Minnesota’s insurance exchange: Expect fewer choices, less competition, higher costs

This piece originally appeared in the Pioneer Press on April 7, 2013.

Gov. Dayton recently signed legislation passed on a party-line vote to require Minnesota to establish and operate a federal health insurance exchange, a key element of President Obama’s health care law.

The implementation of Obamacare already poses a number of risks to Minnesota’s health care system, such as higher insurance premiums, less competitive health insurance markets and larger proportions of high, unhealthy risks in insurance pools. An insurance exchange can either mitigate or aggravate these risks, depending on its design.

Understanding these risks and, at the same time, accepting Obamacare is the law of the land, the middle-of-the-road position has long been that Minnesota should create an exchange, but that Minnesota should wade into those Obamacare waters carefully.

The primary goal of an insurance exchange is to extend affordable health coverage to low-income households via Medicaid and federal premium tax credits. A careful and bipartisan insurance exchange would have focused on that goal without doing much else to disrupt what is working today. Instead, Minnesota is getting a partisan exchange.

What does Minnesota’s partisan exchange look like?

The short answer: We don’t yet know, because a key feature of Minnesota’s partisan exchange is that it is being built behind closed doors. The legislation signed by the governor keeps those doors closed.

The fact is, the initial exchange will now be whatever the Dayton administration says it will be. Very little in the bill addressed how the exchange would actually work to benefit (or harm) consumers. Those details were left to the administration and the exchange board. In effect, the bill passed by the Legislature rubber-stamped the Dayton administration’s exchange — not quite the level of oversight and openness Minnesotans expect from their lawmakers.

We do know one very important thing about the exchange: It will be a new government regulator with broad power to layer new rules and regulations on top of the regulations already administered by the Department of Commerce. Health plans participating in the exchange will, therefore, serve two regulatory masters. The breadth of the exchange’s power will even allow it to exclude health plans from the exchange. Instead of consumers freely choosing the plan that is right for them, the exchange can step in, demand specific health plan designs for inclusion and exclude disfavored health plans.

Without knowing exactly what is being built, what can Minnesotans expect from this partisan exchange?

It is possible the exchange won’t exercise the broad power identified above. If it carefully focuses on connecting low-income people with health coverage, it could avoid disrupting Minnesota’s health care system.

Unfortunately, all signs point in a different direction.

First off, the state is projecting a very costly exchange, which suggests a very ambitious exchange aiming to do too much too fast. The annual cost of the exchange is estimated to be $40 million to service people with private coverage. By comparison, Colorado’s exchange is expected to cost just $22 million to $24 million to serve a similarly sized market.

Furthermore, considering the board will be appointed by the same lawmakers who passed the law on a party-line vote, it likely will be stacked with representatives who support the party line — an exchange that actively regulates, designs, selects and excludes health plans.

The likely result will be higher costs and lower consumer satisfaction. Any action by the exchange to regulate health plans will add unnecessary costs and administrative burdens to the system. There is no indication that Commerce regulates too lightly. Quite the opposite actually.

Any action to exclude health plans will no doubt exclude the more affordable consumer driven health plans that take advantage of health savings accounts. The left has never much liked the idea of people controlling their health care decisions and spending through a savings account.

Finally, by granting the exchange such broad power, lawmakers guaranteed it will be heavily lobbied by special interests looking to gain favors and, as a result, less focused on satisfying consumers.

Paul Howard, senior fellow with the Manhattan Institute, sees this type of exchange taking shape this way: “Regulators inevitably bring their own biases and preferences to plan design and selection, leading to constrained competition and winners who tailor their plans to meet regulators’ (as opposed to consumers’) preferences. Special interests will bring their full weight to bear on exchange administrators to ensure that favored services and providers are included in the basic package (and thereby subsidized by consumers who might be otherwise unwilling to pay for such services), driving up costs.”

That is exactly what to expect from Minnesota’s insurance exchange. It might not happen in the first year or the second year. However, the outside pressure and the biases of the board will inevitably limit health plan choices, restrain competition and raise health care costs.

Peter J. Nelson is director of public policy at Center of the American Experiment in Minneapolis.

The primary goal of an insurance exchange is to extend affordable health coverage to low-income households via Medicaid and federal premium tax credits. A careful and bipartisan insurance exchange would have focused on that goal without doing much else to disrupt what is working today. Instead, Minnesota is getting a partisan exchange.