November 14, 2008
By Stuart M. Butler, Ph.D.
The president-elect didn't invent the idea of a health exchange.
He came up with his own version of an idea that's been refined by
people like us at the Heritage Foundation and already field tested.
Frankly, we prefer the original.
Here's what this big Idea is all about:
Most working Americans get health coverage as a tax-free benefit
from their employer. The problem is that smaller employers don't do
this well - and many not at all - because it's a hassle and they
can't get a good deal from the insurer.
So millions of workers don't get any health coverage from their
employers. And many more don't get the kind of coverage they want.
Even those who do get good coverage through work may lose it. Those
who change jobs often have to change doctors under a new plan.
Enter the health exchange - a sort of shopping mall for
If you worked for a non-insuring boss - say, John the barber or
Jane the restaurant owner - you wouldn't be out of luck. You could
pick your own plan through a health exchange. Even if you get
insurance now, you might find better coverage - or a better deal -
among the many competing plans offered by an exchange.
The exchange would be a nonprofit organization chartered by the
government. It would set some ground rules for insurers. For
example, they would need to present cost and coverage information
in an easy-to-compare way - like hotels on Travelocity. Government
and the plans also could develop underwriting rules and a "risk
adjustment" fund so coverage is affordable for everyone.
As employers, John and Jane wouldn't have to select and
administer coverage for their workers, though they would make a
payroll deduction and send off the premium to the exchange, often
kicking in a share. The exchange would lump premiums together and
distribute funds to each plan to cut overhead.
This approach offers many advantages. It would give working
Americans a choice of several plans, not just one that appealed
most to their employer. And they could go directly to the exchange
if their employer didn't offer any coverage. Moreover, workers who
switch jobs could simply keep the same plan through the exchange -
just like keeping the same auto insurance.
Federal employees already have an insurance exchange, called the
Federal Employee Health Benefits Program (FEHBP). Many private
workers in Massachusetts now also have coverage through an exchange
called the Connector; other states are planning to copy
The Heritage Foundation and some other think tanks have argued
for years that an FEHBP-style health exchange would make sense.
Still, for the exchange idea to work for all working Americans,
it must have some key features and avoid certain pitfalls.
First, workers must get the same tax breaks whether they get
health coverage through an exchange or through their employer.
Otherwise there's a financial obstacle to using an exchange.
Currently, only employers get the necessary tax preferences for
purchasing health coverage.
Second, the government must not use the exchange to impose fixed
benefits on plans. If government starts mandating that all plans
cover the same thing, choice is limited, costs go up, and doctors
have to practice cookbook medicine.
The FEHBP requires few specific benefits. Massachusetts
unfortunately requires more. An alarming feature of Mr. Obama's
plan is that he seems to want government to mandate a laundry list
Third, the exchange must provide a level playing field for all
competing plans - no unfair kickbacks or financial links between
the exchange and any one plan. The FEHBP is strictly neutral. But
Mr. Obama wants to inject a government-run insurance plan as one of
the competitors in his exchange version. That's dangerous.
A government-sponsored exchange would naturally write the rules
to favor its own plan. Imagine if baseball umpires and the New York
Yankees both worked for George Steinbrenner. The Red Sox or Rays
wouldn't stand a chance.
And fourth, it's better to have exchanges operate at the state
level. This assures that an exchange can be adapted to the local
insurance market. Massachusetts' could continue to be the
Connector, say, while Virginia's might be based on the FEHBP.
But a federal-level exchange run by Congress would likely lead
to a homogenous, one-size-fits-all system. Sure, general goals
could be set at the national level, but if state health experts can
figure a better way to reach those goals, let them try.
A health exchange can be an important - and bipartisan - element
in fixing our health care system. But it must be done right.
Butler is vice president for domestic policy issues
for the Heritage Foundation.
First appeared in the Washington Times
The president-elect didn't invent the idea of a health exchange. He came up with his own version of an idea that's been refined by people like us at the Heritage Foundation and already field tested. Frankly, we prefer the original.
Stuart M. Butler, Ph.D.
Distinguished Fellow and Director, Center for Policy Innovation
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