Health Insurance Exchange would put people back in control of their healthcare

Tucked within the Minnesota House omnibus health and human services bill rests a proposal to create a statewide Health Insurance Exchange, a big idea that if passed into law would be a strong first step toward more affordable, consumer-focused, portable, accessible, and equitable health insurance coverage.

Today, most of us get health insurance coverage from our employers, which generally means we take whatever we’re offered and we leave it behind when we leave our jobs.  This situation divorces us from making our own health care arrangements; it results in expensive, one-size-fits-all health plans; it removes incentives for us to monitor costs and quality like we would with anything else we buy; and it locks us into our jobs for fear of losing health care.  And whoever’s not lucky enough to get job-based coverage must pay for insurance with after-tax dollars, resulting in a significant surcharge compared to everyone else.

An Exchange hopes to change all that by empowering consumers to arrange their own health care benefits, while maintaining the funding role of the employer.

Really, an Exchange is just a store that sells competing brands of health insurance.  Let me give an analogy: You can buy a computer directly from Dell, or you can go to Best Buy and shop among competing models.  Similarly, you can buy insurance directly from Blue Cross, or you can shop among competing insurance plans in an Exchange.

Technically speaking, an Exchange collects and processes premium payments for individual health insurance coverage.  It provides a place to combine cash contributions from individual consumers, their employers, their spouses’ employers, and maybe even the government, which the consumers then use to pay for the health insurance coverage of their choice.

One more key provision within the bill requires that all employers with 11 or more employees set up what’s called a Sec. 125 premium-only plan, which is a premium payment plan that employers establish to pay employee insurance premiums with pre-tax dollars.

If you couple an Exchange with a Sec. 125 premium-only plan, then you create a place where insurance can be funded in multiple ways with pre-tax dollars.  Therefore, almost anyone with a job could buy health insurance with pre-tax dollars.  The tax savings, even for lower-income people, would be substantial, making it possible for the uninsured at the margins of affordability then to buy insurance.

Employers would probably find an Exchange liberating.  Employers not offering coverage would be free to help subsidize employee health care without worrying about a new slate of human resources duties.  Alternatively, employers already offering coverage who switched to the Exchange would be free from a number of human resources duties: They’d no longer have to design health plans; they’d be able to abandon tons of paperwork; they’d no longer annually have to negotiate health plan pricing; and they would no longer need to shop for new plans if negotiations failed to meet their budgets.   Employers would simply budget a cash contribution to pay into the Exchange, confident their employees would be well taken care of by an array of health insurance choices.

Under this plan, employees who lost their jobs might lose employer funding, but they would still be able to maintain the same health insurance coverage by either paying out of their own pocket or taking a job with another employer involved with the Exchange.

Best of all, those within the Exchange would actually shop for insurance and, like shopping for anything else, they’d pay close attention to cost and quality.  Consumers could save money by picking cheaper health insurance plans.  Insurers would compete for the economizing consumers and would work hard to understand and meet their demands, not their employers’.

While promising, an Exchange does have its issues.  For example, it relies on the individual health insurance market, which tends to have higher administrative costs and wider premium variations than the group health insurance market.  Nonetheless, these are not new issues. Moreover, because employers are free not to use the Exchange if they wish to stick with the status quo, there’s little reason to bar those without job-based health insurance from realizing the Exchange’s advantages.

With little to lose and much to gain, an Exchange deserves a home in the final omnibus health and human services bill.

Peter J. Nelson is a policy fellow with Center of the American Experiment in Minneapolis