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April 11, 2011

One-Size Exchanges Dont Fit All

By

The old adage "you can't judge a book by its cover" also applies to legislation and policy proposals. It's the contents that really matter, not the label on the package, that bit of folk wisdom assures us. Labels can be misleading, sometimes even intentionally so.

It's true in health care, too.

Today, most Americans have their health care coverage decisions made for them by someone else — either their employer or the government, if they qualify for a program such as Medicare or Medicaid. Reforming those arrangements to instead empower patients to choose the coverage they prefer from a wide and varied menu of competing plans necessarily requires some kind of "clearinghouse" to process the paperwork and ensure that payments go to the right place.

Seven years ago, I started using the term "health insurance exchange" as a descriptive label for the administrative entity needed to perform those functions. I chose the term "exchange" to convey that the entity's design and functions would be conceptually equivalent to those of similar, well-understood organizations such as stock exchanges or commodity exchanges.

Unfortunately, in last year's health care legislation, Congress and the president decided to keep the "exchange" label but replace the contents. The new "exchanges" in their legislation offer little more than the illusion of consumer choice. A whole set of other provisions will standardize the coverage they offer to conform to a federally dictated set of "essential" benefits. It will also limit the number of insurers allowed to sell coverage. Their approach is more akin to Henry Ford's answer that customers could buy his Model T in any color they wanted, so long as it was black.

Rep. Paul Ryan's proposal to transform Medicare from a "one-size fits all" program into a "consumer-choice" system, in which multiple sellers compete to offer buyers better value, is much closer to my original concept of a health insurance exchange.

It is true that implementing the same basic consumer-choice approach in Medicare and employer-sponsored coverage will differ somewhat, due to differences in those two markets. For example, government oversight is more appropriate for a taxpayer-funded Medicare program than for privately funded coverage. Also, while there is no need for new insurance regulations in the existing employer-sponsored market, a new consumer-choice market in Medicare would need a set of rules for participating insurers.

Of course, turning Ryan's proposal into legislation will highlight another old adage: "the devil is in the details." Only when we see the final product will we know whether it conforms to the original vision.

Ed Haislmaier is a senior research fellow in Health Policy Studies at The Heritage Foundation

First appeared in USA Today

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