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November 14, 2008

Exchange We Can Believe In

By

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 insurance customers.

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 Massachusetts.

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 of benefits.

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.

Stuart Butler is vice president for domestic policy issues for the Heritage Foundation.

First appeared in the Washington Times

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