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 SchoenSenior Vice President, The Commonwealth Fund

Alliance for Health Reform Briefing

May 11, 2009cs@cmwf.org

www.commonwealthfund.org

THE

COMMONWEALTH FUND

2National 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.

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.

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

WA

ORID

MT ND

WY

NV

CAUT

AZ NM

KS

NE

MN

MO

WI

TX

IA

IL IN

AR

LA

AL

SCTN

NCKY

FL

VA

OH

MI

WV

PA

NY

MD

MEVTNH

MARI

CT

DE

DCCO

GAMS

OK

NJ

SD

THE

COMMONWEALTH FUND

5Cost of Administering Health Insurance as a Percentage of Claims Under

Current Law and Potential with Exchange, by Group Size

12.7

40.9

35.8

31.1

26.5

21.8

15.313.5

10.4

6.74.5

9.4

14.5 13.3 13.3 12.8 11.99.9 9.5 9.5

6.64.5

0

5

10

15

20

25

30

35

40

45

Total

Indivi

dual

s

2 to

4

5 to

9

10 to

19

20 to

49

50 to

99

100

to 4

99

500

to 2

,499

2,50

0 to

9,99

9

10,0

00 +

Current Exchange

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).

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?