The Role of Exchanges in Health Care Reform Linda J. Blumberg The Urban Institute

THE URBAN INSTITUTE Why have an exchange? Insurance markets are not well organized today; Barriers to obtaining coverage, result of voluntary participation; Lots of latitude in marketing practices and product design; Market rules and consumer protections vary widely across states; Products are often confusing. Exchanges can be designed to provide structure and oversight to insurance markets.

THE URBAN INSTITUTE Goals of Reform Increased sharing of health care risk; Slowing rate of health care inflation; Making coverage affordable; Facilitating enrollment in coverage; Ensuring meaningful coverage; Promoting transparency and accountability.

THE URBAN INSTITUTE Cost Containment An environment more conducive to competition has potential to slow the growth in health care spending. Two factors determine the costs of coverage of a given level: Underlying costs of providing care; Higher provider payments may reflect lack of competition in provider & insurance markets. Administrative costs of insurance.

THE URBAN INSTITUTE Exchange role in addressing costs of care Exchange can be given authority to negotiate with plans over price; Standardized benefit packages promote price comparisons; Fixed employer contributions promote lower-cost plans; Public plan could catalyze private plans to be more cost efficient; Greater insurance transparency will promote more informed consumer choices, incentives for efficiency.

THE URBAN INSTITUTE Exchange role in addressing administrative costs Admin costs range from ~7% to 30% of premiums. Some efficiency potential, but individual admin costs > large groups. Reduced marketing expenses; Reduced churning; Detailed reporting and disclosure of admin costs and operations; Public plan option could pressure privates to lower their admin costs.

THE URBAN INSTITUTE Exchange role in delivering subsidies Affordability is key to substantial expansion of coverage; Cost of delivering subsidies in non- organized market can be very large. HCTC example Centralizing process much more efficient. Standardized products in exchange: Same benefits, different cost sharing levels, Avoids cumbersome out-of-pocket subsidies.

THE URBAN INSTITUTE Exchange role in facilitating enrollment Enforcement of an individual mandate should be minimal if enrollment is affordable and barrier free; Exchange can provide central location for: Reliable information on options and all processes; Choosing plans; Subsidy determination; Making payments; Tracking enrollment and disenrollment to minimize coverage gaps.

THE URBAN INSTITUTE Concluding thoughts Many different problems in insurance marketplace to address; Exchange is needed to: coordinate tasks; guide markets to compete in cost-efficient ways; Monitor compliance with consumer protections; Without one, patchwork of new agencies and new roles for existing agencies necessary, but efficiency would be compromised.