable Care Act (aka ObamaCare), and they are many.

First was the CLASS Act, which even the Obama administration said could not be implemented. Then there were the federal high-risk pools, and the small business tax credit, and the subsidy for employers offering early retiree coverage, and the CO-OP idea, and the Medical Loss Ratio restrictions.

Even a simple idea like requiring insurance contracts to be written in plain English was doomed to failure.

But now comes what is likely the biggest failure to date—the Health Insurance Exchange idea. I say biggest failure to date because the individual mandate, which will be universally ignored, hasn’t begun yet.

Robert Pear reports in the New York Times that only 13 states have told the Feds they intend to set up exchanges, and completed applications have to be submitted by November 16 of this year!

No Info from Feds

If a state fails to set up its own exchange in time, the Feds will set one up instead. But Mr. Pear writes that there is absolutely no information available on what the Feds might be doing to make this happen. He writes, “States have done their work in public, but planning for the federal exchanges has been done almost entirely behind closed doors.”

The Feds know the value of good advertising and have “invited advertising agencies to devise an elaborate ‘outreach and education campaign’ to publicize the federal exchanges and their potential benefits for consumers.” But federal officials “have refused even to divulge the ‘request for proposals’ circulated to advertising agencies.”

Even if the Feds are able to set up exchanges in all the states that have refused, they will be in for a rude awakening when they discover the ACA prohibits federal exchanges from offering the same premium subsidies available to state exchanges. There has been a furious debate over this issue on the Health Affairs Blog, between Timothy Jost of Washington and Lee University and Michael Cannon and Jonathan Adler of the Cato Institute. Cannon and Adler clearly have the stronger side of this argument.

But no matter—like everything about the ACA—this idea is poorly conceived, poorly written, and will be poorly implemented. It is another case of throwing Jello on the wall and hoping it will stick. It will not stick.

Unnecessary Separate Bureaucracies

The idea of online comparison shopping is attractive. In fact, eHealthinsurance.com has been doing it for many years, and it provides a wonderful service showing what is available in every ZIP code. But the Exchanges as envisioned in the ACA have little to do with that.

For some reason Congress decided instead to create a new bureaucracy in each state that would not only provide a marketplace for health insurance options but also define the products, regulate the companies, and distribute the subsidies. Why?

  • Why does each state need its own exchange? Is the market so very different in North Dakota and South Dakota that a single exchange wouldn’t work for both? The New York City area is a tri-state market; why not have a single exchange for that market?
  • Why do we need a new regulatory agency? Every state already has a Department of Insurance that is expert at regulating insurance companies. They have on staff attorneys, actuaries, accountants, customer services, and enforcement personnel that are very good at seizing insolvent insurers when needed. Why should all this be replicated in each state? Why not give the existing departments the responsibility for enforcing whatever regulations the politicians develop?
  • Why create a new state agency to distribute federal subsidies? Whether an individual is eligible for a subsidy is a federal decision, and the IRS is already assigned the responsibility of enforcing the mandate. Why shouldn’t the IRS be distributing the subsidies, especially since these subsidies are based on reported income?
  • Finally, once you have the regulations and subsidies in place, what added value does a new state agency bring to the shopping for coverage? Are state agencies adept at web site development? What is the expertise here?

Billions for Redundancy

Many billions of dollars are being spent on creating these agencies that will end up being at best redundant and more likely clumsy and amateurish. But Congress just seems to love creating new bureaucracies.

Meanwhile, if I were a betting man (and I am), I would put a sizable wager on this proposition: The new health care exchanges will be so poorly organized and managed that very few, if any, insurers will choose to participate after the first year and even fewer citizens will bother to enroll. They will be no more successful than all the other provisions we’ve looked at in the past.

Greg Scandlen (gmscan@comcast.net) is an independent health care analyst and president of the Health Benefits Group in Hagerstown, Maryland. Used with permission from http://gregscandlen.wordpress.com/, where an earlier version of this article appeared.

Greg Scandlen

Greg Scandlen is a senior fellow of The Heartland Institute and founder and director of... (read full bio)