Health Insurance Exchanges: Organizing Health Insurance Marketplaces to Promote Health Reform Goals

The focus on national health care reform has given rise to a number of proposals for revamping the health insurance marketplace so that all Americans would have affordable coverage. One option supported by President Obama, Senate Finance Committee Chairman Max Baucus and other health policy leaders involves the government establishing a public health insurance exchange to effectively organize an insurance market for those without coverage.

Their theory is that a national health insurance exchange would provide coordination and guidance to insurance markets to help them comply with consumer protections and compete in cost-efficient ways that would result in more Americans obtaining coverage.

Advocates of a public exchange say it could also help purchasers and insurers address some of the problems that currently exist in private health insurance markets, such as insufficient risk spreading, discrimination, out of control costs, poor delivery of subsidies, troubles facilitating and ensuring enrollment, and underinsurance. These fundamental challenges have long hindered the efficacy of our nation’s health care system while contributing to the growing numbers of Americans who either have no insurance or insurance that is inadequate to meet their current and potential health care needs.

In this paper, researchers from the Urban Institute and Georgetown University review some of the key problems facing purchasers of insurance—whether they be individuals or employers—and outline whether and how a public health insurance exchange might address them. The paper also highlights lessons that can be learned from the experience of prior efforts to create and operate exchanges, such as the Commonwealth Connector in Massachusetts.

The authors conclude a well-designed exchange can help bring about changes that can move the system toward many of the nation’s most oft-stated health reform goals. Without an exchange, the authors assert that a patchwork of new agencies at the state and federal level—in addition to new roles for existing agencies—would be required to achieve similar reform objectives.