Barack Obama’s health overhaul mandated exchanges, but did not require businesses to buy from them. (Pablo Martinez Monsivais/AP)

A District board is moving full steam ahead with a controversial plan to require small  businesses in the city to purchase their employee health insurance through a government exchange.

The D.C. Health Benefit Exchange Authority voted unanimously Wednesday to move forward with the small business exchange mandate. The board accepted a recommendation that small businesses currently carrying employee insurance would not have to use the exchange until 2015. But individuals, new small businesses and currently uninsured businesses would have to use the exchange starting Jan. 1.

Exchanges — unified, government-operated, Internet-accessible marketplaces — are key aspect of the federal health care overhaul passed in 2010, but only Vermont has required small businesses (defined as plans covering 50 employees or fewer) to participate in them. But D.C. health officials argue that mandating small business participation is the only way to make the District’s relatively small exchange viable when it opens in October.

“It’s the first time that we’ll have a real marketplace that really works for small businesses and individuals,” said Mila Kofman, the authority’s executive director. “Right now, we have a market that doesn’t work at all. … [The exchange mandate] will force insurers to truly compete for business and it will empower small businesses with information that doesn’t exist and can’t exist unless there’s one big marketplace with a web portal that shows all of the information.”

Groups representing small businesses and health care interests have been outspoken in opposing the mandate, arguing that it is unproven, offers less flexibility to employers and could increase costs.

The exchange authority adopted another recommendation Wednesday that attempts to address the flexibility issue, making clear that insurance companies can offer coverage beyond the baseline standards set by federal and local law. And Kofman said Wednesday the exchange mandate stands to lower prices, not increase them, noting that one company — CareFirst BlueCross BlueShield — maintains an “almost monopolistic” hold on the D.C. market. The mandate, she said, will “drive true competition where carriers are really competing for small businesses.”

The final say on the matter, however, does not belong to the authority. The question of whether to mandate small business participation is headed to the D.C. Council, which will take up enabling legislation on the authority’s policies as soon as next month.

With heavy lobbying from small business groups, insurance brokers and CareFirst, there is a significant chance the small-business mandate could be modified or discarded altogether once legislators get a hold of it.

“I really don’t agree with a mandate,” said member Yvette M. Alexander (D-Ward 7), chair of the council’s health committee. “If you currently have employees, if you have a plan, if you’re satisfied with your plan, you should not have to go through the exchange.”

But Alexander, who is aiming to get the legislation through her committee and the full council by the summer recess, outlined a possible compromise, where existing small businesses could keep their current plans indefinitely, but new entrants would have to go to the exchange. Alexander also indicated she was skeptical of the gloomy projections that the exchange could fail due to a lack of participants without the small business mandate.

“Let’s wait to see what the market looks like,” she said.