Private health exchanges on the rise
As far as building blocks of the health reform law go, the insurance exchanges are pretty crucial. They’re the health insurance marketplaces that every state will have in 2014, where individuals and small businesses can compare and purchase plans. The exchanges are meant to take what’s now a scattered, confusing insurance market and turn it into something that’s accessible, and easy to navigate — think of it as an Expedia for buying health coverage.
But health reform isn’t the only game in town for insurance exchanges. More and more industry players are getting into the exchange space, setting up their own marketplaces to pretty much do the same thing. This includes insurers such as Wellpoint, which bought up a health exchange vendor last month. There are also benefit consulting firms: Aon Hewitt launched an exchange from scratch in April and hopes to have more than 100,000 enrollees by year’s end. Even states that really don’t want to implement the federal law, or the exchanges that come with it, are setting up their own marketplaces. Florida, which has refused to take any federal funding to set up an exchange under health reform, is now pursuing a marketplace totally independent of the federal law.
Florida, Wellpoint and others are essentially building different versions of the marketplace that’s at the core of health reform. And because of that, they tend to get viewed as competitors to the health reform law, snatching away potential enrollees. As Bloomberg’s headline declared, when Wellpoint bought up its exchange vendor, “Wellpoint to vie with state-run health markets.”
Although these exchanges are important, that’s probably the wrong way to read the development: The private marketplaces are actually more likely to enable the health reform law than detract from it.
Most of the reason why has to do with how the health reform law subsidizes health insurance. Starting in 2014, low- and middle-income Americans who don’t receive insurance through their employers will get government subsidies to buy a plan on their own. The subsidies are tethered to income: An individual making $20,000 receives just over $2,400 to foot his or her insurance bill. Someone with an income that’s higher, say $30,000, receives $932 for premiums.
But here’s the most important part about the subsidies: Americans can use their subsidies only on the federally certified exchanges. That means that private and public health exchanges aren’t really playing on the same field. If an individuals have a choice between two places to buy health insurance — one where they get a $2,400 discount and one where they don’t — it’s not too hard to guess where their business is headed.
But, for the sake of argument, imagine that the private exchanges do take off. Employers, perhaps, are nervous that the public exchanges will have all kind of kinks when they launch; they’ll be too overwhelming for their employees. So they give their employees a comparable amount of money to spend on a private exchange. That both relieves the employer of the costs associated with running a health plan but doesn’t leave the employee high and dry.
If that scenario plays out, it could actually be a good thing for the cost of health reform. One big concern for as the Affordable Care Act moves forward “employer dumping:” large companies shifting their employees into the health exchanges, paying a $2,000 fine rather than much more on a health insurance policy. AT&T raised alarm bells on this last year, when its executives mentioned the possibility of doing this.
If these private exchanges take off, you’d theoretically see a lot less of that: It would get the government off the hook for paying a good number of the health reform. And, these are actually the exact businesses that many of these private ventures are targeting: Aon Hewitt, for example, is looking to sign on large employers who want to offer health insurance through a marketplace.
Of course, there are some other complications that could come into play: If all the companies with really healthy employees, for example, go into the private exchange, then the public one ends up with very high health-care costs — and, as a result, very high premiums. But, on the balance, it’s hard to see these private health insurance marketplaces as a competitors to the public ones. And, in some not-too-implausible scenarios, they could also become enablers of the health reform law.