For some, much of everything in the Affordable Care Act – referred to as Obamacare – is problematic.
My friend and colleague Paul Howard is hardly a fan of the President’s efforts, and has been sharply critical of the final legislation. Paul, though, has done us a favor in his ongoing analysis of American health care: he’s looked at the post-passage landscape while acknowledging that there are deep and significant problems with health care in the United States to begin with.
Those deep and significant problems include the individual insurance market in many states. New York, where Paul lives and writes, is a case in point. If you are not covered by your employer, the options for health insurance are few and far between – and feverishly expensive. Part of the problem, obviously, is the way in which health insurance is organized; part of the problem is the clunky reforms New York State has experimented with over the past decade and a half.
So dire is the situation that, in New York City, tens of thousands have joined the Freelancers Union, which allows the self-employed to essentially opt out of the individual market, giving them more choices.
For the record, New York small businesses may be spared some of the worst regulations those in the individual market face, but nonetheless are subjected to incredible administrative costs (some estimates suggest as much as 20 cents on the health insurance dollar goes to administration).
Obamacare calls for health-insurance exchanges to be established in 50 states by 2014, allowing individuals and small businesses to choose from competing plans in one state-wide “marketplace” of insurance. The idea itself is clunky – a last minute compromise that saw the original idea (a national exchange fashioned after the insurance that federal employees have) replaced with state-based exchanges.
Opponents of Obamacare have been fiercely critical of these exchanges, suggesting that they will lead to more bureaucracy, more regulations, and more subsidies, without fundamentally increasing options. States like Florida have decided not to establish the exchanges (and thus forgoing the federal dollars that come with participation).
Paul takes a more measured approach. In an excellent new paper, “Building a Market-Based Health-Insurance Exchange in New York,” he weighs the opportunities and pitfalls of such exchanges.
He considers the state-based health insurance exchanges already in existence. Yes, of course, that includes the Massachusetts Connector – the widely-known centerpiece of the 2006 health-reform legislation forged by Massachusetts’s then-governor Mitt Romney, a Republican, and the Democrat-controlled state legislature. It also includes, though, the exchange established in Utah.
The two experiments could hardly be more different. Massachusetts is rich in regulations and cost; the entire Utah exchange is overseen by just two state employees and functions something like a Hotels.com for insurance options.
The Affordable Care Act gives states some flexibility and much in the way of subsidies. Paul closes with some recommendations for New York as it pulls together its exchange.
Open Competition among All Qualifying Health Plans. The exchange should primarily be a clearinghouse for insurance competition… As in the case of Medicare Part D and the FEHBP, flexibility in insurance design is critical to reducing health-insurance costs to taxpayers and consumers. The state should also resist mandating additional essential benefits for exchange plans.
Flexibility in Insurance Design. Policymakers should reform regulations… as needed to allow greater variation in co-pays and deductibles—including allowing HSAs and other high-deductible plans to be sold outside the exchange. They should also allow more limited benefit plans to be sold, allowing consumers to find more affordable coverage options.
Affordable Insurance Options for Younger and Healthier Enrollees. Although the ACA allows New York to maintain its current pure community-rating standards, this regulation is one reason that the state’s individual insurance market has become unaffordable for many uninsured individuals and small businesses. By expanding the state’s age-banding rules to the ACA allowed 3-1 premium ratio (a reform that would require legislative action), many more affordable policies would become available inside and outside of the state’s insurance exchange.
Freedom from Political Influence. The exchange should not have responsibility for reviewing the reasonableness of plan rates or for blocking exchange entry to otherwise qualified health plans.
Defined Contribution Plans for Small Businesses. A defined contribution option (as in the Utah and HealthPass exchanges) for small businesses, combined with a premium aggregator function, should help many more small businesses and their employees find affordable health-insurance options. To save on exchange implementation and operation costs, the state should consider designating one or more private regional exchanges (such as HealthPass) as the state’s small-group health-exchange option.
Paul’s paper is focused on New York, but his ideas would be sound in other states, whether or not Obamacare is implemented or repealed in the coming years.