published Thursday, March 8th, 2012

Cleaveland: Insurance exchanges explained

Health insurance exchanges are critical components of the 2010 Affordable Care Act.

Each state is required by the ACA to establish an exchange by 2014. A state must ratify enabling legislation by June to qualify for federal grants to establish an exchange. If a state does not have approved plans in place by January 2013, that state will surrender authority to design its exchange to the federal government.

Alternatively, a state could choose to use its own funds to establish an exchange after the January deadline. This is a very costly option. Exchanges must be fully operational by January 2014.

Tennessee is one of seven states (Idaho, South Dakota, Nebraska, Kansas, Kentucky, and Delaware are the others) that have not passed enabling legislation. Our state has obtained some federal funding to begin the planning of an exchange. Governors of South Carolina, Florida, Louisiana, and New Mexico have vetoed legislation that would permit the establishment of exchanges in their states.

An exchange is a regulated marketplace for insurance products. The Federal Employee Health Benefit Plan has used a similar plan for decades. The concept was further developed in the Massachusetts Health Care Plan which then-Governor Romney signed into law in 2006. The Bay State exchange was called a "connector."

A typical exchange would be operated by state government or a designated nonprofit enterprise. Private insurance companies within the exchange would offer similar health insurance policies: a basic plan, and three additional levels of coverage. All plans must include 10 basic services. Each state could mandate additional services or benefits through legislative action.

The three levels of coverage beyond the basic plan would vary by co-payments, deductibles, benefits, and limits on out-of-pocket expenses. Benefits and descriptive language would be standardized so that consumers could more easily make comparisons and choices among plans. There would be no fine print or obscure language to mislead shoppers. Companies within the exchange would compete on price, service, and customer satisfaction.

The ACA allows the establishment within an exchange of a health insurance co-op (customer-operated and oriented plan). This nonprofit entity could be formed by a group practice, a labor union, or a business coalition to offer qualified health plans within the exchange.

Exchanges are designed for individuals and employees of small businesses. An estimated 30 million Americans would purchase health insurance through an exchange by 2020. Employees of larger businesses would remain in their company-sponsored insurance plans. Health insurance purchased through an exchange would have the advantage of being portable when a policy-holder changed jobs. An exchange would be the exclusive source for health insurance for members of Congress.

Through the experiences of patients, I have seen health insurance plans in the past that bordered on fraud. Through convoluted language these plans set lifetime limits on coverage. Minor health issues in childhood could be resurrected to block payments for adult illnesses. Coverage for cancers and other catastrophic illnesses could be canceled in midtreatment. These practices are banned by the ACA and the exchanges established under the legislation.

Most states are well along in preparing for exchanges. Those states that are not assume either that the Supreme Court will rule the ACA unconstitutional or that a new Congress will repeal it. I think this plays roulette with the health of citizens of those states, including Tennessee.

Competition in health care succeeds when consumers are given readily understandable facts that allow them to make informed choices. A state-based exchange is the eminently sensible way to achieve this goal.

Contact Clif Cleaveland at cleaveland1000@ comcast.net.

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groberts said...

Dr Cleaveland provided a nice summary of what exchanges are and where our country is with regard to implementation. Missed in the discussion is the cost to an individual over the poverty line. An insurance rate of $150 per month for an individual today is estimated to be 2.5 times higher or $375 in the exchange environment. I want everyone to have insurance, period however this kind of rate increase may cause riots in the streets or at minimum a total loss of trust in Obama.

March 8, 2012 at 10:53 a.m.
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