1. THE COMMONWEALTH FUND Organizing Insurance Markets to Work in the Public Interest: The Potential of a National Insurance Exchange in the Context of National Health Reform Cathy Schoen Senior Vice President, The Commonwealth Fund Alliance for Health Reform Briefing May 11, 2009 cs@cmwf.org www.commonwealthfund.org

2. THE COMMONWEALTH FUND 2 National Insurance Exchange: Potential in Context of Broad Health Insurance Market Reforms Health Insurance Reforms Context: Consensus Core Elements –Builds on existing system while addressing key concerns –No premium penalty for health status: community rating (or modified), guaranteed issue and renewal –Provisions for affordability Medicaid expansion for low income Income-related premium assistance –Minimum national standard for health insurance benefits –Everyone required to have insurance –Provision for employer pay/play: shared financing responsibility National Insurance Exchange with State/Regional Level Operations –Possible inclusion of a public health insurance option For discussion see The Path to a High Performance U.S. Health System, Commonwealth Fund Feb. 2009.

3. THE COMMONWEALTH FUND 3 National Insurance Exchange Potential Access, Choice, Portability and Continuity Economies of scale and insurance market efficiency –Potential to lower insurance overhead cost: especially in individual and small group market –Pools risk and could reduce churning –Makes it easy to compare, enroll, and stay covered Market Oversight and Transparency: Informed Choice New Insurance market competition –Insurers compete on the basis of added value –Access, Outcomes and Cost Source: The Path to a High Performance U.S. Health System, Commonwealth Fund Feb. 2009.

4. THE COMMONWEALTH FUND 4 70%–79% Less than 50% 50%–69% 80%–100% Concentrated Insurance Markets: Market Share of Two Largest Health Plans, by State, 2006 Note: Market shares include combined HMO+PPO products. For MS and PA share = top 3 insurers 2002-2003. Source: American Medical Association, Competition in health insurance: A comprehensive study of U.S. markets, 2008 update; MS and PA from J. Robinson, Consolidation and the Transformation of Competition in Health Insurance, Health Affairs, Nov/Dec 2004; ND from D. McCarthy et al., The North Dakota Experience: Achieving High-Performance Health Care Through Rural Innovation and Cooperation, The Commonwealth Fund, May 2008. AK HI

5. THE COMMONWEALTH FUND 5 Cost of Administering Health Insurance as a Percentage of Claims Under Current Law and Potential with Exchange, by Group Size Percentage Source: Estimates by The Lewin Group for The Commonwealth Fund published in The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way (New York: Commonwealth Fund, Feb. 2009).

6. THE COMMONWEALTH FUND 6 Insurance Exchange: Key Issues Exchange Functions and Authority: active oversight or passive? –Accountability: Premiums: Overhead and margins High value plans Standards for plan participation –Informed choice and transparency Benefit standardization and range of variation –Potential as foundation to moderate costs and improve value Who participates in the exchange? –Individuals, small employers, large group? –How to set rules governing insurance sold inside and outside the exchange? –Concerns about risk selection –Should the exchange become exclusive source or replacement source for some markets?