Questions about Insurance Exchanges

1. Who has access to the exchange?
At a minimum, most would envision that people
without access to employer-sponsored insurance
or a public plan like Medicaid could obtain coverage
through an exchange. This would include people
now buying insurance on their own (like the selfemployed),
as well as people receiving incomerelated
subsidies. The exchange could be the
exclusive place where people buying insurance
themselves get coverage, or an outside non-group
market could continue to exist. Some proposals
would also permit workers with access to employer
coverage to join the exchange, or give employers the
choice of buying insurance through the exchange.
One issue raised by this idea of giving people or
employers a choice of whether to join an exchange
or not is the potential for “risk selection,“ meaning
that sicker-than-average people could end up in
the exchange. This could be mitigated by requiring
that any insurance sold outside the exchange would
have to comply with similar rules operating inside
the exchange, including the guaranteed availability
of coverage and limits on the extent to which
premiums can vary by health status.
2. How is an exchange structured?
The functions of an exchange could all be
accomplished by a single, national exchange, and
likely with the lowest administrative overhead.
However, individual purchasers— consumers
and employers— may feel a greater sense of
ownership with an exchange representing their
region. Negotiations with health plans might be
more effective at the local level, but some sort of
oversight body to ensure that the exchanges are
complying with national and potentially state rules
would likely be needed.
3. How should an exchange be governed?
The functions of an exchange could be handled
by a federal or state government agency. Some
advocates of exchanges, however, see the role
of a purchaser as better served by a private or
quasi-public entity that could operate in a more
nimble way than government regulatory bodies are
typically able to. There are number of important
design questions that have to be addressed in
structuring the governance of an exchange:
• Who oversees the exchange, ensuring that it’s
complying with federal requirements? If the
exchange is facilitating coverage for people
receiving federal subsidies, it has the potential to
affect federal spending in significant ways. This
oversight may be particularly important if there
are multiple state or regional exchanges.
• How is the exchange board structured? A key
issue is whether an exchange operates primarily
as a purchaser (e.g., with only employers and
consumers on its board) or as a broader market
facilitator, potentially with representation by
health plans and providers.
• What is the role of states? Federal law could
permit states to operate exchanges, or give
states authority over the creation and oversight
of exchanges within their borders. If the current
role of states in regulating insurance markets
continues in some form, there would at a
minimum need to be significant coordination
between exchanges and state insurance
departments.

4. How much purchasing authority should an
exchange have?
An exchange could range from a relatively passive
market facilitator — accepting any plan that
meets specified requirements — to a more active
purchaser with the authority to limit the number
of plans participating to a handful based on a
negotiation or bidding process. The more active
purchasing role might have greater potential to
drive down cost growth and improve quality, and
could simplify decision-making for consumers.
But, it could also be quite controversial, and
create disruption for consumers if their plans
were dropped by the exchange. In addition, if
the exchange covers a substantial share of the
market, a decision by the exchange to no longer
contract with a plan could in effect make the
insurer commercially non-viable. The authority
to make such far-reaching decisions might
require procedural requirements similar to what
a government agency would face when issuing
regulations, such as a public comment period when
individuals can voice their concerns. Another issue
is whether the exchange offers a public plan in
addition to private plans.
5. What benefits should be offered in an exchange?
From the perspective of encouraging competition
over price, fully standardized benefits are
preferred, making comparisons across plans
as simple as possible for consumers. However,
a uniform benefits package could discourage
innovation by plans and limit choice for consumers
wanting to purchase less or more coverage.
Benefits and cost sharing could alternatively be
standardized in tiers (e.g. low, medium, and high
option plans). In addition, plans could be allowed
to vary benefits and cost sharing so long as the
actuarial value— that is, the average level of
coverage provided to enrollees—meets a defined
threshold and plan variation does not discriminate
against the very sick. This approach complicates
choices for consumers, however, and may require
greater oversight by the exchange or a regulatory
agency.