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Health-care overhaul begins now

By Ezra Klein
Sunday, March 28, 2010; G01

As someone who has spent the past year tangled in the minutia of excise taxes and curve bending and subsidy levels, it is good to finally say this: With the passage of the reconciliation fixes, the health-care reform debate is finally over. But if you're thrilled to hear that, then I also have some bad news: Health-care reform itself is just beginning.

This bill marks an evolution, not a revolution, for our health-care system. Whether it proves the cornerstone of a better, fairer, more affordable system or simply another expansion of the federal welfare state has as much to do with what happens when the law is implemented as with what's written in the legislation.

The system will not change in a year. Even by 2014, when it is broadly implemented, life will not change for most people. This is not single-payer (though you wouldn't know it listening to the GOP) or the ambitious Wyden-Bennett reforms. Come 2019, about 10 percent of Americans will have a different insurance arrangement than they would have had without the bill. Most of us won't notice any difference.

But right around then, the system could go one of two ways. The key is the regulated insurance exchanges. They are where the bill's most transformative reforms happen: Risk-adjustment payments so insurers aren't penalized for having sicker customers, regulations so they can't discriminate based on pre-existing conditions, and transparency requirements so individuals can see the full cost of insurance plans and compare them based on quality and satisfaction measures.

But they're closed to most Americans.

At the beginning, the exchanges will be open to individuals and very small businesses. In fact, states can operate two exchanges: one for individuals, and one for small businesses, though why they would is beyond me. Either way, a large employer cannot simply buy its workers into the exchange. Nor is an employee of a large firm that offers health-care insurance allowed to buy in on her own.

There are two reasons for this, one good and one bad. The good: The bill's architects were worried that only employers with older and sicker workers would enter the exchanges at the beginning and that would overwhelm them; this way, the exchanges have time to get up and running before employers enter. The bad: The bill's architects were worried about letting employers change the coverage they offer workers.

In 2017, states can decide whether to let large employers into the exchanges. That's important: The exchanges are the bridge between the employer-based system we have -- where few know how much their insurance costs or have any choice about what kind to buy -- and the competitive system we need. But just because there is a bridge doesn't mean we'll walk over it. At this point, you can imagine two paths for health-care reform:

In one world, states wouldn't open the exchanges. The markets would remain limited to individuals and small businesses. Most of the participants are lower income and using subsidies. We'd stay in a tiered health-care system, in which the exchanges would join Medicaid as a place where those who can't afford coverage could get it and the employer market would remain the central organizing structure of the health-care system.

In another world, the states would open the exchanges. And in that world, they've been preparing to open the exchanges. That means they would run them efficiently and conscientiously. Also states would take advantage of the law's provision allowing them to partner with one another. An exchange run by Delaware and Pennsylvania and Ohio and Virginia is going to be a lot stronger and have a lot more competition among insurers than an exchange run by Delaware alone.

At that point, large employers, tired of administering their own health-care plans, would begin buying their workers into the exchanges. More customers would mean a more competitive market that has clear prices and quality measures and would create a virtuous cycle in which prices go down and quality goes up.

Does that sound hopelessly idyllic to you? Yeah, me too. But that's because we're used to the dispiriting mess that is the American health-care system. This rosy future is pretty much how things work in Switzerland and in the Netherlands, so it's certainly not impossible. You're really saying that the Swiss are better than us?

The legislation Obama signed into law last week doesn't promise sufficient reform, but it does lay down many of the necessary preconditions for it. It is an incremental bill with a comprehensive vision tucked inside. Tired as we all are, the work of realizing that vision starts now.

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