The new health-insurance exchanges were launched on October 1 amid empty promises and a host of delays and snafus. But what if the political architects of Obamacare’s insurance expansion consider this disastrously bad start only the beginning of a grander opportunity?
Let’s assume that the problems of hastily assembled and inadequately tested software will be solved. Then assume further that the recently relabeled “marketplaces” without market prices will eventually work to redistribute tens of billions of taxpayer dollars to several million currently uninsured Americans searching for coverage. What, then, are the exchanges created by the Affordable Care Act (ACA) intended to become after their rocky first year or two?
An Early Preview
The state-administered exchanges in Vermont and the District of Columbia provide an early preview. Each intends to become, within its jurisdiction, the “sole” destination for health-insurance purchases in the individual- and small-group-insurance markets.
In April 2013, the D.C. city council voted to require any insurance carrier offering individual health-benefits plans on or after January 1, 2014, to offer them solely through the District’s American Health Benefits Exchange. It approved a similar requirement for any plans offered to small groups (50 or fewer employees) not already offering health insurance to their employees as of December 31, 2013. It delayed this requirement for one year for small-group health plans with “ACA-qualified” coverage that is already offered or renewed as of December 31, 2013. The latter insurance could be issued or renewed during calendar year 2014 through non-exchange distribution channels. But beginning January 1, 2015, all small-group health plans must be offered and issued or renewed solely through the District’s exchange. And in 2016, the D.C. government will expand the definition of small-group insurance to businesses with up to 100 employees.
On a parallel path, the Vermont state legislature established in May 2012 how its health- insurance exchange would work. It requires all individual and small-group insurance products in the state to be sold through a single state-administered exchange that combines both markets. Under Vermont’s definition, employers qualified to offer small-group coverage are businesses with 50 or fewer employees. That number increases to 100 in 2016. Vermont remains committed to establishing a single-payer model for all insurance sold in the state by 2017.
The D.C. and Vermont exchanges are required by federal law to preserve existing and small-group market provisions for plans that existed before the ACA’s passage and have remained on the market without substantial changes. Those plans retain grandfathered exemption from a number of the law’s new regulatory requirements. However, they represent a steadily declining minority share of the individual and small-group markets.
Conflict with Other ACA Guarantees of “Outside” Market Choices
The efforts in D.C. and Vermont to claim an exclusive franchise for sales of such plans through their state-run exchanges appear to collide head-on with other statutory protections provided in the ACA. The law states that no individual, business, nonprofit entity, or health-insurance issuer offering group or individual insurance will be required to participate in the ACA’s health exchanges. The ACA also ensures the continued operation of health-insurance markets outside the ACA-approved exchanges as well as the unrestricted ability of qualified individuals and employers not to participate in exchanges.
In response to these clear-cut guarantees, Vermont officials argue that another provision in the ACA allows states, in regulating their own health-insurance marketplace, to operate above the federal floor set in the ACA. But that argument depends on a contorted reading of section 1312(d)(2), which merely provides that states may regulate the content, marketing, and administration of insurance policies and plans within their borders.
Forced Mergers and Acquisitions of Private-Insurance Markets
D.C. health officials said that they need to combine all purchasers of individual and small-group health plans into a single state-based exchange under ACA rules in order to get the new exchange market to a scale and a mix of health risk at which it could operate more sustainably. Because the small-group market in D.C. is larger than the individual market, merging the two would supposedly lower premiums in the latter while increasing costs in the former only modestly.
In the case of Vermont, state officials and the legislature are designing its exchange such that it could become a platform for a state-based single-payer system. The state would like to eventually pool all sources of revenue, including individuals’ and employers’ premium contributions, plus federal and state funds (for Medicare and Medicaid as well as for the ACA exchanges), so that they become equivalent to a single-payer system.
What’s Really Happening?
Efforts by D.C. and Vermont to grab a larger market share for their new ACA exchanges underscore the weakness of the ACA exchanges in attracting voluntary enrollees. Even the special advantages of premium-assistance tax credits devoted to individual market coverage exclusively through the ACA exchanges do not seem enough to guarantee sufficient enrollment.
The ACA includes statutory protections against what D.C. and Vermont are attempting, but they are blatantly disregarding them, echoing many other examples of how the law as passed by Congress has been ignored, skirted around, or callously redefined as it has been implemented.
The Real Game Plan for ACA Exchanges 2.0
Although exchange coverage remains dysfunctional after its first six weeks of implementation, we are assuming, heroically, that several million Americans will eventually stagger into the exchanges for desperately needed subsidized insurance coverage. Not only will the small beachhead of heavily regulated, highly subsidized, and politically protected exchange coverage be defended, but (through handicapping its outside market competitors) attempts will be made to expand it.
The most transparent preview of the real aspirations of health-exchange planners appeared recently in The New England Journal of Medicine (September 4, 2013). Henry Aaron and Kevin Lucia, both members of the D.C. Health Benefit Exchange Authority, explained that correcting the initial glitches in implementing the ACA’s health-insurance exchanges would create an opportunity to shape the organization, quality, and financing of all U.S. health care. They pointed to the existing powers of exchange administrators that have not (yet) been used much, if at all, including
‐Limiting the number of plans insurers can offer
‐Requiring insurers to offer standardized plans
‐Setting additional standards for the quality of care paid for by plans
‐Selectively contracting with only particular insurers or health-delivery organizations
‐Barring plans that do not meet the exchange’s quality or price standards
Aaron and Lucia eagerly anticipated the scope of exchange coverage to grow — at first by allowing larger employers to enroll their workers in the exchanges, and later as states follow Vermont and D.C. in creating a single, united market for insurance. They concluded with these revealing words: “The exchanges are an instrument of enormous potential power.”
Of course, with great hubris should come greater humility. Shortly before its October 1 launch, the D.C.’s health exchange announced that potential insurance shoppers would not have access to their premium prices until mid-November, at the earliest. In early tests, the exchange was experiencing “a high error rate” in calculating the federal tax credits that low- and middle-income people would use to purchase insurance there. In Vermont, Governor Peter Shumlin announced on October 31 that small businesses may bypass the state’s official health-exchange website and instead contract directly with the two private insurers still operating in the state. Moreover, the date by which small businesses and individuals in Vermont would be required to have an exchange plan was moved from January 1, 2014, to April 1.
Expect more delays, more derailments, and, from the exchange architects, more denials of reality and of the stubborn complexities of health-care markets.
— Tom Miller is co-author of Why Obamacare Is Wrong for America.