Don Brunell: Paying more for less

When you talk about state health insurance exchanges, people’s eyes glaze over. (See, it’s happening right now.) The subject seems far too complicated and confusing.

But we need to talk about them because, as you read this, state bureaucrats in Olympia are making decisions that will affect the cost and availability of your health care benefits. Your insurance company isn’t taking part in the state exchange? It doesn’t matter. The rules will still affect your choices and your costs.

State exchanges are a creature of the federal health care law. They were created to distribute federal subsidies for qualified enrollees and establish how insurers would do business under the new health care law.

State exchanges fall into two types: open market and active purchaser.

Open market exchanges emphasize competition and consumer choice. For example, in Utah’s exchange, insurers compete side-by-side on an interactive state-run website, allowing people to select from a broad variety of plans, coverage levels and prices. The consumer simply answers online questions about their income and the size and makeup of their family, and the website presents the viewer with a variety of plans that meet those needs. The consumer makes the final decision.

An active purchaser exchange requires the state to contract with health insurers to provide coverage. The Massachusetts model is an example of an active purchaser exchange.

Washington is adopting a model closer to the active purchaser model, one that emphasizes state control. The federal health care law contains a host of measures to protect consumers, guarantee access to health care and spread financial risk. But Washington’s exchange goes far beyond the federal law.

For example, participation in state exchanges was supposed to be voluntary, ensuring that consumers could choose among insurers operating inside and outside the exchange. Not so in Washington.

Consider this: Some insurers focus on serving niche markets, such as providing lower-cost catastrophic policies that cover only major health care expenditures. But state bureaucrats have decided that insurers who sell those plans to young adults in Washington will be able to do so only through the exchange — they are banned from selling those plans on the open market.

Why would bureaucrats force these insurers into the exchange? Money.

State exchanges will be costly to operate, especially if billions in promised federal subsidies don’t materialize. Because catastrophic policies are most often purchased by healthy young adults, state bureaucrats want to force those low risk consumers into the exchange so their premiums can subsidize the other higher risk participants.

Another rule in Washington’s exchange could further limit choice for consumers in our state. Even though the exchange doesn’t apply to them, insurers that specialize in health plans for large employers and associations must change their business model and start offering three tiers of plans to either small groups or individuals — markets for which they have no desire, no experience, no expertise and no products.

Not surprisingly, these extreme intrusions into the marketplace will convince some of the few remaining insurers in Washington that it’s time to leave the state, further reducing choice and competition.

Of course, all this will change if Gov. Gregoire heeds calls to veto the two offending sections of the exchange legislation. Without that veto, Washington’s health insurance exchange will mean loss of coverage, fewer choices, less competition and higher prices.

(Don Brunell is the president of the Association of Washington Business.)