Opinion Column

Built To Fail: Health Insurance Exchanges Under The Affordable Care Act (Guest Opinion)

The House of Representatives voted last month to repeal funding for the state health-insurance exchanges, which are required under President Barack Obama’s Patient Protection and Affordable Care Act. The House GOP’s vote reflects a grassroots revolt: Republican governors and legislatures from New Mexico to Georgia have also moved to kill or stall legislation establishing exchanges. A better approach might be to rally around the original tenets of the health exchange model.

Republican hostility to the exchanges was not inevitable. The concept has been endorsed on the right, by groups such as the Heritage Foundation and officials such as former Minnesota Governor Tim Pawlenty, and exchange like-programs have been used successfully in the Federal Employee Health Benefits Program and Medicare Part D, which covers prescription drugs. The argument for insurance exchanges is relatively simple. By setting up Web sites where consumers and small businesses can easily compare insurance options (including quality, price and coverage), states will spark competition, driving insurers to offer more affordable plans to consumers.

The health law, however, takes this simple idea and makes it extraordinarily complicated — if not impossible — to execute. By adding a litany of new minimum-insurance requirements and regulations to the original bipartisan idea, health insurance purchased through an exchange will likely end up more expensive than it is now.

For instance, mandates on the minimum share of health care costs that insurers must cover for all plans, along with a richer new federal “essential benefits” package, will drive up insurance costs for individuals and small businesses. Federal premium tax credits and cost sharing subsidies on the exchanges will also “bid up” premiums as individuals gravitate toward more expensive coverage.

Overall, the Congressional Budget Office expects that non-group premiums will go up by nearly 30 percent. This cost increase may be offset by the administrative efficiency of buying coverage through exchanges, and if many young and healthy uninsured can find affordable coverage. Conservatives, though, remain worried (and rightly so) that insurance choices on the exchanges may become “rigged” in favor of more expensive plans, driving up costs for taxpayers and driving healthy consumers to remain uninsured.

The health law’s defenders may dismiss these concerns as partisan politicking, but it’s harder to dismiss another criticism: that its exchanges are too heavily prescribed to actually operate. Without clarification or changes from the Obama administration, it will be nearly impossible for them to be fully operational in all 50 states by 2014, as the law demands. Consider what needs to be put in place.

In order to qualify for federal financing, the state exchanges must be able to ensure that premium-support recipients are living U.S. citizens — a requirement to protect against fraud — and are not felons. They must have household incomes between 133 percent and 400 percent of the federal poverty line (about $90,000 for a family of four). They also cannot be recipients of other health benefits from another source, such as an employer.

Logistically, these requirements present a massive challenge. For the first time, secure data feeds from the Departments of Homeland Security (establishing legal immigrant or US citizen status), Justice (for felon history), Treasury (for tax return information to impute income) and the Social Security Administration (establishing that the recipient is not deceased) would have to be combined. These data feeds would then have to be securely coordinated by the Department of Health and Human Services. There is no history of these agencies ever bringing their data together at this scale. It would qualify as the largest IT integration project in U.S. history.

Next, all 50 states would have to integrate this data into 50 different versions of a Travelocity.com for health insurance — all while seamlessly shifting millions of recipients back and forth between private insurance and public programs like Medicaid and CHIP; allocating subsides; and collecting insurance premiums.

What if many — or even most — states can’t establish a compliant exchange by January 1, 2014? Under the health overhaul, the federal government reserves the right to operate exchanges on behalf of those states that fail to meet the deadline. If dozens of states default to the feds, the administration would have to concede that the law’s central component is unworkable.

But conservatives shouldn’t cheer at that prospect, since states would miss the opportunity to create market-friendly exchanges that offer more affordable insurance options. Even if the health law is eventually overturned by the Supreme Court or repealed by a future Congress, conservatives would still have to find better ways to expand access to affordable health insurance. Exchanges would undoubtedly be part of that solution.

A grand compromise might be possible. If the administration gave the states more flexibility — in particular, giving conservative states more leeway in certifying “qualified” insurance for sale on the exchanges and using Medicaid funds to support private coverage — it might encourage those states to set up market-friendly exchanges. Other, more liberal states might appreciate extending the health law’s exchange deadline from 2014 to 2015 or later.

Republicans might resist this option, because it’s not as ideologically clean as “repeal and replace” and would allow Obama to claim some measure of victory. But if the GOP can lift the overhaul’s heavy-handed insurance regulations, get the states more Medicaid flexibility and slash the legislation’s trillion-dollar price tag through market-based insurance reforms, wouldn’t that be a compromise worth making?

Paul Howard is the director of the Manhattan Institute’s Center for Medical Progress. Stephen T. Parente is the Minnesota Insurance Industry Chair of Health Finance at the University of Minnesota.