When it Comes to Health Benefit Exchanges, One Size Does Not Fit All

Implementation of the Patient Protection Affordable Care Act (PPACA, or ObamaCare) will impose state compliance on a large number of federal rules and mandates, especially when considering the state health benefit exchanges.  In addition to inevitable premium increases and the unknown long term costs of an exchange, ObamaCare will inflict a “One Size Fits All” approach that ignores the uniqueness of each individual state.

Before the enactment of PPACA, Massachusetts and Utah were the only two states that had enacted health benefit exchanges.  Both exchange programs have their own unique design and functionality features and each exchange was designed for very different policy objectives.  Unfortunately, both have had disappointing results.

The Massachusetts exchange was designed to have businesses carry the burden of healthcare costs.  However, smaller businesses, which make up the majority of Massachusetts employers, can’t afford the costs associated with offering their own healthcare plans. As a result, Massachusetts small businesses are terminating their employee insurance plans and instead depending on the state-run healthcare system and exchange, the Commonwealth Connector, to take care of their employees.

The state government penalizes businesses for dropping employee coverage, but the cost in Massachusetts is only $295 annually per employee, which is far less of an expense when compared to contributing to employee insurance premiums. Because these penalties are far less than providing employer-based health coverage, employees must enter the state exchange where much of the costs are passed on to the Massachusetts taxpayers.  Instead of assisting Massachusetts small businesses, RomneyCare has only driven up state healthcare costs through excessive regulations and mandates, bringing Massachusetts one step closer to economic turmoil rather than towards prosperity.

The Utah Health Exchange is more consumer-friendly, avoiding some of the heavier regulatory aspects found in the Massachusetts exchange.  Utah’s exchange is a government-operated marketplace where small businesses and employees can comparison shop for health coverage and, in theory, leverage their combined buying power to obtain more affordable premiums.  However, so far it has not attracted a significant amount of users and some businesses have found that the exchange offers plans with much higher insurance premiums than those available outside of the exchange.

As a third example, California became the first state to enact a health benefit exchange on its insurance market in response to the signing of ObamaCare.  The main functions of its exchange include regulating insurance options, controlling benefits, enrolling individuals in Medi-Cal (California’s version of the Medicaid) in addition to administering government subsidies for public health. In many ways, it is similar to the Massachusetts Connector plan.  Under the California law, the exchange board mandates health care benefits, medical treatments, and procedures benefits even beyond those imposed by the federal government, imposing unnecessary costs onto taxpayers.    

As demonstrated by these three states’ health benefit experiments, it is extremely difficult for state exchanges to thrive and provide an adequate health insurance market for residents. However, under ObamaCare, states will have even more regulatory hoops to jump through as the federal law imposes a single, uniform, national standard on states with very different health market needs and financial assets.

While North Carolina should wait for the constitutionality of ObamaCare to be determined by the US Supreme Court, if a health benefit exchange becomes inevitable, North Carolina should be given as much discretion as possible to form an exchange that maximizes competition and consumer choice.  For example, individuals should be allowed to go outside the exchange if they are willing to forego the exchange tax subsidies.  No insurer willing to offer an exchange plan should be excluded and no additional requirements should be placed on the type of insurance policies available in the exchange.  Furthermore, the exchange should be run under an independent board much like the Inclusive Health state high-risk insurance pool.  Such provisions would alleviate some of the more restrictive burdens of a mandated exchange and allow for some competition and consumer-focused plans.

Though no health benefit exchange is ideal, should a federally mandated state exchange come to fruition, each state should be allowed to develop an exchange that meets its specific demographic, regulatory and budgetary needs.  States should not be confined to a “One Size Fits All” program.