State of the states: insurance exchanges

7 questions to help you determine whether your elected officials are building a consumer-friendly marketplace

By Jan Greene
healthinsurance.org™ contributor

For consumers, it's important to follow the debate about a health insurance exchange in your own state so you'll know what to expect – and even, potentially, to advocate for what you want.

Nearly every state has some kind of process to take public comments. Many are holding town hall meetings in various communities, giving individuals who want a strong, consumer-focused exchange the chance to tell their state legislators and bureaucrats just that.

To help readers follow the action in their own states, healthinsurance.org has pulled together information on each state's exchange planning and implementation status. Using the key at the right, look to those pages for an update on what's happened to date with your state's exchange planning – and for links to additional online resources.

Once you know where to look for information on your state's progress, you'll need some questions to ask to understand whether your exchange will meet your expectations as consumer and a constituent. Here are seven questions to help you gauge the state of your state exchange planning.

1. Is a state-based exchange
in the works in your state?

Seems like a yes-or-no question, right? Given the complex politics involved, though, the answer is not always clear.

So, some states are clearly enthusiastic about moving forward: California, Maryland and a handful of others that have not only passed legislation to officially authorize exchanges, but are actively working on the administrative side to get things designed and set up.

Then there are a few, such as Alaska, Florida and Louisiana, that simply refuse to set up a health exchange. These have been decisions by their Republican governors.

There's also a group of states where the Republican governor and vocal group of like-minded legislators have stalled progress, but are debating whether it would be better to go ahead and set up the exchange themselves or have to use the federal version, over which they would have no control.

The outlook on exchanges has evolved as 2011 has gone on, in large part because of the strategy of health reform foes such as the Tea Party movement. While they never liked the Affordable Care Act, opponents didn't start to hone in on the exchanges as a target until spring, and by June had convinced many state legislators to turn down exchange legislation.

Now, conservative Republicans are hoping to win the U.S. presidency and a majority in the U.S. Senate so they can repeal the ACA altogether, and kill exchanges along with it, says Sandy Praeger, the Kansas Insurance Commissioner and a strong supporter of reform. Even though she is a Republican, she parts company with Kansas Gov. Sam Brownback on the need for exchanges. "I'm an elected Republican official in Kansas, but on this issue I'm a flaming liberal," she says. "Everybody ought to have health insurance or a subsidy to buy it."

But the turmoil in state houses doesn't necessarily doom a given state's exchange. In some places, state bureaucrats in the insurance or health departments who are committed to the goal of reducing the number of uninsured are using federal grants to move forward on the planning process even as their lawmakers and governors debate strategy.

2. If your state has committed to creating an exchange,
will it require health plans to compete on price?

This is one of the most important decisions a state exchange has to make: whether to be an "active purchaser" of health plans. One option is to simply list the insurance options on the exchange Web site, much as Expedia or Travelocity does for airline tickets and hotel rooms. That kind of exchange – which is what is already in place in Utah for small businesses – is simply a clearinghouse for insurance plans and plays no role in making plans affordable.

States can also set up exchanges using their power to design the basic outlines of a health plan and ask insurers to place bids on it. The winning bids – most likely, the least expensive – would then be offered on the exchange. Consumer advocates are fond of this approach.

Even in states that don't have enough insurers willing to compete for the business, there are other things the exchanges could do to give consumers a leg up, say Georgetown University health policy researchers Sabrina Corlette and JoAnn Volk in a recent paper. These include things like recruiting new insurers to the state, working with large employers that also buy insurance for large numbers of people, and helping consumers make informed choices.

3. Does the board have consumer representation?

The exchanges, whether they are run by a state agency or a non-profit, need to have a board to oversee them. Who sits on that board? Insurance company executives, academics, consumers? That question is prompting consumer inquiries – and sometimes protests – as evidenced in states such as Connecticut.

4. Does the exchange have funding to keep it going?

One easy way to torpedo an exchange, if you are a state legislator who doesn't like health reform, is to refuse to fund it adequately. If the exchange can't use state money or can't collect enough fees from participating health plans or elsewhere, it won't last long.

5. Who will give advice – insurance brokers, "navigators" or both?

Insurance brokers get paid a fee by insurance companies when they sell a plan, and they are very concerned that their business will disappear if consumers buy direct from exchanges. In some states their services are being written into the exchanges explicitly. There is also a separate program to create "navigators" who would use grant money to educate consumers about the exchanges.

6. How will the exchange avoid taking all the sickest people and being too expensive for everyone else?

The technical term for this is "adverse selection," and no one has a good answer for keeping all the healthy people from being cherry-picked. But a well-designed exchange will have planned for this eventuality.

7. If your state is not going to set up an exchange, what will the federal exchange look like?

Federal officials haven't yet said what the federal exchange would look like, as they urge states to set them up themselves. But the feds will have to make all the same design decisions as the states are doing. They also have to do the design work without a clear source of funding.

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