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CCH® BENEFITS — 06/23/09

Future Of Employment-Based Benefits Might Hinge On Nature Of Health Insurance Exchange

from Spencer’s Benefits Reports: Implementing a new health insurance exchange that would offer new forms of insurance pooling, combined with an individual mandate and guaranteed issue, would restructure the health insurance market and have major implications for the existing employment-based benefits system covering the majority of Americans, according to a study recently released by the Employee Benefit Research Institute (EBRI). A health insurance exchange, one of the key elements proposed for health care reform, could be national, state, or a combination of both, or for various markets or regions within a state.

In its June Issue Brief, EBRI includes a detailed analysis of health insurance exchanges and examines issues related to managed competition and the use of such an exchange to address cost, quality, and access to health care services. According to EBRI, a health insurance exchange would be an “organized marketplace that brings together health insurers and consumers (either as individuals or through their employers)” in which the exchange’s sponsor “would set rules of engagement for participating insurers and offer consumers a menu of choices among different plans.” Furthermore, EBRI noted, “Ultimately, the goal of a health insurance exchange is to shift the market for health insurance from competition based on risk to competition based on price” and quality.

For an insurance exchange to work, experts agree that the following components are essential: individual mandates, risk adjustment, streamlined comparability of benefit design, subsidies for the low-income population, some form of community rating, and guaranteed issue. Furthermore, cost-control mechanisms are necessary to contain cost increases. Including a public plan option “could reduce the overall cost of health care by reducing payments to providers, but possibly at the cost of impairing access to care,” the EBRI report cautioned.

To allow individuals to compare benefits across insurance options, the insurance benefit must be specific and clear, EBRI emphasized. “Without standards governing cost sharing, covered services, and network coverage, there is no way to assess whether a requirement to purchase or issue coverage has been met.” Subsidies would be necessary for low-income individuals to purchase insurance.

A national health insurance exchange might cause some employers to stop offering health insurance benefits, the EBRI report noted. “While the availability of a health insurance exchange and the termination of employment-based health benefits would benefit workers (and employers) by reducing job lock, and would increase health plan choices for both workers and retirees, terminating health benefits is not as simple as giving all workers the same amount of money when premiums in the exchange are determined on a modified community-rated basis.”

“For both employers and workers, the implications are enormous,” said EBRI’s Paul Fronstin, who coauthored the study with Murray Ross of the Kaiser Permanente Institute for Health Policy. “Will employers provide a fixed contribution for the purchase of insurance through an exchange? Would that be large enough to purchase coverage? Would it be flat or vary by workers’ health status, age, and/or marital status or the presence of children? Would it be taxed?” These remain open questions, he noted. “Ultimately, health reform will redistribute resources and income and create winners and losers,” the EBRI report concluded. “Determining the winners and losers will be difficult, given the complexity surrounding health reform and the uncertainty surrounding the behavioral response of patients, providers, employers, insurers, taxpayers, policymakers, and others.”

EBRI’s June 2009 Issue Brief, “Addressing Health Care Market Reform Through an Insurance Exchange: Essential Policy Components, the Public Plan Option, and Other Issues to Consider,” is available at http://www.ebri.org.

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